By: Eli Doron, Adv; Yaron Tikotzky, Adv, (C.P.A); Dr.Slomo Nass, Adv, (C.P.A)
In the age of globalization and vast world trade, many Israeli residents invest abroad via offshore companies. Although offshore companies behold many advantages to them, these people should keep in mind that their own revenues, even if derived from the offshore company, are subject to tax in Israel since 2003’s tax reform (in accordance with article 2 of the Israeli Income Tax Code).
Moreover, the Israeli taxpayer has full obligation to report assets, including companies, held by him. The obligation applies to all foreign assets, regardless of who holds them or for what purpose. It should be expressed that reporting does not necessarily imply that they will be taxed.
Article 131 of the Israeli Income Tax Code obliges Israeli residents to file an annual income report that shall include the income of the individual and all information relevant to tax assessment. The Israeli Income Tax Regulations enact which taxpayers are obliged to file this annual report.
The regulations conclude that an Israeli resident is automatically obliged to report for all foreign derived income, including that derived from companies, unless it has already been taxed in Israel or has an exemption and does not exceed a certain sum. The bottom line is that all income derived from foreign companies must be reported, as unreported income has not been taxed at source.
Shall a taxpayer not report of his foreign held companies; numerous sanctions can be applied upon him. These powers are frequently, and strictly, been exercised. In addition, if the assessment officer demands a revenue declaration from a taxpayer, even if he is not obliged to report a certain company, he must include all assets in the declaration.
Sanctions for not filing the report as due exist both on the commercial level and criminal level. An annual report is due no later than April 30th of the following year, while each day’s delay carries a 200 NIS penalty. This does not decrease tax debts of the taxpayer. Moreover, on the criminal level, an unreasonable delay can carry both a criminal fine and up to a year’s imprisonment.