The 2017 Israeli Voluntary Disclosure Procedure

Since January 1, 2003, Israel has changed its method for collecting tax from its residents by using a system called "personal taxation". This means that all Israeli residents have to report all their income and pay tax from any asset or account regardless of its geographical source.

The Israeli Tax Authority (ITA) has initiated throughout the years, various Voluntary Disclosure Procedures intended for Israeli residents that have income from assets, accounts and entities outside of Israel to come forward and voluntarily disclose them. The latest procedure was published on December 12, 2017, (hereinafter: “2017 VDP”).

Just like the previous procedure that ended on December 31, 2016, the 2017 VDP provides three tracks for disclosing the foreign unreported income, but the preliminary requirement for all of them is that the voluntary disclosure request is made out of good faith effort and before the ITA has started conducting an investigation or examination either themselves, or through any governmental office (court/ police etc), concerning the undeclared income of the taxpayer or of the taxpayer's spouse, companies, and partnership.

  1. A Regular Track- the taxpayer needs to submit an application to the Investigations Department of the ITA. The application should include the taxpayer's details, as well as full information regarding any undeclared income. The application goes through a preliminary examination to make sure it meets the requirements to enter the procedure. If it does not meet the requirements the request will be denied but the information received will not be used for criminal or civil purposes.

  2. An Anonymous Track- this track enables the taxpayer to come forward anonymously in order to check out the tax liability and upon which the taxpayer has a limited time frame to expose his name and his full details in order to participate in the procedure.

  3. A Fast Track-when the total unreported capital included in the voluntary request does not exceed NIS 2,000,000 and the unreported income derived from it does not exceed NIS 500,000, the taxpayer can submit his request using this “Fast Track” together with his amended returns. If the request is approved, the taxpayer will receive a payment voucher. Once this voucher is fully paid by the time limit indicated on it, the taxpayer will receive notification stating that no criminal investigation will be opened regarding the information he had disclosed.

Note that the regular track and the fast track, will be in effect until the end of 2019, but the anonymous track will be available only, until December 31, 2018.

Taxpayers who are accepted into the 2017 VDP will still have to pay all taxes due, interest and fines but in return the ITA, with the approval of the Criminal State Attorney, will not recommend criminal prosecution against these taxpayers.

Recently the ITA published some more guidelines regarding the 2017 VDP, the main ones are the following:

Taxpayers need to file tax returns and report all undeclared income for 10 years back, this means from 2007 through 2016. This requirement consolidates with the similar requirement from the banks to hold bank records for 10 years. Consequently, gathering information from the foreign banks should not be an issue.

A taxpayer can participate in the procedure only once. This means that it is important to make sure that the taxpayer remembers to include all unreported income in his application.

A taxpayer will not be able to participate in the 2017 VDP if his unreported income derives from illegal activities.

Fines- the regulations discuss two types of fines that may be imposed:

  • In the event that the taxpayer had been submitting, up until his participation in the procedure, incomplete tax returns and now needs to submit amended returns to include the unreported income-if the amendment is significant, the ITA will consider the time of submission of the voluntary disclosure application as the time of submission of the tax returns, and the tax returns will be subject to a fine or a "financial sanction" under Israeli tax law (i.e. fines which are imposed upon failure or delay of the submission of the tax return).

  • When the ITA does not consider the returns as being amended (for example when no previous returns were filed), and reaches an assessment agreement with the taxpayer, the assessing officer has the authority to impose a "deficiency fine" under Israeli tax laws.

In any event, only one of the sanctions (either the "financial sanction" or the "deficiency fine") can be imposed on each application.

Imposing tax on the capital (as opposed to on the income only) - the assessing officer can also impose tax on the capital itself, (the balance of the accounts on January 1, 2007). This tax will not be imposed, if the assessing officer is convinced by documentation (submitted by the taxpayer or his representative), proving that the source of the capital was not subject to tax in Israel. Examples of capital that is not subject to tax in Israel are:

  • Capital which was generated by a non-Israeli resident outside of Israel;

  • When the source of the capital is German Reparations payments that were given to a Holocaust survivor;

  • When the source of the capital is gifts or an inheritance, which is not subject to Israeli taxation.

Losses and foreign tax credit- any unutilized loss and/or any foreign tax credit which was accumulated throughout the 10 year period of the voluntary disclosure, cannot be carried forward to the following years or to be offset against income from prior years. Consequently, the 10 year period is considered a “closed box” in that respect.


Time is running out, the names of Israeli residents holding foreign accounts are already being transmitted to the ITA. Since the end of 2016, and as part of the FATCA agreement between Israel and the United States, the ITA received information of thousands of accounts owned by Israeli residents that are held in financial institutions in the United States.

In addition, Israel signed on the Multilateral Competent Authority Agreement on November 25, 2015, as part of Israel’s commitment to meet international standards regarding tax enforcement. During May 2016, the ITA signed on the Competent Authority Agreement in order to establish the rules and procedures necessary in order to implement the CRS agreement. According to this agreement, Israel is anticipated to begin to transfer 2017 end-year financial information with various countries by September 2018.

This means that sooner or later the ITA will receive information regarding Israeli residents holding foreign accounts, whether they participate in the 2017 VDP or not. Therefore the ITA is highly recommending to utilize this short “window of opportunity” to come forward through the procedure before the taxpayers information becomes known to them through other sources.

The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.

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