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Israeli Voluntary Tax Disclosure terminated; however, you can still report

Israeli Voluntary Tax Disclosure terminated; however, you can still report

Israeli Voluntary Tax Disclosure terminated; however, you can still report.

** The information and advice in this notice are for general discussion purposes only. The provisions of the law on these subjects are more complex than those detailed in this article. For more information regarding your personal situation, you should contact us for individual consultation. **

Dear clients and friends,

We want to share with you an important development regarding the termination of the most recent voluntary disclosure program (“VDP”).

If you have already reported under the VDP, please ignore this notice.

As part of the VDP, the Israeli Tax Authority (“ITA”) proposed that taxpayers can disclose in good faith all information regarding assets and income that were not previously reported (from Israel or abroad) and pay the required tax without having to pay fines and penalties. (See here our previous notice in this regard).

The recent VDP terminated at the end of 2019 and going forward, no new disclosures are allowed to be submitted under that program.

To the best of our knowledge – the ITA is likely to publish a new VDP in the near future, which is expected to include a demand for a “ransom” payment. The ransom payment is a substitute for a criminal procedure, and is in addition to the regular tax liability.

We believe that there is a limited window of opportunity (and perhaps the last) for people owning properties abroad and who are required to report in Israel and have not yet done so, to report now and settle with the ITA on fair terms without paying a ransom.

Income generated abroad is taxable in Israel

According to Israeli tax regulations, Israeli residents are required to report all income from foreign sources even if the money has not been transferred to Israel. This regulation applies even to small amounts.

New immigrants (“Oleh Chadash”) and returning residents (“Toshav Chozer”) are exempt from this reporting obligation for a period of 6-10 years from the day they became Israeli residents.

Failure to report taxable income constitutes a violation of criminal law and may result in the commencement of a criminal investigation or demand for a ransom payment by the ITA.

Exchange of information agreements lead to the disclosure of unreported accounts

The mutual exchange of information agreements between Israel, the United States and the OECD countries (via FATCA, CRS and relevant tax treaties) require foreign banks to transfer information regarding assets and income of Israeli citizens to the ITA, and Israeli banks to transfer corresponding information to the foreign tax authorities.

Due to the FATCA regulations, banks are not allowed to authorize a transfer of funds from abroad to Israel without receiving a statement from the account holder that the funds have been reported to the foreign tax authorities abroad.

The solution; Be proactive and report on your assets abroad

We at Deutsch & Company believe that the exposure to criminal proceedings can be significantly reduced even now, after the termination of the VDP. Our experience has taught that when reporting transparently on behalf of our clients to the ITA, we have been able to reach fair tax agreements without having penalties or criminal proceedings be imposed.

In our opinion, taxpayers who voluntarily approach the ITA to report their undisclosed information will reach incomparably good results, as opposed to a situation in which an examination is initiated by the ITA, and thus will minimize their tax and financial risks considerably.

If you or your relatives have unreported assets and want to voluntarily enter the Israeli tax system and be compliant with the law but are hesitant to act, please contact us for an initial consultation.

Our staff, which includes graduates of the Israel Tax Authority, has extensive experience in performing tax calculations and conducting negotiations with the tax authorities, especially regarding U.S. citizens owning properties abroad. In this regard we take care to safeguard the interests of our clients as they divulge their unreported income and assets and reach an agreement with the ITA.

During the past year, our firm has successfully submitted dozens of voluntary disclosures, conducted negotiations with ITA representatives and came to agreements with its officers all across the country.

For more information or to schedule an appointment, please contact Hai Bahalul, CPA (Israel) by phone – 02-9937622, ​​mobile – 054-3100998 or email at [email protected].

Very truly yours,

Deutsch & Company

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