What is a tax investigation?
A tax investigation is essentially an economic investigation and is conducted by the investigation departments of the Israel Tax Authority, in the various districts; there are tax investigations that involve other offenses in addition to the tax offenses, and in which case the investigation will be conducted in cooperation with other investigative bodies, such as the Israel Police, and it will be called SIT (Special Investigation Team). A tax investigation may be opened against a private individual, an independent dealer, a company and/or corporation, based on the suspicion of committing tax offenses; the most common offenses are concealing income (working
Tax Offences – Fictitious Tax Invoices
A tax invoice issued illegally – ostensibly for a service or a sale performed – is called a “fictitious invoice”. The purchase of a fictitious invoice and reporting it as input, means reducing the amount of Value Added Tax (V.A.T.) that a dealer has to pay, and also reducing the payments to Income Tax and to the National Insurance Institute (NII), for it means an increase of the registered expenditure and a reduction the taxable income. The offsetting or distribution of fictitious tax invoices are criminal tax offences. According to the estimation of the Israel Tax Authority, the size of
Dealing with a tax assessment issued according to best judgment
Every dealer is required to administer account books and receipts from the very first day that his business is in operation. The administration of account books is dependent upon the type of business; the rules for bookkeeping are to be found in the Income Tax Provisions (Administration of Account Books). Many dealers and assessees are in a situation in which a best judgment assessment is offered to them, by the V.A.T. office’s auditors, or the tax inspectors of the Assessment Clerk’s offices. This is based on the conclusion that the business results of an assessee / dealer are unreasonable for
Durable Power of Attorney
“A person’s will is his dignity” A durable power of attorney is a legal document that allows any adult (over the age of 18) to determine explicitly, precisely who will be authorized, on his behalf, to make decisions for him and to handle his medical and/or economic affairs come the day that he will not be fit to decide and handle them himself. Moreover, he is entitled to determine how his life will be conducted in the new way of living, imposed upon him, when his judgment and his ability to make decisions will have been compromised. In
When can account books be disqualified?
Every dealer is required to administer account books and receipts, from the very first day on which he opened his business. The administration of the account books depends on the nature of the business, its size and the activity in which it deals. The instructions for administering V.A.T. and income tax account books are complex, cumbersome and not easy to implement. These instructions relate to the duty of every dealer and/or assessee to administer account books in his business, according to his occupation, his line of business and the branch to which he belongs. The instructions describe the documents that
Allocation of VAT Invoice Numbers – What You Need to Know
The new law regulating the allocation of VAT invoice numbers, enacted as part of the Economic Arrangements Law for the years 2023–2024, significantly alters the framework for businesses in Israel. The primary objective of the law is to combat the issue of fictitious invoices and enhance transparency in VAT reporting processes. At the same time, the law imposes significant challenges on businesses, which are now required to comply with new regulations that mandate obtaining allocation numbers for VAT invoices, particularly for larger transactions. What is the Allocation of a VAT Invoice Number?Under the new law, starting January 1, 2024, any
Money Ransom as an Alternative to Criminal Proceedings in Tax Offenses
Tax offenses are considered serious violations under Israeli law due to their direct impact on the economy and public trust. These offenses include tax evasion, false reporting, the use of fictitious invoices, and non-payment of various taxes. Israeli law provides a unique mechanism to address certain cases: the conversion of criminal proceedings by paying money ransom. This mechanism offers a way to resolve criminal cases efficiently without a formal conviction, under defined conditions. What is the Conversion of Criminal Proceedings by Paying Money Ransom?The conversion of criminal proceedings by paying money ransom allows a taxpayer suspected of a tax offense
VAT Refund for Bad Debts
VAT refund for bad debts is a central issue for businesses in Israel. Any business engaging in transactions with customers who have failed to make payment may find itself needing to claim a refund of VAT paid on a bad debt. The VAT refund, which is crucial for many businesses, is subject to the provisions of the Value Added Tax Law, 1975 (the “VAT Law”) and its regulations, which establish the conditions for such a refund. The Legal FrameworkThe legal basis governing VAT refunds in Israel is the Value Added Tax Law, 1975 (the “VAT Law”). Section 49 of the
Pre Ruling and Advance Tax Rulings – A Mechanism for Ensuring Legal Certainty in Taxation
In recent years, the use of the “Pre Ruling” (Pre Ruling) or advance tax rulings has become increasingly common as a tool for taxpayers – both individuals and corporations – to avoid uncertainty in the taxation of future transactions or economic actions. This tool, which is part of the services provided by the Tax Authority, enables the applicant to receive clear and unequivocal answers regarding the tax implications of certain actions before executing them, thereby reducing the risk of unexpected tax exposures. Definition of Pre Ruling and Legal Authority for Issuing Advance Tax RulingsA Pre Ruling is a process in
Eilat Free Trade Zone – VAT Aspects, Registration Requirements, and Legal Implications
The Eilat Free Trade Zone Law (Tax Exemptions and Discounts), 1985 (hereinafter: “the Law”), was enacted to promote the development of the city of Eilat and transform it into a thriving tourist and commercial hub. The legislation was designed to address the economic challenges posed by the city’s geographical remoteness from Israel’s economic and commercial centers. To this end, the Law provides businesses in Eilat with a series of tax incentives, including exemptions from Value Added Tax (VAT) on transactions conducted within the city. However, to benefit from the incentives provided by the Law, businesses must meet specific conditions, with
