The Israeli tax year ends soon, on December 31. There may be many things to consider, including those briefly outlined here.
The big picture
The Israel-Hamas War is adding to the government’s budgetary needs. So, taxes won’t be cut any time soon.
War assistance
Israeli businesses in border areas should check out their entitlement for government compensation. Businesses everywhere should check out the National Insurance Institute reimbursement of salaries paid to IDF reservists.
Compensation for property damage is also available. Consult your accountant and check governmental websites.On the tax side, if business assets took a hit or were sold and are replaced this year, any loss may be deducted this year as an ordinary expense (Income Tax Ordinance, Sec. 27).
Businesses
The Israeli 2024-05 budget proposal includes tax on undistributed (reinvested) profits of companies.Businesses should generally consider, among other things: paying dividends; adjusting monthly income-tax installments (mikdamot); income and income timing; expenses and expense timing; inventory (stock) count on December 31; other accruals or provisions. Is long-term project planning possible? Charitable donations? New industrial equipment may enable accelerated depreciation.
The tax law allows you to consider writing off bad customer debts and make reasonable provision for proven doubtful debts, e.g., in liquidation or other legal proceedings. Inventory write-offs or destruction require notification to the local tax office.
Intercompany transactions between related (50% or more) parties must be on arm’s-length terms. Annual transfer-pricing studies are necessary and helpful.
E-commerce businesses can sell to overseas customers unaffected by the war. But they are in for a bumpy tax ride in 2025 due to the Wayfair case in the US and various OECD and EU initiatives. Prime targets are automated websites, online marketplaces, warehouses, and digital supplies. Amending the business model may be worth considering.
The Israel Tax Authority is chasing so-called “wallet companies” (hevrot arnak) with a battery of rules that can turn the 23% company tax rate on profits into income tax at rates ranging up to 50%. This affects various services, loans to shareholders, and use of company assets.
Are your pensions, study funds (hishtalmut), and life insurance enough? Freelancers and shareholders of private companies should consider pension funding and severance funding within limits, plus extra pension funding under the tax-efficient Amendment 190 of the Income Tax Ordinance (ITO).
Did you travel on business this year? Keep the receipts for flights, accommodation, rental cars, and children’s education if applicable. And note the dates because generous per diem subsistence deductions may be claimable of $97 to $202.
Consider liquidating any dormant Israeli company before the year-end to help avoid annual companies’ registry fees next year (up to NIS 1,675 for 2024).
On the personal side
VAT increases from 17% to 18% in 2025. Businesses can recover VAT, and nonbusiness consumers may want to buy things in 2024.Loss utilization needs a lot of planning. Capital losses realized from selling securities in 2024 may be offset against capital gains, dividends, or interest from securities in 2024. Excess capital gains may be carried forward without limit, not back, for offset against future capital gains.Are you expecting an inheritance from abroad? If so, plan against double tax: inheritance/estate tax abroad; and capital-gains tax in Israel upon a subsequent sale.
Personal investments
Check inter alia whether to take any losses and/or any Israeli foreign tax credit or aliya exemption. Olim (new immigrants) in year nine who hold shares in controlled foreign companies or foreign professional companies may lose the last few months of their 10-year exemption on January 1 under a controversial position of the ITA.Most trusts with an Israeli resident settlor or beneficiary are now taxable in Israel unless an aliya exemption applies. A trust might be worth considering if: (1) beneficiaries all reside outside Israel; (2) to carry tax losses from generation to generation; (3) for beneficiaries who cannot handle money, etc.Are your pensions, study funds (hishtalmut), and life insurance enough? See above.
Israeli real estate
Israeli home rental income over NIS 5,654 per month (in 2024) is taxable. Above that level, there are multiple possibilities; check which one suits you.Charitable donations in 2024 to approved Israeli charities in the year may qualify for a 35% tax credit, within limits (minimum NIS 207, maximum NIS 10,354,816 or 30% of income). For example, if you donate NIS 1,000, you may get a NIS 350 reduction in your Israeli tax bill. For donations by Israeli residents to US “friends of” Israeli charitable causes, the limit under the US-Israel tax treaty is 25% of US taxable income.
As always, consult experienced tax advisers in each country at an early stage in specific cases.leon@hcat.coThe writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.