The Israeli tax year ends soon, on December 31. There may be many things to consider including those briefly outlined below.

The Big Picture:

The Swords of Iron war is adding to the Israeli 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 to government compensation. Businesses everywhere should check out national insurance reimbursement of salaries paid to IDF reservists. Property damage compensation 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 (see Income Tax Ordinance Sec.27).

Businesses:

• The Israeli 2024/5 budget proposals include tax on undistributed (re-invested) profits of companies.
• Businesses should generally consider among other thing: 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 well 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 Israeli 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 pension, study funds (Hishtalmut) and life insurance enough?  Freelancers and !0%-or-more  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 ITO.
• Did you travel on business this year? Keep the receipts for flights, accommodation, rental cars and childrens’ education if applicable. And note the dates as generous per diem subsistence deductions may be claimable of $97-$202 per day.
• Consider liquidating any dormant Israeli company before the year-end to help avoid annual Companies Registry fees next year (up to NIS 1675 for 2024).

On the Personal Side:

• VAT increases from 17% to 18% in 2025 – businesses can recover VAT, non-business consumers may want to pay for goods and services in 2024.
• Loss utilization need 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 in year 9 holding 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 (=grantor) 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 that can’t handle money, etc.
• Are your pension, study funds (Hishtalmut) and life insurance enough? See above.Israeli real estate briefly: Israeli home rental income over NIS 5,654 per month (in 2024) is taxable. Above that level, there are multiple possibilities, check which 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.

Next Steps:

Please contact us to discuss year-end tax planning or any other legitimate tax planning.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

[email protected]

© Leon Harris 8.12.2024