The Israel Tax Authority must be lonely, they have been busy inviting people to file forms with them.
Form 137 – Short tax return for small businesses:
On June 26, after the filing deadline for the 2013 annual tax return, the ITA issue Form 137 “Short annual tax return for an individual with a small business for the 2013 tax year with income not exceeding NIS 60,000 for the year.” At this level, there should be no Israeli income tax liability if that is the taxpayer’s only untaxed income.
Salary may be disregarded if it was taxed in full by way of tax withholding by the employer. Israeli source investment income is disregarded as it will generally be taxed in full at a fixed rate by way of tax withholding by the Israeli financial institution concerned. Also, a small business that files a Form 137 generally will not be asked to pay tax installments (“mikdamot”).
Form 137 is a one pager, it can be filed online and must in certain cases. The ITA says the Form 137 cannot be used in certain cases, including: People with more than one job if they didn’t go to the ITA or to its website to get their tax totaled up properly (“tium mas”); someone spreading severance pay over more than one tax year; shareholders in a company; businesses that fail to keep proper accounting records as prescribed; foreign residents; trustees, settlors and beneficiaries of a trust; partner in a partnership; anyone claiming losses; anyone requesting a tax refund; passive income recipients; recipients of untaxed investment income; anyone who does pay tax for any reason; anyone deriving over NIS 811,560 per year.
The form is a welcome simplification for very small businesses.
The prohibition on foreign residents using Form 137 appears to be overridden by anti-discrimination clauses in Israel’s tax treaties with 52 other countries, such as the US, UK, Canada, France and South Africa (but there is no tax treaty with Australia).
Recently around 100,000 Israelis have reported received Form 5329 from the ITA “Report of Personal Details and Declaration of Sources of Income in Israel and Abroad – Opening a self-employed file or withholding tax file.” They are sent by a government computer to people living in Israel who don’t seem to be taxpayers.
The form calls for basic details about a person and his assets and income. Anyone getting the form should reply quickly – they are a last chance to sort out anything that has not been properly reported. If relevant, you might mention in the comments section that you are an immigrant who receives foreign exempt income, or you are retired, etc.
FATCA Agreement with the US:
On June, Israel and the US signed an Intergovernmental Agreement for the implementation of US FATCA legislation in Israel – alongside similar agreements between the US and many other countries. This legislation aims to provide reports to the IRS via the ITA from Israeli financial institutions and other entities (e.g. trusts) about US account holders and their accounts commencing July 1. More to follow in a later article.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd. He can be reached at firstname.lastname@example.org.