Your Taxes: Draft budget to make doing business in Israel easier

The draft budget proposes that the justice minister consult with the heads of the Tax Authority (TA) and National Insurance Institute (NII) and amend the registration legislation.

By LEON HARRIS
August 3, 2016 06:20
4 minute read.
money

Shekel money bills. (photo credit: REUTERS)

 
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The Finance Ministry published draft proposals for 2017-18 on July 31 and asks for comments from the public no later than August 7. Send your comments to takzivim@mof.gov.il.

One of the highlights is a set of proposals intended to make it easier to do business in Israel. The proposals quote findings from the World Bank’s 2016 survey on doing business in 189 countries (see: http://www.doingbusiness.org/ rankings).

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Overall, Israel ranks 53 in the world. This is after slipping from 50 in 2015. Also, Israel ranked 30 out of 32 OECD countries in 2016. It seems the Finance Ministry is too embarrassed to admit that in 2016 the World Bank ranks Israel at 103 when it comes to paying taxes and 127 when it comes to registering property.

What Improvements Are Proposed?

The draft budget proposes that the justice minister consult with the heads of the Tax Authority (TA) and National Insurance Institute (NII) and amend the registration legislation.

Anyone setting up a company or a charitable society (amutah) would be allowed to apply to register for tax and national insurance purposes online, without having to physically visit any office.

Currently taxpayers or their accountants register online but have to deliver signed registration forms, a canceled check and an office rental or purchase agreement by hand or by post to the VAT Office nearest the taxpayer, then proceed to register for income tax and payroll/withholding tax purposes.

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This takes anything from a few days to a few weeks.

If the taxpayer is an exporter, the VAT Office takes extra time checking things, because the exporter will charge 0% VAT on export revenues and regularly reclaim VAT on expenses.

According to the proposals, the applicant (taxpayer) would provide all relevant information to the Entities Registry at the Justice Ministry. The Entities Registry would, if requested, forward this information to the TA and NII which are supposed to effect the relevant registrations or notify any problems within three working days. It will be necessary to check if laws need to be amended regarding identification, digital signature and data security. If the forms filed via the Justice Ministry lead to any questions, the taxpayer will be given three working days to answer.

Some relaxations in the bankruptcy law are proposed. A fast track procedure for small claims under NIS 10,000 will be extended to NIS 50,000 – 200,000.

What About Property Registration?

With regard to property registration, various reforms are proposed. In the case of taxable sales of real estate sales liable to an active tax-compliant company, it is proposed to let the TA issue approval for the transaction to be recorded in the land registry with a comment that this is subject to paying tax. When the tax is paid, the comment would apparently be removed.

In the case of non-taxable home sales, a deadline is proposed for dealing with the exemption and approving registration of the title transfer of 20 days in 2017, 17 days in 2018, 14 days in 2019 and 10 days commencing in 2020.

It is also proposed to allow various other things to be done electronically, such as issue digitally signed land registry extracts, recording discussions, and other procedures.

Our Comments:

It is a shame the public is given only a week to react to the proposals. It seems many of the proposals are still in the initial stage. Subject to this, we have some comments.

First, by law in Israel, lawyers incorporate companies, not accountants, unlike the situation in many other countries.

Since accountants handle taxes and are regulated by the Auditors’ Council at the Justice Ministry, it would make sense to allow accountants to incorporate companies.

Second, the proposals refer to companies, but apparently make no mention of self employed individuals. A threeday tax/national insurance registration is needed for the self-employed too.

Third, registering accountants and other representatives of taxpayers often requires several attempts before signed representation forms are accepted. And the representative does not always get copies of official correspondence sent to the taxpayer. There are online systems which need improvement.

Fourth, the TA and NII staff get busy and often do not answer phones, emails and online messages. Currently the solution is to invoke complaint channels, but this shouldn’t be necessary.

Fifth, the TA and the NII have recently stepped up a much hated practice of slapping a lien (freeze) on bank accounts and car ownership with little or no advance warning. This typically happens if there is no reply to a tax demand or an information demand. In many cases, taxpayers claim they never received it. The TA claims three written warnings are issued, but sometimes all you get is a phone call or phone text the day before the bank and car freeze arrives. We suggest that the TA, NII, banks and vehicle registry should all be required to give clear written advance notice (not a text) of impending freezes, three times.

As for property registrations, it is unclear to us whether individual buyers or foreign buyers will experience any improvement.

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

leon@hcat.co

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.

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