(photo credit: Thinkstock/Imagebank)
It is rumored that the Greek Tax Authority gets such sparse information from its
taxpayers that it hires aircraft to photograph swimming pools in people’s yards
and then checks if their reported income reflects such
Online VAT returns by businesses
Meanwhile, on this side of the Mediterranean, there are enough
tax-reporting requirements to keep an army of accountants and bookkeepers fully
employed. And to help celebrate the new year, yet more Israeli tax-reporting
requirements are on the way in 2012. These relate to: (1) online VAT returns,
and (2) employer’s tax returns.
Israel began a major reform of VAT procedures that continues this year. The aim
is to curtail VAT fraud involving fictitious tax invoices. This is done by
requiring detailed online VAT returns that specify every sale and every item of
expenditure, as well as the name and identity number of every customer and
supplier concerned. In practice this involves using special accounting software
and an official encrypted smart card.
Since this is a big administrative
burden for small- and medium-sized businesses, the reform was phased in and
applied initially to larger businesses. In 2011, businesses had to file detailed
online VAT returns if their 2010 revenues were over NIS 4 million in 2010 or if
they had to keep double-entry books (with debits and credits) under the tax
regulations (see below).
The intention was to apply the online VAT rules
to all businesses by 2012. However, this past December saw a heated debate
between the Israel Tax Authority (ITA) and the Knesset Finance Committee.
Finally, white smoke emerged between the two. On December 26 the ITA announced
that in 2012 detailed online VAT returns are required from businesses if their
2011 revenues were over NIS 2.5m. or if they have to keep double-entry books
under the tax regulations. Many businesses with lower revenues received letters
from the ITA instructing them to start filing detailed online VAT returns in
2012. Those letters are now superseded by the December 26
The double-entry requirement varies according to sector.
The tax regulations may not require double-entry bookkeeping in instances such as
these: manufacturers and wholesalers with annual revenues (in the preceding
year) below NIS 9.2m.; retailers with annual revenues below NIS 3.45m. or with
less than seven employees; builders with annual revenues under NIS 3.45m.; land
dealers with annual revenues below NIS 10.35m.; real-estate agents with annual
commission below NIS 560,000; certain other service providers with annual
revenues below NIS 1.95m.
Online VAT returns by charities and financial
Surprisingly, financial institutions and charities in Israel are
also potentially required to file online returns of their transactions.
According to another announcement from the ITA dated December 29, 2011, the
Knesset Finance Committee approved the previous day the following rules:
Detailed reporting is required in 2012 by charities with revenues exceeding NIS
20m. in 2010. If the charity had to file detailed returns in 2011 (because they
had over 300 employees) but had revenues under NIS 20m. in 2010, it can stop
filing detailed online returns in 2012.
Financial institutions are liable
to file detailed online reports in 2012 if their revenues in 2010 exceeded in
NIS 4m. A similar rule applied to them in 2011.
Charities and financial
institutions filing detailed online returns for the first time in 2012 can file
the January and February returns by the deadline for the March return: by April
15, 2012. They should get a letter from the ITA informing them of their new
reporting obligation, but they must report anyway, even if they do not receive
such a letter, according to the announcement.Employers’ reports
now, employers have filed annual returns summarizing tax withheld each month
from employees and suppliers on Forms 126 and 856. Commencing in 2012, such
summary returns will apparently be required every four months. The Israeli
Certified Public Accountancy Institute has called for a two-year postponement of
the new requirement due to the lengthy time needed to prepare such returns. The
Institute questions whether four monthly returns will add anything to the annual
The Israeli economy is in better shape than
many others and taxes are collected. Additional bureaucratic requirements hardly
As always, consult experienced tax advisers in each
country at an early stage in specific firstname.lastname@example.org
Leon Harris is
a certified public accountant and tax specialist at Harris Consulting & Tax