Your taxes: Israeli business and tax-planning starter kit

By LEON HARRIS
December 18, 2013 21:44
3 minute read.
An accountant [illustrative photo]

An accountant calculator taxes 370. (photo credit: Ivan Alvarado / Reuters)

Those that look ahead, get ahead. Business profits and taxes need to be monitored regularly, especially toward the year-end. Here is a list of planning tips to check out:

ON THE BUSINESS SIDE
1. What are your goals, and are you achieving them?
2. Are your sales increasing?
3. Are you networking sufficiently? This can be online or in person.
4. Do you check your bank balance(s) and cash flow every morning?
5. What is your gross profit rate? Can it be improved?
6. What is your likely net after all expenses profit this year?
7. What is your likely tax bill this year? Were sufficient tax installments paid?
8. For year-end planning, consider the following: income and income timing; expenses and expense timing; inventory count and levels. Are other accruals or provisions appropriate? Is long-term project planning possible? Charitable donations?
9. Are your pension, study funds (hishtalmut) and life insurance enough?
10. Do you optimize the aliya 10-year exemption for foreign income, if relevant? Many don’t.
11. Are you an exporting manufacturer? If so, do you qualify for “preferred enterprise” tax breaks?
12. Do you have and optimize intellectual property (IP)? If so, do you use it in your tax strategy?
13. Do you plan the tax on any foreign-source income?
14. If so, has the transfer pricing between your entities been reviewed?
15. Are your accounting books up to date and helping you manage the business?
16. Is your tax, VAT and National Insurance Institute reporting up to date? If not, there are penalties and the Israel Tax Authority can even stop you from doing business with governmental entities and public corporations.
17. Are all employee matters up to date? (e.g., employment agreements, mandatory pensions, etc).
18. Is it time to incorporate due to increasing profits, and is legal protection needed? 19. Spare cash? Consider bonus, profit distribution, pension contributions, studyfund contributions, invest in equipment, car, real estate, marketing, etc.

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ON THE FAMILY/PERSONAL SIDE
1. Do you and your spouse have up-to-date wills in each relevant country?
2. Are you expecting an inheritance from abroad? If so, you should plan against double tax.
3. Personal investments: Consult a qualified investment adviser periodically (regarding diversification, etc); check foreign taxes and any Israeli foreign tax credit or aliya exemption? Check if Israeli tax is withheld at source and whether annual tax returns are needed or not. Have you filed Israeli biannual capital-gains tax reports regarding foreign securities sold?
4. Do you optimize the aliya 10-year exemption for foreign income and gains?
5. Regarding trust(s), have you checked out the new tax regime that commences on January 1, 2014, and taken appropriate action, both transactional and accounting? In the case of relatives trusts, various notifications and elections need to be filed with the ITA by January 27, 2014, if desired; have you considered this?
6. Are your pension, study funds and life insurance enough?
7. Israeli home-rental income over NIS 4,980 per month (in 2013) is taxable. Do you want to elect and pay 10 percent tax of the gross rent by January 30, after the year-end, or pay regular Israeli taxes of 30%-52% on rents minus expenses and depreciation? There are at least three ways of calculating depreciation.
8. Charitable donations this year to approved Israeli charities in the year may qualify for a 35% tax credit, within certain limits. For example, if you donate NIS 1,000, you may get a NIS 350 reduction in your Israeli tax bill.

The above is just a general overview of things to check out for starters. Many other things may need checking in your case.

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

leon@hcat.co Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.


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