Your Taxes: Tougher sanctions against delinquent firms

The registrar is allowed to impose a fine of, currently, NIS 7,340 per deficiency. For a series of deficiencies, the fines may total up to NIS 250,000.

Operating as an Israeli company may result in tax and social security advantages as well as limited liability in the event of a lawsuit. But with the benefits come some obligations – not only reporting to the Israeli Tax Authority, but also to the Israeli companies registry. Until recently, Israelis have been pretty lax at reporting to the companies registry, so the registrar has recently sent an (undated) letter to many Israeli companies. The letter is ominously headed “Information to company officers regarding sanctions against delinquent companies”.
According to the letter, the companies law, 1999 imposes various annual obligations on every company vis-a-vis the companies registry, including the need to pay an annual fee and to file an annual return form. This year, Amendment 10 to the law was passed which imposes sanctions on delinquent companies for non-compliance.
These sanctions can be imposed on the company, its directors and major shareholders apparently holding 25 percent or more, with exceptions.
Public warnings The registrar can send a warning regarding non-compliance. If the deficiencies are not rectified within 30 days after the prescribed date, the company will be declared a “delinquent company” and a notice to this effect will be entered in the companies registry records and extracts will be open to the public. In other words, the company will no longer be of good standing! That doesn’t look good if a credit rating agency or anyone else checks out your company.
Main sanctions The registrar has some other sanctions at his disposal against a delinquent company. The registrar can refuse to register a charge (lien) on the assets of the company, which can prevent the company borrowing or leasing assets.
It can refuse to register a charge in favor of the delinquent company, preventing it from receiving collateral if it is a lender. It can also reject a request to register a change of company name or objectives.
In addition it can oppose to incorporate a new company that would be owned by the delinquent company or major shareholders in it. Furthermore the mortgages registrar may refuse to register a mortgage in favor of a delinquent company. And in extreme cases, the registrar of companies can apply more extreme measures apparently – perhaps even compulsory liquidation according to some reports.
Then there are fines. The registrar is also allowed to impose a fine of, currently, NIS 7,340 per deficiency. For a series of deficiencies, the fines may total up to NIS 250,000.
Are directors also on the hook? If a delinquent company doesn’t pay a fine on time, it can be collected from a director of the company.
How can you put things right? By paying the accrued annual fees and filing the latest annual return.
How can you get a discount? Each year, the annual fee payable to the companies registry is reduced if you pay it by February 28. This year, the annual fee stood at NIS 1,043 if you paid it by February 28, 2010 or NIS 1,386 if you paid it after then. But if you wait till next year, to pay this year’s fee, it will be increased to next year’s rate. The registrar may send you a payment voucher for the fee, but you must pay it even if you don’t receive a voucher. This can be done online at the companies registry website: MOJHeb/RasutHataagidim/RashamHachvarot/Agrot/agra+shnati t.htm What is an annual return? The annual return (Form 5) is an informational form in which the registrar requests details about the shares, shareholders and directors, among other things. It must be signed before an Israeli lawyer.
You can download the annual return – Form 5, from: dohot, but this must be completed, signed and submitted the old-fashioned way, not online.
How can you avoid all this? If the company is dormant, why not liquidate it? A company which provides confirmation that it is inactive and carries out a voluntary liquidation it may obtain an exemption from paying the annual fees if conditions prescribed in the companies regulations (fees) – 2001 are met.
The Israeli companies registrar has now served notice that annual fees must be paid and annual returns must be filed, otherwise, it may prove more difficult to operate. Sometimes, it’s the little things that matter. The above relates to Israeli private companies. Additional or different requirements may apply to public companies, foreign companies doing business in Israel and charities.
As always, consult experienced legal and tax advisors in each country at an early stage in specific cases. Leon Harris is an international tax specialist at Harris Consulting & Tax Ltd.