Your Taxes: Some recent tax developments

There’s never a dull moment in the Israeli tax world. Here is a summary of recent Israeli tax developments:

Personal income-tax returns
Not every individual needs to file an annual Israeli tax return; for example, if all your annual income in 2009 from employment did not exceed NIS 599,000 and your employer withheld full tax. In other cases (e.g., hold 10 percent or more of a company), an annual tax return may be needed according to detailed regulations.
Moreover, if you are required to file an annual return and had business, employment or agricultural income in the tax year, you must now file the return online as well as the old-fashioned way (on paper). The Israel Tax Authority (ITA) has extended the filing deadline from April 30 to June 30, 2010 for online filers and May 31 for people not required to file online. This is according to ITA notices issued March 10 and April 25.
Employing illegal workers not deductible
In line with Finance Minister Yuval Steinitz’s policy to reduce the number of foreign workers employed illegally in Israel, ITA director Yehuda Nasardishi has instructed tax offices to disallow expense deductions relating to the employment of such persons. Furthermore, they should ask to see the work permits of foreign employees if their salaries are claimed as an expense. This is according to an ITA notice of April 26, which quotes Steinitz as saying: “We will not support an absurd situation in which an employer who breaks the law is rewarded.”
The rationale of the ITA is that salaries paid to illegal workers donot constitute an expense incurred in the production of income and/orbreaches public order.
In addition, the ITA is instructing employers who withhold tax atsource and are now filing annual withholding summaries for 2009 (Form126) to indicate on the form whether foreign employees have workpermits. And tax officials may inspect the bookkeeping of businessesthat illegally employ workers, based on information received from thepopulation and customs authorities.
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.