What is a הצהרת הון - Declaration of Assets?
The Hatzharat Hon - הצהרת הון, literally means a "declaration of equity". It is the Tax Authority asking you to let them know what you owned and how much you were worth at the end of the previous tax year!
For example: how many assets and liabilities did you have as of December 31, 2020?
The declaration should include all the personal assets & liabilities of a 'tax household'. In other words, it should also include assets owned by your spouse or children under the age of 18.
Who is asked to complete an Hatzharat Hon?
The הצהרת הון - Declaration of Assets is generally requested from anyone who has an operating business as an independent (Osek Patur or Osek Murshe), but also for a shareholder who owns more than 10% of the shares of a limited liability company, Chevra Ba'am (חברה בעמ). The Hatzharat Hon is usually issued to an individual when they first register a business. If your'e a new business owner you may be interested in our Osek Patur guide.
When do I have to submit my Hatzharat Hon?
The הצהרת הון is not an annual requirement, rather once every few years only if the Tax Authorities issue a request for its submission. From the day the request was sent to you by the Tax Office, (request date - תאריך דרישה) you have 120 days to submit your declaration of assets. This date will always be at the top of the request sent to you by the Tax Authority.
Can I amend my הצהרת הון after submitting it?
The Israeli Tax Authority has taken a strong stance on this matter and very rarely grants the opportunity to amend an already submitted declaration of assets.
What are the consequences if I do not submit my Hatzharat Hon on time?
A delay in submitting your Hatzharat Hon, or the supporting documentation for it, will result in penalties for each month of delay, in accordance with Article 188 (7) of the Taxation Code in Israel. Also be aware that a delay in the transmission of your declaration is considered a criminal offense, in accordance with article 215 of the Taxation Code in Israel.
What is the point of the הצהרת הון?
The Hatzharat Hon is one of the tax Authority's favorite tools for monitoring and tracking taxpayers. Thanks to your asset declarations, they can check and compare whether what you declare each year really reflects your income. In other words, if you are now worth 1 Million Shekels, have you had that amount of "declared money"?
How does the Israeli Tax Authority use my information?
The procedure is simple: The tax office asks you to complete an asset declaration every 5 years on average. After each submission, they compare it to the one you submitted last time. If there is an unjustified increase, the Tax Authority will open an investigation into your affairs on suspicion that you haven't been declaring all your income in your annual tax returns.
What can be considered an unexplained difference?
To answer this question, we will take a very simple example.
- In his previous declaration of assets dated 31 December 2010, Mr Cohen declared assets of ILS 2,000,000 (1 house, 1 car etc...).
- In his recent declaration of assets dated 31 December 2015 (5 years later), Mr Cohen reports assets worth ILS 8M (3 houses, 2 cars etc...)
- During the past 5 years together, Mr Cohen declared and paid tax on total earnings of ILS 5,000,000.
- Lets do the math's: Mr Cohen started with 2M + 5M (total income for 5 years) = Total 7M.
Mr Cohen should have assets up to a value of ILS 7M. However, he reports to have assets worth ILS 8M. So, there's a difference of a million Shekels which is unexplained. The Tax Authority will most likely open an investigation into his affairs.
What do I risk if I make a "false statement" to the Tax Authorities?
A false declaration is considered a criminal offense, in accordance with Articles 216 and 220 of the Israel Taxation Code. Therefore, you may be exposed to criminal prosecution which can be either heavy fines or prison terms.
How to submit a Hatzharat Hon?
The Tax Authority will send to you the forms which you need to complete for the Hatzharat Hon. Technically, all you need to do is complete the forms and send it back. You'll have to make sure that you've filled in all the relevant sections and attach your supporting documentation.
Can I complete my declaration of assets on my own?
Yes, the declaration of assets can be made by the taxpayer. You can download the form from the Tax Authorities website here. However, given the complexity, and the risk involved in the event of an incorrect declaration. It is highly recommended to use a qualified accountant. This will save you a lot of hassle if you have to explain unjustified differences to the Tax Inspector.
Is the first declaration of assets important?
There is utmost importance to the first declaration of assets. Indeed, it represents the basis of all future calculations and comparisons which will be carried out by Taxes. Therefore, it's really important to ensure that your first declaration is both complete and correct. It may be difficult to amend later on.
Do you have other questions concerning the Declaration of Assets? Do not hesitate to ask us in the comments.