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From January 1, 2019: new reform on cash payments in Israel!
From January 1, 2019, the law limiting cash payments in Israel will come into force.
- What exactly does it involve?
- Who's really concerned?
- What influence will this have on the Israeli market?
- What are the legal penalties?
New law places severe restrictions on cash payments.
Whether the payer is an Israeli or a tourist, things are going to change.
We take a look at this new reform, which affects everyone!
Who will be affected by the new cash payment reform in Israel?
Restrictions will apply to the use of cash on both the payer and the receiver.
Both companies and individuals are concerned.
Whether the money comes in the form of wages, loans, donations or gifts.
Understand the definition of terms used in the law
- Transaction Sale or purchase of a product or service.
- Transaction price The consideration agreed between the parties to the transaction for the good or service, including value-added tax. (VAT - Maam) As well as the expenses associated with the transaction agreed with the seller, supplier of goods or services.
- During the sale of several itemsThe cumulative cost of all the assets will not be considered as the price of a single transaction, unless the parties have agreed to sell them simultaneously.
ExampleA person buying several items at the same time in a furniture store for one overall price. (Package). - In a transaction in which there are several buyers or sellersthe transaction price will not be split between them.
The law on limiting species in Israel
The law will apply from January 1, 2019. This law provides for restrictions on cash payments, as follows:
For a company in Israel
1. A transaction of up to NIS 11,000 including VAT may be received in cash in full.
2. A business in Israel must neither give nor receive any cash payment for a transaction in the course of its business, if the transaction price exceeds 11,000 NIS including VAT.
He may, however, receive 10% of the transaction in cash. However, no more than the amount of 11,000 Nis incl. VAT, whichever is the lower of the 2.
2 Examples for a better understanding :
A) A service costing 30,000 Nis (incl. VAT) may be paid for 3,000 Nis in cash (10% of the amount). The remainder must be paid by bank transfer or cheque.
B) a service costing 500,000 Nis incl. VAT may be paid for in cash up to a maximum of 11,000 Nis. (11,000 Nis is less than 10% of the total amount, which is 50,000 Nis). The remainder must be paid by bank transfer or cheque.
3. Obligation to keep proof of payment (receipt - קבלה)
For private customers
- An individual who is not a reseller (including an entrepreneur selling an item unrelated to his or her business activity) must not receive or give another person a cash payment for a transaction, if the transaction price exceeds NIS 50,000.
Practical examples : Buying a second-hand car or selling a personal item online.
- No person shall give or receive any cash payment in the form of salary, gift or loan.. (except in the case of a loan granted by a supervised financial entity, such as a bank) if it exceeds NIS 11,000.
- A person must not give or receive payment in cash as a gift if the amount exceeds NIS 50,000.
What about tourists in Israel?
A company will not receive a cash payment from a tourist for a transaction if the transaction price exceeds 55,000 NIS incl. VAT.
He may, however, receive 10% of the transaction in cash. However, no more than the amount of 55,000 Nis, whichever is the lower of the 2.
Important to know.
The restrictions listed above will not apply to cash payments between parents (except for salary payments).
Restriction on the use of check payments in Israel
The new law imposes restrictions on the use of cheques, among other things:
1. Merchants may not give or receive in payment a cheque for a transaction, salary, contribution, loan or gift without their name appearing on the cheque.
So it's impossible to endorse a check now: הסבת שיק.
2. An individual must not accept or give to another individual a cheque for more than NIS 5,000 for a transaction, salary, contribution, loan or gift, without the name of the recipient being specified on the cheque.
3. No person shall give a company in Israel any payment by cheque for a transaction or as wages, as a contribution, as a loan or as a gift, without the name of the company appearing on the cheque.
4. No person shall endorse a cheque unless the name and identification number of the payee are specified on the cheque.
Practical examples to pay particular attention to.
Example 1: Residential apartment rental in Israel between individuals :
the Israeli tax authorities regard the rental of a residential apartment in Israel as a single transaction per month (even if the lease is for a year or more).
So if the monthly rent is less than 11,000 Shekels, you can pay (or collect) the rent in cash. Without fear of violating Israel's cash restriction law.
Of course, cash receipts do not exempt the apartment owner from declaring the receipt of rent in Israel.
Example 2Do not write the name of the recipient on the cheque.
It's not uncommon for service providers to ask for the recipient's name to be left blank.
From now on, you'll be just as responsible as the service provider. (If not more, because it was you who actually signed the cheque).
What are the legal penalties?
The law imposes penalties on those who infringe these provisions. Offenders may be subject to financial penalties.
The law will apply from January 1, 2019. However, it will not apply to loan contracts or transactions concluded before 2019.
Penalties for companies.
A company that breaches the law will be liable to a financial penalty linked to the amount of the breach. The amount of the violation corresponds to the sum of the "cash payment", the payment by check or the payment included in the converted check.
- Amount of infringement up to NIS 25,000 - a financial penalty at the rate of 15% of the amount of the infringement.
- The amount of the infringement between NIS 25,000 and NIS 50,000 - a financial penalty of 20% of the amount of the infringement.
- If the amount of the infringement exceeds NIS 50,000 - a fine at the rate of 30% of the amount of the infringement.
Example of penalty calculation:
The transaction price was NIS 30,000. The buyer paid NIS 20,000 in cash and NIS 10,000 by bank transfer.
On this transaction, it would have been possible to pay only 10% of the amount in cash, i.e. 3,000 Nis. The amount that will be sanctioned (Amount of infringement) will therefore be 17,000 Nis (20,000 - 3,000).
The amount of the financial penalty will be : 17,000 * 15% = 2,550 NIS.
For private customers
Sanctions have not yet been made public at the end of December 2018. Update in the near future.
The law in brief :
- Limitation on the use of cash in Israel from January 1, 2019 for any amount exceeding 11,000 Nis including VAT. Whether for a transaction, purchase, gift, loan or salary.
- Cash payment of 11,000 Nis or 10% of the transaction amount (whichever is less).
- The law does not concern the conversion of foreign currencies with the Israeli Shekel (NIS).
- Cash transactions with tourists are limited to 55,000 Nis.
- The restrictions will not apply to cash payments between parents (except for salary payments).
- Obligation to keep proof of payment.
- It is forbidden to give a cheque without an order.
- Fine for non-compliance: between 15 and 30% of the amount of the offence.
What about the future?
We remind you that since 2020, the Minister of Finance can reduce the amount to be used in cash and by check so that the above restrictions will be NIS 6,000 (instead of NIS 11,000) and NIS 15,000 (instead of NIS 50,000, with the exception of vehicle buyers).
Our advice
Like all new legislation, the Israeli tax authorities is likely to be very uncompromising about compliance with the new provisions. He risks "setting an example" for those who transgress the law. (In order to gain publicity for this new reform).
If you have any questions about the application of this law, please do not hesitate to contact us.
