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One of the biggest concerns for any company in Israel is a surprise visit from the tax inspectors.
- How to behave during a tax audit in Israel?
- What should I do during the inspection?
- What should I avoid saying during the interview?
- How to prepare in advance?
Every day, Mas Ahnassa carries out unannounced inspections at businesses across the country. These checks are carried out as part of the tax authorities' routine efforts to curb money laundering and tax fraud.
Statistically, most companies will have at least one tax audit during their years in business.
Company directors are strongly advised to get used to the idea that they will be audited one day. And so they should start preparing now, in order to comply with the law.
How to behave during a tax audit in Israel?
The first and most important thing is not to stress, despite the situation. Try to cooperate as much as possible with the investigators, and don't worry: even if they find irregularities (apart from major loopholes), it's often possible to correct them without being registered with the tax authorities as a "fraudster".
Why does the taxman audit your company?
There may be several occasions when you will be visited by inspectors, such as :
- A few days after opening your business, to check that you are complying with the bookkeeping act.
- You have a company operating in a particular field. (Bureau de Change for example)
- Street-front businesses are the most frequently inspected.
- If your company regularly claims Maam (VAT in Israel), you risk an inspection.
- If, alas, you have been reported to the tax authorities.
Audits carried out by the tax authorities are designed to ensure that businesses pay taxes legally and comply with all the provisions of the law. So there's no need to worry if you're running your business legally, and declaring your income correctly to the tax authorities.
However, it's also important to know what mistakes not to make.
How to behave during a tax audit in Israel? What are the rights of the business owner?
The first thing to remember is that inspectors are authorized to visit the company at any time.
They can ask for anything to do with the management of the company, and can look at every document. The owner has no right to deny them access to any document.
Everything said during the inspection is recorded, and forms part of the report.
At the end of the visit, the inspectors must give you their written report. It is strongly recommended that you read this report at the same time, and see that the things written in it are true.
If the controller asks you a question and you're not sure of the answer, or if the answer is complex and you're afraid of making a mistake, it's best to refrain from answering. After all, it's much more difficult to change your answer after the fact, as what has been said has also been written down.
Make it clear in this case that you have no intention of hiding anything, but only that you need to check the details in order to give a well-founded answer.
Always bear in mind that it's the impression you give the inspectors that will determine what happens next. The result may be a summons to the tax office, or simply a reminder.
How to prepare in advance?
In the case of small businesses or businesses without a cash register (Koupa Rochemete), it's important to file invoices issued to your customers in chronological order.
These invoices should show transaction details, including the customer's name and the name of the product sold or service provided. You must give the original invoice to your customer or throw it away.
Under no circumstances should it remain in your possession, to avoid any suspicion that you are altering invoices.
In addition to keeping an account book, you must record all orders placed with the company in an order book. You must keep these order books for 7 years.
It must not be torn or blanked out. Only a correct erasure will be allowed, as long as the erased text is still legible.
When a business has a cash register, it's important to do the exact cash count every day (Sfirat Koupa - ספירת קופה), at opening and closing.
Each month, you'll need to print out a summary of your transactions. You'll also need to keep cash register slips for 7 years.
Your questions - Our advice :
- If an irregularity is detected during an inspection, what are the possible consequences?
- What should I do if I can't produce a document requested by the tax authorities?
- How many years back can tax inspectors audit my company?
Running a business in Israel is complicated enough in itself, but it's even more so when the Israeli tax authorities get involved. That's why it's a good idea to enlist the help of Israeli tax specialists to guide you through the process.
