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Israel's FISC on the hunt for taxpayers

Israeli tax consultants Dray & Dray

Figures published by the tax authorities reveal that the Israeli government recently recovered around 1 billion shekels.

This "sudden" tax payment is the result of a large-scale operation carried out by the Israeli tax authorities. The tax authorities decided to send tax returns to some 2,000 owners of luxury cars in Israel.

Do luxury car owners pay less tax?

"But where does he get the money to buy such a car? He certainly doesn't have to declare all his income.
Without the need for in-depth investigation, we can easily claim that this thought crosses the minds of many drivers when they are overtaken by a luxury car in a deafening racket.

Data recently provided by the tax authorities in Israel show that these individual thoughts are partly well-founded: among the owners of luxury cars in Israel, there are indeed a significant number of "tax evaders".

It's not just luxury car owners who are "bad pupils

However, it's interesting to note that the number of luxury car owners who don't declare their income is no higher than other "affluent" groups. For example, owners of more than 3 apartments, or Israelis who regularly travel abroad.

Over the past two years, no fewer than 2,000 owners of luxury cars (worth more than 400,000 shekels) have been surprised to receive a request for a tax return from the tax authorities in Israel.

This represents only a small percentage of the potential drivers who could meet this criterion. Israel estimates that there are more than 10,000 private vehicles worth over 400,000 shekels on the road.

Questionnaires were sent only to owners who had never filed a tax return with the authorities. In other words, owners who were not (yet) known to the Israeli tax authorities.

In some cases, these people were under no obligation to file a tax return in the first place. For example, some drivers are young people who received the car as a gift from their parents. Or they may be "well-to-do" employees, earning less than 53,000 shekels (gross) a month (in fact, employees earning less than 53,000 shekels a month are exempt from filing an annual tax return).

Owning a luxury car is an outward sign of wealth

How did the tax authorities find out who owned Jeeps, BMWs, Audis and Mercedes?

The authorities declined to give details, but it can be assumed that the information was supplied to the authority by their colleagues at the Ministry of Transport's Licensing Office (Misrad Harishouye).

Provisional data transferred by the tax authorities show that around 650 luxury car owners had to open a tax file as a result of this operation.

The tax authorities collected over 130 million shekels from these owners. These taxes were due on taxable income that had not been properly reported to the tax authorities.

Luxury car owners belong to the "restricted circle" identified by the tax authorities in the fight against money laundering.

The tax authorities have decided that owning a luxury car arouses suspicion

According to the tax authorities, this "restricted circle" also includes other categories of people classified as suspicious. For example, homeowners with 3 or more apartments, or Israelis who often travel abroad. (Even though their work doesn't require it.)Read also: New law for homeowners with 3 or more apartments.

But is this negative stereotype of luxury car owners justified?

The data provided by the tax authorities show that it is.

On average, each owner of a luxury car who decided not to declare his income hid 205,000 shekels of income from the tax authorities.

Among people who regularly travel abroad and don't declare their income, the figure is 34,000 shekels per month. Finally, an owner of more than 2 apartments, who does not declare his income, will hide on average an income of "only" 25,000 shekels per month from the tax authorities.

Read also:Taxation of property income in Israel: how does it work?

Outbound travelers, the underdogs

In fact, it's highly likely that a person could fall into all 3 categories at the same time (he could have a luxury car, travel abroad a lot and still have more than 2 apartments in Israel).

The tax authority reveals that, on average, 38% of Israelis who frequently travel abroad do not declare their income.

This compares with 31% from luxury car owners and 28.5% from real estate investors.

In conclusion

The Israeli tax authorities have recently adopted a slightly more "aggressive" attitude, aimed at reducing money laundering. Like most Western countries, which are working to reduce inequality and have gone to war against money laundering.

These latest transactions have prompted those who do not declare all their income to exercise caution. In other words, these people are now in the crosshairs of the Israeli tax authorities.

However, you should be aware that there are ways of making a "voluntary declaration" to reduce the penalties that may apply in the event of tax fraud.

Your questions - Our advice :

  • Will the tax authorities widen the "restricted circle"?
  • If I've received a tax return to fill in, what income should appear on it?
  • I often travel abroad, for personal and not professional reasons. Is this still suspect in the eyes of the Israeli tax authorities?
  • What are the risks if I don't declare?
  • How will the taxman know that I have several houses, or that I often travel abroad?

The risks involved in tax fraud are enormous. The Israeli tax authorities have recently taken an offensive stance. That's why we recommend that you always consult specialists in this field. As the saying goes, "an informed man is worth two".[/vc_column_text][/vc_column][/vc_row]

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Boruch Levenson - CPA

A native English speaker qualified in both Israel and the UK, Boruch cares for the English speaking clients.

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