Tax optimization in Israel
As we approach the end of the year, it's time to think about your tax optimization in Israel.The organization at the end and beginning of the financial year includes not only tax considerations but also the preparation of financial statements.It is very useful to use the beginning of the year also for the self-examination of one's business.These preparations require considerable effort and resources. They are nevertheless necessary and beneficial for the company. In this article, we'll look at how organizational processes can not only help you make business progress, but also generate significant tax savings.https://www.youtube.com/watch?v=F4GZ5L5baMI
Verify profitability and activity over the past year
Financial statements are not only intended to present shareholders with data on financial activity, or even to draw up a tax schedule. In fact, an analysis of business data will make it possible to :
- identify business difficulties encountered during the year,
- identify variations in the volume of credit to your customers (customer lead time),
- obtain credit from suppliers,
- study your working capital ration,
- consult the change in inventory volume.
Comparing financial ratios for the past year with those for previous years will enable us to identify changes in sales, operating income, gross income and comprehensive income.
It's not enough to look only at the overall financial picture, as presented in the financial statements.it's useful to look at significant changes in the company's activity this year compared with previous years, in:
- comparing the company's activity over previous months,
- identifying changes in activity with customers,
- by identifying market segments,
- seasonal variations,
- changes in salaries.
Set strategic objectives for the new year
Now is the time to set strategic objectives for business operations for at least the next three years.Setting strategic objectives is essential to get business moving again. New initiatives, creative business directions and setting objectives for each of the next few years will enable us to think ahead. The formulation of strategic objectives must be linked to reality. That's why, it's impossible to set unrealistic targets that can't be met. It's a good idea to formulate possible objectives, while maintaining a coherent vision of your business.
We need to think about things like:
- marketing new product lines,
- the establishment or closure of branches,
- investment in research and development,
- extension to a new target audience,
The beginning of the year is a good opportunity to relearn the business environment in which the company operates.
Planning a budget for the new year
In most large companies, the budget has become an essential tool for formulating forecasts for the next financial year. In the private sector, budgeting is necessary, but is often detached from reality. A budget prepared solely by multiplying last year's results by the New Year's coefficient is not a budget that will justify business promotion.
Budget preparation must come from below, from department heads and their needs, from customer needs and market requirements, from expected changes in raw material and product prices.
Budget construction allows us to re-examine business expenses, salaries and labor, insurance, advertising expenditure, etc. Not only on the basis of what was, but also on the basis of what we want to achieve. Not only on the basis of what was, but also on the basis of what we want to achieve.
Budgeting for tax optimization in Israel is a prerequisite for success.
Negotiate with your bank and adapt your customer collection processes
Beyond the obligation to record the results of the business, this is an opportunity to refresh the procedures for recording at the cash desk and depositing with the bank. Re-examine controls to prevent misappropriation of funds from the till and on the way from the till to the bank. Once a year, the test should be carried out at the initiative of the company manager. The examination will then focus on the interest rates and commissions charged by the banks. The options for converting short-term loans into long-term ones, usually at lower interest rates, will also be examined.Needless to say, there are considerable differences between branches, and of course between the banks themselves. As well as attempting to reduce credit, it is possible to check bank deposits and guarantees for the possibility of releasing at least part of the bank's pledge burden. It's worth remembering that holding deposits in banks earns you little interest, unlike interest on loans, which is expensive.
A little advice for the financial management of your business:
- Repurchase loans rather than holding unused cash.
- Remember to renegotiate your loans and terms with your bank at least once a year. It won't do it for you.
The debt collection and recovery process is one of the most important parameters for a company's survival.The higher the level of credit extended to customers, the greater the risk of the customer defaulting on its debt.There is no guarantee that an important and respected customer will not become insolvent. Many good companies with excellent trade names are already in the process of liquidation and receivership. (For example: Tshuva, Enron, Worldcom and many other "BIG Enterprises" that no longer exist). Don't forget that the loss linked to the non-payment of a customer also concerns the tax authorities: VAT on your invoice and income tax on your annual income tax return, as the fact of having invoiced this customer for payment obliges you to pay VAT (Maam in Israel). This income will be added to your other income, even though your customer has not paid you. You will therefore pay taxes on this invoice.
The tax authorities in Israel will only allow you to cancel the invoice once you have proved to them that all the procedures to have the loss recognized have been completed. Don't rush to issue an invoice to a customer if you're not sure he'll pay. Issuing a credit note (Zikouye) or cancelling an invoice is not easy in Israel.
Credit terms for your customers
At the beginning of the year, it is advisable to carry out a review of the customer's activities. Credit conditions and debt problems, risk levels, market rumours, etc. Customers concerned about the collection of their receivables should not hesitate to take action to reduce them, by taking steps to achieve this as quickly as possible.
It's worth remembering that the first creditor to collect the customer's debt is more likely to see his or her money before the rest of the creditors join the circle of claimants. Early procedures will also contribute to the recognition by the tax authorities of a debt that will ultimately not be collected.
We are talking here about the steps taken with your lawyer in Israel, the Otsaa Lapoal service etc...
Recognition of a debt as a "lost debt" will enable a tax credit to be obtained on the part of the debt lost or on the part of the debt agreed in a settlement that will be reduced. A credit granted by the tax authorities in Israel is often worth more than desperate and hopeless efforts to collect the debt within a reasonable timeframe and at a high cost.
Inventory, suppliers and service providers
Year-end inventories are an excellent opportunity to check the volume of inventory against the sales volume of that inventory. It's worth considering options for reducing inventory. Unusable stock can be issued for sale or liquidation. Differences between stock balances recorded in inventory movement records and the actual count can indicate serious stock shortages and potential theft.
The employee system
In accordance with the instructions of the tax authorities, it is necessary at the start of the financial year to obtain the approval of each employee, his or her income statement and the additional data needed to prepare salaries for the new financial year.This is an opportunity to examine the workforce, the personnel structure within the company organization, employee costs and the distribution of tasks.
Many companies have collapsed financially due to high labor costs. The start of the new financial year provides an opportunity to reach new financial agreements with employees.
Other employees may be able to move from one job to another as the need arises. It is advisable to define in advance the strategy for increasing or reducing salaries, modifying working conditions and benefits granted to employees, and so on. At the beginning of the financial year, these changes seem to be mutually preparatory.ALSO READ: What are the employer's obligations in Israel?
Tax authorities in Israel
The tax authorities in Israel have numerous requirements for the management of each company. Such as VAT and income tax on income. These provisions are derived from the level of sales in the previous year and the number of employees.It is interesting to know what changes are required under these guidelines for each company.It is advisable to take steps to optimize your company's tax position in Israel at the beginning of the year.Tax planning is bound to help reduce your tax burden and optimize your tax position in Israel.
Draw up an estimate of future costs and sales for the new year, and discuss it with your sales manager. chartered accountant in Israel.READ ALSO: The daily demands of the Israeli tax authorities.
The revenue cycle that emerged from the last fiscal year deserves close examination. The evolution of total revenues over the year can attest to the seasonality of sales. Identifying the seasonality of your sales will enable you to plan promotional periods for the new year, or the sale of complementary products.You can check whether sales targets are being met, those set at the beginning of the past year. This test needs to be carried out not only at the general level of your business, but also at the level of each product, sales outlet, salesperson, etc. This analysis will enable you to think about ways to improve your sales. This analysis will enable you to think about additional promotional activities. Or the cessation of these activities if they are not effective. You should also consider:
- changes to sales commissions and the payment system for your sales reps.
- target your best products.
- further diversify your customer base.
Review of business expenses
At the end of the financial year, you need to carry out an analysis and review of the company's expenses:
- compared with previous years.
- compared with budget forecasts at the start of the year.
- based on annual sales volume.
You can check out the options for reducing expenses, rejecting on the other hand, the increase in expenses that have contributed strongly to sales growth. Doing Tax Optimization in Israel doesn't mean setting everything back to 0, but keeping the positive points.
Types of expenditure
Selling, general and administrative expenses are usually considered indirect costs, as they are not directly dependent on sales volume. However, you can still save on overheads by reducing your consumption of consumables, office supplies and IT equipment.
- Insurance costs.
- Vehicle maintenance costs.
- Obtaining government subsidies.
- Pooling expenses with colleagues/competitors.
- Negotiate your lease on a long-term basis.
In a nutshell - tax optimization in Israel
A basic rule of tax planning and optimization in Israel is that the best planning is not valid when the business is unprofitable, so companies in Israel must focus their efforts on how to improve performance to make their business profitable. As mentioned above, the end of the fiscal year requires the preparation of financial statements. As well as complying with the various requirements of the tax authorities.
It's useful and necessary to take advantage of this preparation, to learn from the past year's experience and prepare successfully for the future.