It is rumored that the Greek Tax Authority gets such sparse information from its taxpayers that it hires aircraft to photograph swimming pools in people‘s gardens and then checks if their reported income reflects such affluence. Meanwhile, on this side of the Mediterranean, there are enough tax reporting requirements to keep an army of accountants and book-keepers fully employed. And to help celebrate the new year, yet more Israeli tax reporting requirements are on the way in 2012 These relate to (1) online VAT returns, and (2) employer‘s tax returns.
Online VAT Returns by businesses:
In 2010, Israel began a major reform of VAT procedures this year. The aim is to curtail VAT fraud involving fictitious tax invoices. This is done by requiring detailed online VAT returns which specify every single sale and every single item of expenditure, as well as the name and identity number of every customer and supplier concerned. In practice this involves using special accounting software and an official encrypted smart card.
Since this is a big administrative burden for small and medium businesses, the reform was phased in and applied initially to larger businesses. In 2011, businesses had to file detailed online VAT returns if their 2010 revenues were over NIS 4 million in 2010 or if they had to keep double entry books (with debits and credits) under the tax regulations (see below).
The intention was to apply the online VAT rules to all businesses by 2012. However, December 2011 saw a heated debate between the Israeli Tax Authority and the Knesset (Parliamentary) Finance Committee. Finally, white smoke emerged between the two. On December 26, 2011, The Israeli Tax Authority announced that in 2012, detailed online VAT returns are required from businesses if their 2011 revenues were over NIS 2.5 million or if they have to keep double entry books under the tax regulations. Many businesses with lower revenues received letters from the Tax Authority instructing them to start filing detailed online VAT returns in 2012. Those letters are now superseded by the December 26 announcement.
The double-entry requirement varies according to sector. The tax regulations may not require double-entry bookkeeping in instances such as these:
manufacturers and wholesalers with annual revenues (in the preceding year) below NIS 9.2m.; retailers with annual revenues below NIS 3.45m. or with less than seven employees; builders with annual revenues under NIS 3.45m.; land dealers with annual revenues below NIS 10.35m.; real-estate agents with annual commission below NIS 560,000; certain other service providers with annual revenues below NIS 1.95m.
Online VAT returns by charities and financial institutions:
Surprisingly, financial institutions and charities in Israel are also potentially required to file online returns of their transactions. According to another announcement from the Israeli Tax Authority dated December 29, 2011, the Knesset Finance Committee approved the previous day the following rules Detailed reporting is required in 2012 by charities with revenues exceeding NIS 20 million in 2010. If the charity had to file detailed returns in 2011 (because they had over 300 employees), but had revenues under NIS 20 million in 2010, it can stop filing detailed online returns in 2012.
Financial institutions are liable to file detailed online reports in 2012 if their revenues in 2010 exceeded in NIS 4 million. A similar rule applied to them in 2011.
Charities and financial institutions filing detailed online returns for the first time in 2012 can file the January and February returns by the deadline for the March return, namely by April 15, 2012. They should get a letter from the Israeli Tax Authority informing them of their new reporting obligation, but they must report anyway, even if they don‘t receive such a letter, according to the announcement.
Until now, employers have filed annual returns summarizing tax withheld each month from employees and suppliers on Forms 126 and 856. Commencing in 2012, such summary returns will apparently be required every 4 months. The Israeli Certified Public Accountancy Institute has called for a 2 year postponement of the new requirement due to the lengthy time needed to prepare such returns. The Institute questions whether four monthly returns will add anything to the annual returns.
The Israeli economy is in better shape than many others and taxes are collected. Additional bureaucratic requirements hardly seem necessary.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.