Offshore Voluntary Disclosure Procedure for Israeli Residents

Starting November 15, 2011, the Israeli Tax Authority (ITA) has initiated a Voluntary Disclosure Procedure for Israeli residents that have income from assets, accounts and entities outside of Israel to now come forward and voluntarily disclose them. This procedure will be available only until June 30, 2012.

This new initiative is an extension of the regular Voluntary Discloser Procedure that exists since April 10, 2005.

The advantage of using this procedure and coming forward now are its major benefits including immunity from criminal prosecution and substantial deductions on penalties, linkage and any interest due. It also enables the ITA to centralize the civil and criminal proceedings under one roof.

This initiative comes as a continuation of efforts from the ITA to expose any previously undisclosed and unreported accounts or assets that Israeli residents might have abroad. (Note that this procedure is only for reporting foreign accounts and not for disclosing assets or accounts that exist in Israel). Since January 1, 2003, Israel has changed its method for collecting tax from its residents by using a system called "personal taxation".  Israeli resident has to report all income from any asset or account regardless of its geographical source.

Examples (not a closed list)

1. Unreported income from foreign assets that was received from a foreign resident either as a gift or by inheritance.
2. Unreported income from foreign assets that was purchased with monies that were derived from income produced in Israel or abroad that were either exempt from tax in Israel or that its tax was paid for.
3. Unreported income from foreign assets that are subject to taxation in Israel since 2003 according to Israeli Tax Law.

This new procedure does not apply to assets and/or income that were derived from a criminal activity. In addition, one will not be able to use this program if he or she is already under investigation by one of the State Authorities.

The Procedure

The taxpayer has to submit a "Request for Reduction According to the Voluntary Disclosure Procedure- Temporary Order" to the Management Department of the Tax Authority.

This request goes through a preliminary examination to make sure it meets the requirements to enter the program. If it does not meet the requirements the request will be denied but all the information received will not be used for criminal or civil purposes.

If the request meets the requirements it will be approved by a committee that is nominated to deal with this procedure. Once the taxpayer is in the program he becomes immune from any criminal prosecution for tax evasion. The committee decides the amount of tax that needs to be paid by way of an agreement with the taxpayer. The committee may ask for additional information or invite the taxpayer in for clarifications. The tax that will be decided upon will not accumulate interest or penalties, and the committee is authorized to give significant relief from linkage up until full exemption.