New Voluntary Disclosure Procedure in Israel

On August 25, 2025, the Israeli Tax Authority published a new “Voluntary Disclosure Procedure” effective until August 31, 2026 (hereinafter: “the Procedure”). The Procedure allows taxpayers to report to the Tax Authority income that was not timely and duly reported, without facing criminal proceedings. The Procedure applies to both income taxes, indirect taxes, excise duties, and Value Added Tax (VAT).

The main aspects of the Procedure are detailed below:

What are the benefits of the Procedure? Subject to the relevant conditions, the Procedure provides immunity from criminal proceedings, however, it does not offer any reductions in applicable taxes.

Under what conditions will I be granted immunity from criminal proceedings? As a general rule, the taxpayer will be granted immunity from criminal proceedings, provided that the disclosure is honest, complete, and made in good faith. Additionally, the Tax Authority must not have prior knowledge of the facts covered by the request (or must be able to access such information easily – for example, through court documents, etc.), and no investigation regarding the taxpayer is underway by the Tax Authority or any other authority.

Approval of the Procedure is determined retrospectively by the Tax Authority’s Investigations Department. The response typically does not specify reasons for rejection to avoid disclosing investigation details.

Taxpayer who has previously been approved for a voluntary disclosure procedure or have been convicted of tax offenses are not entitled to criminal immunity. Such cases require individual legal advice based on the circumstances.

Can I submit a request anonymously? Unlike past procedures, anonymous submissions are not permitted. Taxpayers must provide their name and full income details immediately upon submission and must include a complete and honest account of all unreported and its sources.

How will tax liability be calculated for income reported under the Procedure? The Procedure does not provide for tax reductions. It does not specify how tax liability should be calculated; in principle, taxpayers must pay the full tax due on the reported income, including interest and linkage differentials. The Procedure does not formally cancel potential fines.

Furthermore, unlike the previous 2017 voluntary disclosure procedure, which explicitly allowed the offsetting of losses and claiming credits arising from the disclosure procedure, the new Procedure does not permit this, and it remains unclear whether such offsets will be allowed.

Calculating tax liability under voluntary disclosure procedures is complex and depends on multiple factors. Accordingly, a specific calculation must be conducted based on the circumstances of each case.

Am I allowed to appeal the determination of the Tax Officer regarding the applicable tax liability? In a significant policy shift, taxpayers who disagree with the Tax Officer’s determination of tax liability may appeal to a court. This contrasts with past practices, where accepting the Tax Officer’s determination was a condition for immunity.

What are the reporting tracks under the new Procedure? The Procedure includes a shortened track for requests involving relatively low disclosure amounts. Presumably, where the reported income is not material, corrected returns may be submitted without undergoing a lengthy procedure. However, the Procedure does not provide “automatic eligibility” for this track, and even in cases where eligibility for the shortened procedure appears to exist, the taxpayer must submit the request under the regular Procedure. The Investigations Department reviews the submission, after which the Professional Department determines the civil handlings of the submission (e.g., via submission of corrected returns or assessment discussions).[1]

What should I do if the Tax Authority rejects my request? The Procedure provides that in the event of rejection; the Tax Authority is prohibited from using the information provided under the voluntary disclosure procedure in any criminal or civil proceedings against the taxpayer. The Procedure does not grant a right to appeal the Authority’s decision. Accordingly, and based on court rulings, it is generally also not possible to separately appeal the Tax Authority’s decision outside the context of a criminal proceeding initiated against the taxpayer. Due to the complexity of the matter, if the Tax Authority rejects the submission, professional advice is recommended.

Which offenses does the Procedure grant immunity for? The Procedure applies to a wide range of tax offenses, including those related to income tax, VAT, purchase tax, excise duties, customs duties, real estate taxation, and more. For offenses under the Prohibition of Money Laundering Law, 2000, immunity is only granted where the underlying offense is tax- related.

Can I transfer my funds to a bank in Israel after the approval of the voluntary disclosure? The Voluntary Disclosure Procedure addresses only the tax liability on the funds; it does not validate the source of those disclosed funds. Banks in Israel may require verification of the funds’ source before accepting deposits, and approval under the Procedure does not guarantee bank acceptance.

Can a taxpayer who submitted a voluntary disclosure request change their mind and “withdraw” the request? In principle, the answer is no. Once a voluntary disclosure request is submitted and information has been provided to the Tax Authority, the disclosure request cannot be withdrawn. Taxpayers must complete the process and pay the applicable tax if approved. Failure to complete the process and pay the tax once the Tax Authority has approved the request, allows the Tax Authority to use the provided information in criminal or civil proceeding.

Our Tax Department has extensive experience in voluntary disclosure procedures. We are available at your disposal and will be pleased to provide comprehensive advice regarding the potential tax implications of the matters discussed in this update.

Respectfully,
Tax Department

Herzog Fox & Neeman

This client update does not constitute legal advice and should not be relied upon without appropriate legal counsel.

[1] May be granted in the following cases: Financial assets abroad – if the account balance (as of December 31, 2014) is less than 4 million NIS, and no new deposits or transfers have been made to the account since 2014. Rental income – up to 250,000 NIS per year. Digital assets – income up to 500,000 NIS for the entire disclosure period, and the fair value of the digital assets up to 1.5 million NIS (as of December 31, 2024).