On August 25, 2025, the Israel Tax Authority (“ITA“) published a new Voluntary Disclosure Procedure, which will apply until August 31, 2026 (the “Procedure“). It is important that wealth advisors take this opportunity to work with their clients, and preferably with legal counsel to clear up open issues. It goes without saying that there are potential liabilities of wealth advisors themselves in case they deal with assets that are not completely clear and declared.
The Discovery Tracks – The Regular Track and the “Green” Track
The procedure includes two tracks of voluntary disclosure: the regular track, in which the proceeding is conducted vis-à-vis the tax assessor and ends with a tax arrangement or a decision by the tax assessor in the event that there is no consent; and the green track, which is intended for taxpayers with relatively low volumes of unreported assets or income, allowing for a simplified and expedited process. In the green track, the disclosure is made by submitting a corrective report or a report for those who did not submit a report for the year of discovery, and it is automatically examined. Qualification for the green, simpler track depends upon the nature and value of the unreported income or assets.
The Regular Track
In this track, a full procedure is conducted with the tax assessor and is not limited to certain types of assets or income or to the scope of assets or income. The taxpayer submits an application with all the required details and references, and discussions are held with the tax assessor or his deputy. To the extent that the parties reach an agreement, a partial assessment agreement is signed in accordance with section 145(a)(2) of the Ordinance. In the event that no agreement is reached, the ITA may determine the amount of tax. This order can be appealed to the District Court.
This means that the procedure grants the tax assessor broad authority, including the possibility of determining tax in an order in the event of a dispute or when the taxpayer is unable to produce sufficient documents. This requires an early strategy for conducting negotiations with the ITA, meeting high standards of transparency and reliability while at the same time protecting the rights of the taxpayer. Requests for disclosure in significant amounts (revenues above NIS 10 million or over NIS 5 million in revenues derived from digital assets) will be handled with the involvement of the Unreported Capital Disclosure Department in the Professional Division of the ITA.
It should be emphasized: In the event that a taxpayer does not pay the tax that was determined, or does not meet the terms of the arrangement, the ITA may cancel the arrangement, and it will be entitled to refer to the information discovered in the proceeding, including the source of capital and the various classifications.
As a rule, if a request for voluntary disclosure is not approved, the ITA will not use the information discovered within its framework, in civil or criminal proceedings. However, it should be noted that the disclosure within the framework of the proceeding is not anonymous, and information provided by the taxpayers may be used against them if certain circumstances exist, such as a breach of disclosure obligations or failure to comply with the terms of a tax arrangement within the framework of the proceeding. In this context, the payment of the tax is a condition for immunity from criminal proceedings.
In the case of trusts, the procedure applies to both reported and non-reported trusts. This is it is particularly relevant for trusts with Israeli beneficiaries or that have assets or income in Israel, even if the settlor and beneficiaries are non-residents.
As a rule, the immunity in this case will apply to the applicant, unless additional parties such as the settlor, beneficiary or trustee are named as participants in the application. In an unregistered trust, the application may be submitted through one of the parties (the settlor, the beneficiary or the trustee), using the applicant’s identification number, together with the required documents.
When does the procedure not apply?
As in previous procedures, this procedure does not apply to assets and income derived from criminal activity or money laundering offenses. It also does not apply if a request for voluntary disclosure has already been filed in the past in relation to the same assets or income. A request for voluntary disclosure cannot be submitted if an investigation or examination has already commenced concerning the taxpayer, their spouse, a company controlled by them, or a partner, either by the ITA or another enforcement authority, including the Israel Police. In addition, the ITA may reject an application if material information regarding it already exists with another governmental authority or has been published in the media, court documents, minutes, or any other document in civil and criminal legal proceedings conducted in courts in Israel or abroad.
Important Highlights
This is a rare opportunity to “wipe the slate clean”. However, it is important to note that:
- There is no “anonymous option”. As part of the request for voluntary disclosure in both tracks, it is required to include all relevant information, including the name of the applicant and the estimated tax payable.
- If the submission of a request for voluntary disclosure requires the submission of corrective reports or declarations of capital by the relevant dates, the ITA may require retroactive amendments for a number of years. Preparing in advance with all the relevant data and reports saves valuable time and prevents the risks of postponement or the imposition of fines.
- The voluntary disclosure process requires acting in good faith and with full transparency toward the ITA. In the absence of full compliance with the conditions, the application may be rejected, and failure to comply with the disclosure rules may result in adverse consequences, including criminal liability.
- Trusts and corporate structures, are more complex and require special attention. Having deep knowledge and experience on these matters we are pleased to discuss this at any time.
Offsetting Fee Expenses
Effective representation during the voluntary disclosure process can significantly increase the chances of reducing or even eliminating civil penalties and interest that may otherwise be imposed on the outstanding tax liability. The procedure states that half of the fees paid for representation in a voluntary disclosure proceeding may be deducted, first against financial income (including capital gains) reported as part of the proceeding, and then against the rest of the income reported in the proceeding. Note: the balance of fee expenses will be allowed to be deducted only in the year in which it was paid, and will not be transferred as a loss to future years.
Summary
The new program presents a unique opportunity to regulate any remaining undisclosed income or assets. However, the procedure carries risks and involves meeting complex conditions. Taking into account the discretion given to the tax assessor to determine the tax liability without consent, and in particular due to the complexity of the process and the lack of anonymity, we recommend that every taxpayer carefully examine their eligibility for the procedure and seek the assistance of experienced professionals before taking any step.
We remain at your disposal for any questions or clarifications on the subject.
The content in this update is provided for informational purposes only and is not intended to be comprehensive. It does not serve to replace professional legal advice required on a case by case basis.
