The Reduction Use of Cash Law came into force in 2019, following its enactment in March 2018. The reduction of cash use has been implemented in both business and personal transactions.
The purpose of reform is designed by the Israeli government to combat illegal activity. It has been recognised that cash has been the “fuel” driving the black economy. Cash can be used as a tool for a variety of criminal activity such as money laundering and tax evasion. Due to the anonymous nature of cash business, its activity is often easily unreported and is thus prevalent in the black market. The volume of unreported capital in Israel is estimated at 6.6% of GDP (according to the OECD). The World Bank (2010) reported that Israel’s shadow economy was equal to 22% of economic output. Thus, the loss of tax revenue annually stands at billions of shekels.
Moreover, the law promotes the use of payment by more efficient electronic means fostering the use of modern payment methods. This requires purchasers to record means of payment. Those purchasing real estate will have to declare their means of payment. The Minister of Finance therefore determines the rules obligating dealers to possesses specific means for payment. Both parties of a transaction are responsible for upholding the new regulations.
Key provisions of the Law
The law imposes the following limits for cash payments:
- Business transactions has been limited to NIS 11,000.
- Transactions for private individuals has been limited to NIS 50,000.
- Tourists will be limited to NIS 55,000 to buy assets or services, but can do so up to five times.
There are several exceptions where cash restrictions do not apply, established in law. The NIS 50,000 restriction for private individuals does not apply for transactions of cash between relatives except for salaries and wages. These provisions of the law do not apply for interest free loan societies under an administrative order. The law does not apply to state authorities exempted by the minister of finance.
If the value of the transactions is above the thresholds, partial cash payment shall not exceed 10%. For example, a transaction for NIS 15,000 only NIS 1,500 can be paid in cash. The transaction value includes VAT, as it is the gross value. This also applies to individual private transactions such as salaries, donations and gifts that exceeds the amount specified in the Law (NIS 50,000). It was determined that these cash payments should not be received except for a loan granted by a financial entity.
Restrictions on Cheques
The Law for the Reduction of Cash Use stipulates limitations for payment by cheques. Cheques are permitted on the condition that the name and ID number of the payee is provided. If the payees name is not stated, for any amount greater that NIS 5,000 payment will be prohibited. This prohibition does not apply where the endorser is the postal bank, a banking corporation or holder of a license to provide credit services. Open and uncrossed cheques can be used for deals between private individuals not exceeding NIS 5,000. Only on one occasion can cheques greater that NIS 10,000 be transferred.
Consequences of Violation
A breach of the new provisions in law can constitute a criminal offence. The Tax Authority who enforces this can find a violation of the law constitutes a criminal offence. This may result in financial penalties. An imposition of an administrative fine of 30% may be reached. In cases of repeated violation, double the amount may be demanded. Cases regarding the fraudulent splits of salaries, loans or gifts that disregard the current law is punishable by up to three years imprisonment.
This article is not a substitute for legal consultation and is intended to be a guide on the subject matters. For more legal advice on transactions, contact Nimrod Yaron and Co who can assist in money transfers in compliance the law. More information can be found here.