On 30.06.2026, the Israel Tax Authority published Income Tax Circular 06/2026, addressing Amendment No. 2 to the Law for the Reduction of the Use of Cash. The purpose of the amendment is to reduce the use of discounting and conversion mechanisms that, according to the Israel Tax Authority, have been used to conceal income, offset fictitious expenses, and channel funds within the shadow economy. The amendment entered into force on 1.4.2026 and applies to any promissory note that may be redeemed from that date onward.
The main innovation in the Circular is the distinction between the ability to discount a promissory note and the ability to receive its proceeds in cash. The Circular does not prohibit the discounting of promissory notes as such. Rather, it restricts the cash component of the transaction. In other words, the discounting of promissory notes may continue, but where the consideration includes cash, clear and detailed limitations will apply.
How much cash may be received in exchange for a promissory note?
Under the amendment, where the amount of the promissory note does not exceed ₪6,000, it may be exchanged for cash without limitation. Where the amount of the promissory note exceeds ₪6,000, the cash amount that may be received is limited to the lower of 10% of the amount of the promissory note or ₪6,000. The balance must be paid by a means of payment other than cash.
For example, a promissory note in the amount of ₪50,000 allows the receipt of only ₪5,000 in cash, while a promissory note in the amount of ₪100,000 allows the receipt of only ₪6,000 in cash.
Background to the amendment
According to the Circular, before the amendment, a certain exemption applied to loans granted by supervised financial institutions. In practice, this also enabled the discounting of promissory notes in exchange for cash on a broad scale. The Israel Tax Authority found that this arrangement undermined the purposes of the law, as it enabled the use of promissory notes to conceal income or create the appearance of expenses that did not reflect the true economic reality.
The Circular also describes a scenario in which a business presents a payment to a supplier by way of a promissory note, but in practice discounts the note itself with a financial institution and receives cash. According to the Israel Tax Authority, such a mechanism may result both in a reduction of reported profit and in the receipt of cash on which tax has not been duly paid.
The Circular emphasizes that there is no general restriction on the granting or receipt of a cash loan from a supervised financial institution, except where the loan constitutes the discounting of a promissory note. In other words, where the transaction is, in substance, the exchange of a promissory note for cash, the provisions of the amendment will apply even if the other party to the transaction is a supervised financial institution.
The new rule
Where the exchange is made between a supervised financial institution and an individual who is not acting as a business, the rule is simple:
- Up to ₪6,000 – no limitation.
- Above ₪6,000 – cash may be received only up to 10% of the amount of the promissory note or ₪6,000, whichever is lower.
Where the exchange of a promissory note for cash is made between a supervised financial institution and a business in the course of its business activity, the Circular sets out a more detailed mechanism:
- For a promissory note in an amount exceeding ₪6,000 and up to ₪25,000, there is a possibility of receiving cash beyond the general rule.
*However, this is only if cumulative conditions are met, which are intended to demonstrate that the transaction is genuine and properly documented.
Where a business provides a promissory note to a supervised financial institution and seeks to receive cash, it must show that the note was received from a customer as payment for a transaction it carried out. For this purpose, it must present an invoice with an allocation number for that transaction, as well as a receipt issued to the customer for receipt of the promissory note, including the details of the note delivered to the financial institution.
If these documents are not presented, or if the cumulative conditions are not met, the default rule applies: cash of up to 10% of the amount of the promissory note or ₪6,000, whichever is lower.
The same applies in the opposite direction. Where a supervised financial institution provides a promissory note to a business, and the business seeks to exchange it for cash, cumulative conditions must be met. In such a case, the business must show that the cash was received from a customer for a transaction it carried out, and must present an invoice with an allocation number and a receipt. In addition, the financial institution delivering the promissory note must be the drawer or endorser of the note.
What about a promissory note in foreign currency?
In the case of promissory notes denominated in foreign currency, the shekel value of the note must be examined. If the shekel value does not exceed ₪25,000, there is no limitation on exchanging it for cash. If the shekel value exceeds ₪25,000, the cash amount that may be received is limited to 10% of the shekel value of the note or ₪6,000, whichever is lower.
Repayment of a loan by promissory notes: a specific exception to know
The Circular also includes a unique provision for cases in which a supervised financial institution granted a cash loan, and when the repayment date arrives, the borrower wishes to repay the loan by promissory notes. In such a case, the loan may be repaid by promissory notes in an amount of up to ₪25,000 per note. The important clarification is that this refers to a case in which the loan was granted separately from the promissory note, and not to a situation in which a person delivers a promissory note and immediately seeks to receive its proceeds in cash.
In summary, Income Tax Circular 06/2026 does not eliminate the possibility of discounting promissory notes, but it clearly narrows the ability to receive cash in exchange for them, particularly where there is insufficient documentation or where the structure of the transaction raises concerns in light of the purposes of the law. For businesses, this means a greater need to carefully maintain transaction documents and ensure proper reporting. For financial institutions, it means tighter controls and more robust documentation.
Nimrod Yaron & Co. specializes in Israeli and international taxation. The firm’s team combines many years of experience at the Israel Tax Authority, leading firms, and law offices, bringing a broad legal, accounting, and economic perspective. The firm advises private and public companies, Israeli and foreign companies, global venture capital funds, and clients seeking focused and clear guidance on complex tax matters. In addition, we work with a professional network of accounting firms and law firms around the world, enabling us to provide comprehensive support in cross-border matters as well.
FAQ
Is it still permitted to discount promissory notes after the amendment?
Yes. The amendment does not prohibit the discounting of promissory notes. It limits the ability to receive the consideration in cash, mainly where the amount of the promissory note exceeds ₪6,000.
What is the default rule for a promissory note above ₪6,000?
Where the amount of the promissory note exceeds ₪6,000, the cash amount that may be received is limited to 10% of the amount of the promissory note or ₪6,000, whichever is lower.
What documents must a business present in order to benefit from the relief?
In general, an invoice with an allocation number and a corresponding receipt will be required. In some cases, there must also be consistency between the details of the promissory note, the transaction carried out, and the identity of the relevant parties.
Will every cash withdrawal after depositing a promissory note be considered an exchange of a promissory note for cash?
No. The classification is determined according to the economic substance of the transaction, the nature of the account, the range of transactions in it, and the time gap between the deposit and the withdrawal.
