Voluntary Disclosure 2025 – All Relevant Information

Previous voluntary disclosure procedures

In 2005, the first voluntary disclosure procedure was introduced. Under this initial procedure, taxpayers who had not reported their income could regularize their reporting and tax obligations in exchange for criminal immunity. Over time, from 2011 to 2019, the Tax Authority issued three additional temporary orders that allowed for the voluntary disclosure of unreported income. From experience and practice, it is evident that there was a gradual tightening of the conditions for voluntary disclosure from one procedure to the next. The most recent voluntary disclosure procedure was highly successful; in the last two procedures alone, approximately five billion NIS was collected, and assets worth about 30 billion NIS were brought into the reporting cycle, generating estimated annual revenues of about half a billion NIS.

While the primary goal of the Tax Authority in the initial procedures was to “catch in the tax net” taxpayers who had not reported their income and to regularize their tax liabilities, the latest procedures mark a step up by the Tax Authority.

Although criminal immunity is granted under each iteration of the voluntary disclosure procedure, it is noticeable that in the latest procedures, the Tax Authority does not merely focus on capturing the taxpayer and bringing them into the tax net but also examines aspects of money laundering. This follows Amendment 14 to the Prohibition of Money Laundering Law, which took effect on October 7, 2016, establishing that tax evasion offenses would constitute predicate offenses for the purposes of the said law.

In practice, this is reflected in the Tax Authority’s request for an explanation of the origin of the funds that generated the income. In cases where it is not satisfied that the source of the funds is “legitimate and legal,” taxation (in addition to the tax on the ongoing income over the last ten years) is imposed at a rate of 10%/15%, and in exceptional cases, even 50% on the principal of the funds.

Voluntary Disclosure 2025 – Expected Changes

During the last year, discussions have taken place between the Tax Authority and the Legal Advisor to the Government regarding the publication of a new voluntary disclosure procedure. This procedure is expected to be made public soon. It will provide an opportunity for taxpayers who have not reported their incomes over the years to regularize their reporting and tax liabilities (including interest and indexation adjustments for each unreported year up to the date of tax payment) and to obtain criminal immunity.

The application for voluntary disclosure must be submitted with a brief background and calculations to the Tax Authority’s Investigations Department. After receiving the application, the Investigations Department will review the background of the taxpayer submitting the application to determine whether the case is already under tax assessment, whether there is an ongoing overt/covert investigation against the taxpayer, and whether there is any reason not to approve the voluntary disclosure. Following the review, if all findings are satisfactory, the taxpayer will receive approval to commence the voluntary disclosure process and obtain criminal immunity.

Two tracks are expected:

1. Green Track – For cases meeting specific conditions, a simplified procedure will be implemented within the Green Track. Cases likely to enter the Green Track include:
   • Disclosure of foreign bank accounts where the accumulated capital is less than four million NIS;
   • Disclosure of undeclared income in Israel and abroad, where the income does not exceed 250,000 NIS per year;
   • Income from virtual currencies (crypto), where the accumulated income is up to 500,000 NIS over the period (11 years) and the capital held by the taxpayer does not exceed 1.5 million NIS.
2. Regular Track – If the conditions for the Green Track are not met, the taxpayer will receive a response from the Investigations Department that they are eligible to begin voluntary disclosure. This means initiating tax assessment discussions with the tax officer.

While in previous procedures the unreported income typically involved freelance income from properties in Israel or abroad, and passive income (interest, dividends, and capital gains) from foreign banks, this year a new player has entered the scene – the crypto market, with most of the disclosure now focusing on this area.

At the beginning of 2024, a “Temporary Instruction Procedure for the Acceptance of Tax Revenues from Profits Realized from Distributed Ledger Technology” was introduced. This procedure was designed to facilitate tax payments for crypto investors in light of the difficulties posed by banks in accepting these funds. It seems that the Tax Authority has prepared the groundwork for the 2025 Voluntary Disclosure Procedure, which includes, as mentioned, the regulation of tax liabilities and reporting of crypto income. Our firm participated in a panel at the Bar Association regarding the upcoming 2025 Voluntary Disclosure Procedure set to be published: Click here to read about the conference.

Important Points:

1. Increased Stringency in 2025: Examining the history and evolution of voluntary disclosures, the 2025 Voluntary Disclosure Procedure is expected to be more stringent. Among other things, the scrutiny of the funds, as well as the tax rates that will apply in cases where the tax officer is not satisfied, are expected to be higher. This is especially true when it involves income from virtual currencies (such as Bitcoin and Ethereum).
2. Previous Strategies: Traditionally, the Tax Authority operates on a “carrot and stick” basis. Previous voluntary disclosure procedures provided a window of opportunity to regularize unreported income before enforcement actions began. For example, the 2014 voluntary disclosure procedure was published about a year and a half before the Tax Authority announced it had received information about numerous Israelis holding accounts in Switzerland, which quickly led to criminal proceedings for all non-disclosers.
3. Transition from Anonymity: In previous procedures, it was possible to begin a voluntary disclosure anonymously without disclosing the taxpayer’s details until agreements on the tax framework with the tax authorities were reached. However, in the new procedure, the initial approach to the Tax Authority must include the disclosure of the taxpayer’s name at the beginning of the process.
4. Final Procedure: One of the conditions set by the Legal Advisor to the Government for approving the publication of the 2025 Voluntary Disclosure Procedure is that it should be the last such procedure. The Tax Authority’s management has stated their determination to adhere to this directive. Accordingly, legislation expected to be enacted after the expiration of the 2025 Voluntary Disclosure Procedure will include clear rules regarding the tax framework and penalties for those who wish to disclose their incomes late (in such cases, of course, they will not have criminal immunity).

It should be noted that it is also possible to regulate undeclared profits and incomes, especially in the crypto sector, without a voluntary disclosure procedure, through tax assessment discussions with the Tax Authority and signing a tax agreement at the end of the process. Given that the process may involve significant tax discussions with the Tax Authority, it is crucial that the application for voluntary disclosure be submitted by a lawyer/accountant who is an expert in taxes and has the knowledge and practice to handle such a complex process that may have significant implications for the taxpayer.

Our firm includes former senior officials from the Tax Authority who have handled many voluntary disclosures during their service, are familiar with the practices, and know how the Tax Authority operates in voluntary disclosures from the inside. Additionally, our firm includes lawyers, accountants, tax advisors, and economists with extensive experience in voluntary disclosures and tax liability regulation for undeclared incomes, especially in the crypto sector.

This year, our firm published the Hebrew entry on voluntary disclosure on Wikipedia. To view the entry, click here.