Voluntary Disclosure in Israel – Foreign Bank Accounts

Many Israelis hold foreign bank accounts in various countries around the world. These accounts often generate different types of income: capital gains, interest, and dividends. All such income must be reported in Israel if the account holder is an Israeli tax resident. 

In most cases, these accounts do not have automatic withholding tax, which creates a situation where no tax is paid. The failure to pay may not always be intentional, but in any case, non-reporting and non-payment of taxes constitute a criminal offense. 

To avoid criminal proceedings and to enable the transfer of funds into Israel, taxpayers must report these accounts to the Israel Tax Authority. One of the main mechanisms for doing so is through the Voluntary Disclosure Procedure. 

The most recent Voluntary Disclosure Procedure, effective as of 2025, was published on August 25, 2025. It applies, among other things, to income from financial assets such as foreign bank accounts. The procedure will remain in force until August 31, 2026. 

Settling Tax Liabilities – Voluntary Disclosure 2025

The consequences of failing to report and pay taxes are severe. Penalties range from significant fines to actual imprisonment. Therefore, it is strongly recommended to settle the matter with the authorities. One way to do this is by submitting a voluntary disclosure request. Through this process, the taxpayer regularizes their tax liabilities with the Israeli Tax Authority. 

The Voluntary Disclosure Procedure is not permanent; it is published periodically. The current procedure, published on August 25, 2025, is valid until the end of August 2026. It covers the settlement of income from several sources, including income from financial assets (bank accounts). 

A taxpayer wishing to settle their tax liabilities must submit a request to the Tax Authority. The Authority will review the request. If it meets the eligibility criteria set out in the circular, the case will be directed into one of two tracks: the Green Track or the Regular Track. 

1. The Green Track – A simplified procedure involving the filing or amendment of tax returns. This track is available only for specific cases defined in the circular. For financial income, the balance of funds as of December 31, 2014, must have been less than NIS 4,000,000, and no deposits or transfers may have been made into the account during the ten years preceding the request.
2. The Regular Track – A more complex procedure involving tax assessment discussions with the assessing officer. Any case that does not meet the criteria of the Green Track will be transferred to the Regular Track.

Example: A taxpayer whose account balance on December 31, 2014, was NIS 3,000,000 and who made no deposits for a decade may qualify for the Green Track. Conversely, a taxpayer who continued to make deposits into the account during the past decade will be referred to the Regular Track. 

It is important to note that taxpayers cannot choose their track; the Tax Authority determines this based on the criteria. 

One of the main advantages of the Voluntary Disclosure Procedure is the criminal immunity it provides. The Tax Authority cannot initiate criminal proceedings against the taxpayer, only civil proceedings. In some cases, even if the request is not approved, the information provided cannot be used by the Authority as evidence in criminal or civil proceedings. 

Information Exchange Between Countries

In recent years, the ability of the Israel Tax Authority to detect foreign accounts held by Israelis has increased significantly. This is due to international information exchange agreements, particularly the CRS. Under this agreement, participating countries automatically exchange information about foreign bank accounts held by each other’s residents. For example, the Israeli Tax Authority may receive information about an Israeli resident’s bank account in the UK, Germany, or Spain. 

Most countries worldwide have signed the CRS, meaning that very few jurisdictions remain outside the agreement and do not share information with Israel. 

The number of cases in which the Tax Authority uncovers undisclosed foreign accounts and income through this mechanism has been steadily increasing. For example, in 2023, it was reported that an Israeli resident was arrested on suspicion of failing to report income of approximately €20 million, which was held in a Spanish bank account. The Tax Authority received information about this account through the CRS framework. 

Transferring Funds to Israel 

Another situation where exposure increases is when taxpayers wish to transfer funds into Israel. In recent years, banking regulations have tightened considerably. Banks now require extensive documentation to approve transfers. The transferring party must provide proof of the source of funds and a certified accountant’s confirmation of tax payments in the relevant jurisdictions. This is especially true for large transfers or multiple transfers within a short period. 

Without the required documentation, transferring funds into Israel may be difficult or even impossible. Furthermore, banks may report suspicious activity in Israeli accounts to the Tax Authority. 

It is important to note that completing the Voluntary Disclosure Procedure and settling tax liabilities does not automatically legitimize funds of unknown origin. A court ruling published in August 2024 clarified that the procedure grants immunity only from prosecution for tax offenses. However, it does not exempt banks from their obligations under the Prohibition on Money Laundering Law. In other words, even if tax liabilities have been settled, banks are still required to verify the source of funds. 

This issue can be addressed by conducting a source-of-funds audit, which not only assists in the voluntary disclosure process but may also reduce the applicable tax liability. If the source of funds cannot be established, tax may be imposed on the principal amount itself, not just on the income generated. 

Our firm also handles cases where taxpayers do not meet the eligibility criteria of the circular but still wish to settle their tax liabilities. 

Nimrod Yaron & Co., experts in Israeli and international taxation, is composed of attorneys, accountants, tax advisors, and economists with extensive experience and knowledge in handling voluntary disclosure matters in general, and specifically in cases involving financial assets.  Click here to contact us.

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