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Israel: F.A.Q.

1. Service Provider - Recording a post-dated check.
Question: I am a service provider (engineer, bookkeeper and the like) and I use a "tax invoice/receipt" form. How should I act when I receive a post-dated check? Can I wait till the date of payment and then issue a "tax invoice/receipt"?
Answer: In no circumstances. Failure to issue a receipt immediately on receipt constitutes grounds for disqualification of books. Nevertheless, it is best to differentiate between 2 possibilities:
Possibility 1: Let us assume that on 1.1.2000, you received a check postdated to 29.1.2000. Here it is worth issuing a tax invoice/receipt immediately 1.1.2000 In any case, the basis for the payment of VAT and prepayment of taxes is until 31.1.2000 regardless of whether the payment was made on the first or the last of the month.
Possibility 2: Let us assume that on 1.1.2000, you received a check postdated to 14.2.2000. In this instance, buy a bound book of numbered receipts (these may be bought at any office stationery store) and write out a receipt which will include the number of the check, the name of the bank and the date payable, which is the date on which a tax invoice/receipt will be issued. The tax obligation is as though payment was made only on 14.2.2000.

12. Renting an apartment - obligation to issue a tax invoice.
Question: I am an employee and rent out an apartment that I own. Am I obliged to issue a tax invoice?
Answer: Renting out an apartment for residential purposes in not liable for VAT. Therefore, you do not have to issue a tax invoice. Nevertheless, if the apartment is rented for business purposes (such as for a law office) you are liable for VAT. It is worth pointing out that renting for key money, even for business purposes, is exempt from VAT.

3. Renting Real Estate for Non-Residential Purposes.
Question: I am an employed person and rent out a store. Even though I am liable for VAT, is there no way out of issuing a tax invoice?
Answer: There is a way out. There is a special form, which can be obtained from the offices of the VAT authorities (Form 20) according to which you can "roll" the VAT over from your income so that it will be paid by the tenant and this way you will not have to submit a VAT report.

4. Income from Rental - Collecting the Rent in Advance.
Question:Question: I rent out an apartment. The tenancy agreement is renewed each year in May. Is it worth my while to collect the rent for the 12 month period in advance, in May?
Answer: Tax will be payable on the entire amount that you collected as rent in advance in May despite the fact that part of the income is attributable to the 4 months of January - April that belong to the following tax year. It is recommended to collect in advance only that part of the income that is attributable until the month of December and then you will be liable for tax only on the income from rent that refers to 8 months.

5. Profits from Securities.
Question: Is income from a securities transaction on the Stock Exchange liable for tax?
Answer: As a general rule if you are not a trader in securities and the securities are not recorded in the books of the business (that is, you bought them privately), the income from the securities is tax exempt (from 1.1.2003 - 15%). However, there are a number of tests that the Tax Authorities will apply to decide whether you are a trader in securities and if so, you will be liable for tax on your profits. These are the tests.
The Frequency Test - If the frequency of the transactions you carry out is high (for instance, if you carry out a buying and selling transaction every day) this would seemingly testify to the commercial character of the operations.
The Risk Test - If the stock that you buy has a speculative character, this points in a commercial direction, if on the other hand, the main securities portfolio that you hold is made up of solid securities (for instance, bank shares, solid companies, bonds) these transactions have no commercial character.
The Extent test - If the extent of your profits from securities represents a comparatively high percentage of your normal income (as an employed or as a self employed person) this testifies to seemingly commercial transactions.
For instance, if your normal monthly income is NIS 500 and your monthly income from transactions on the Stock Exchange is NIS 4000, you are a serious candidate for "treatment" from the Tax Authorities.
The subject is sensitive and complicated but the lines drawn above have "contributed" to determining the type of your transactions.
The aforementioned may be applied as well in all that is connected with coins and medallions, forward transactions (currency futures) and more.

6. Setting off Losses.
Question: This year I opened a business on my own. At the end of the year, the business was showing a loss. Can I offset the loss against other income I have as an employed person.
Answer: A loss made by a self-employed person can be set against income for that year from any source whatsoever, including a salary, another business or a capital gain.
Say, for example, that in the year 2000, you opened a business (an automobile repair garage) and in addition you have income from employment (a lecturer) and another business as a self-employed person (a restaurant). If the operations of the garage finish the year 2000 with a loss, you can offset the loss against your income as an employed person (lecturer) and against your income as a self-employed person as a restaurateur. Similarly, if you had a capital gain (let us assume from selling tables from the restaurant) you can offset the loss from the garage against the capital gain. In the following tax year, 2001, the situation is different. If you did not offset the loss from the garage in the previous tax year (2000) as you did not have other income to set it against you can offset the loss from 2000 in the year 2001 only against income from other business or against a capital gain. However, you cannot set the loss from 2000 against income as an employed person in the year 2001.

7. Medications for Tax Purposes.
Question: Does the purchase of medications constitute a recognized expenditure for tax purposes?
Answer: If this concerns first aid equipment that is to be found in a first aid kit on the business premises, this is a recognized expense for tax purposes. Thus, for example, Band-Aids, bandages, hydrogen peroxide, a first aid box and the like will be considered a recognized expense for tax purposes.
On the other hand, medication for repeated personal use that is prescribed for you by a physician is not considered a business expense.
It is reasonable to assume that medications such as aspirin or medicines for the relief of cold symptoms and the like that are prescribed as well for employees will be considered a recognized expense by the Tax Authorities.

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