The Annual Income Tax Return

Category: Reporting | Reading time: approx. 6 minutes

The annual return is the official document filed with the Income Tax Authority for each calendar year. It brings together all of your income — from employment, business, rent, the capital market and abroad — alongside expenses, deductions, credits and the tax withheld at source. The calculation ends in a single bottom line: how much tax you should have paid for 2025 — and whether you are owed a refund or still have tax to pay. Individuals and the self-employed file on Form 1301; a limited company files on Form 1214.

Who Must File an Annual Return for 2025?

The starting point in the Income Tax Ordinance is that every Israeli resident aged 18 or over must file — but most salaried employees are exempt, provided their income is below the ceilings and tax was properly withheld. The obligation is "switched on" in a long list of situations; these are the main ones (in 2025 tax-year amounts):

1. Self-employed and companies — a licensed dealer, an exempt dealer and an active company, always;
2. A controlling shareholder — anyone holding 10% or more of a company's shares;
3. A salaried employee with a high salary — annual employment income above ILS 723,000 (including bonuses and option exercises — very relevant to hi-tech employees; see: taxation of options and RSUs);
4. Those liable to surtax — total income from all sources above ILS 721,560;
5. The capital market — sales of traded securities above ILS 2,810,000 (even if you made a loss!);
6. Rental income — above the exemption ceiling (ILS 5,654 per month), where the 10% track was not chosen. Someone who chose the 10% track and paid the tax on time is exempt from filing because of this income, as long as the rental income does not exceed ILS 375,000 per year. See: rental income tax — all the tracks;
7. Income and assets abroad — income from outside Israel (other than income of up to ILS 375,000 on which an advance tax payment was made); foreign assets, or a balance in bank accounts abroad, worth ILS 2,086,000 or more on any day of the year — including those of a spouse and minor children; a holding in a foreign company whose shares are not traded on a stock exchange; or transfers of money abroad totalling ILS 500,000 or more within 12 months;
8. Holders of special structures — a controlling shareholder in a controlled foreign corporation (CFC) or a foreign professional company, and parties to trusts (trustee, settlor or beneficiary — according to the dedicated rules, Form 1327);
9. Anyone the assessing officer has asked to file — a power that always exists — and anyone who carried out a "reportable transaction" (certain tax-planning arrangements).

Read our full article: Foreign accounts — what the Tax Authority already knows about you →

What About Spouses?

In Israel reporting is done at the family level: if one spouse is required to file — for example, a business owner — the return also includes the income of the salaried spouse. A spouse who is not the "registered spouse" may, under certain conditions, declare that they will report their income separately. And someone who has left Israel and claims to have severed residency attaches Form 1348 (residency declaration) to the return. See: relocation and severing tax residency.

What to Attach to the Return: The Main Certificates and Appendices

Personal certificates that entitle you to benefits — worth collecting in advance:

• Original receipts for donations to approved institutions (credit under Section 46);
• Confirmations of contributions to provident funds and education funds (including for children);
• Confirmation of residence in a locality entitled to tax benefits (Form 1312A), an immigrant certificate, a military discharge certificate;
• Medical certificates for credits (children's disabilities, keeping a relative in an institution — Form 127), and the credit for completing a degree (Form 119).

Business and financial appendices by type of activity:

• For the self-employed: a profit and loss statement (Form 1320 or the output of approved software), depreciation (1342/1343), carried-forward losses (1344), and above a turnover of ILS 300,000 — online Form 6111;
• For the capital market: capital gains appendices — 1322/1325 for traded securities, 1399 for other assets (private shares, real estate abroad, business equipment);
• For foreign income: Appendix D — details of the foreign income and the tax paid abroad, for the foreign tax credit;
• For partners in a partnership: Form 1504; for investors in R&D companies under the Angels Law: a notice claiming the credit, attached to the return (section 2(b)(7) of the law).

How Is the Return Filed in Practice?

The return is transmitted online through the Tax Authority's system (in the personal area, after digital identification), and after transmission it is filed together with the appendices. The exemption from online filing is limited, among other things, to people with low incomes — in 2025, up to ILS 95,820 for an individual (ILS 191,640 for a couple) — and in practice almost everyone files online. For those represented by a CPA, the firm transmits the return directly from the representatives' system, including all the appendices.

Once the return has been received, a notice of assessment is sent with one of three outcomes: a tax refund (transferred directly to your bank account, with interest and linkage), tax to pay, or a nil assessment. Important: the notice of assessment is not the end of the process — the assessing officer may open the return for audit within the statutory periods, so the quality of the return and its appendices determines your peace of mind going forward. See also our guide to preparing for an assessment hearing (in Hebrew).

The above article does not constitute a recommendation, professional advice or a legal opinion. If you have any questions, you are welcome to contact us — we will be happy to advise, accompany and represent you before the Israeli tax authorities.

Kind regards,
Hager-Alperowitz & Co. — Certified Public Accountants