Tax Advisory & Tax Planning

Tax planning is probably the most important — and least understood — part of a CPA's work. Contrary to the common public image, tax planning is not a trick or a way around the law: it is the art of using the tools the legislator itself created to encourage desirable economic activity. A business or individual who does not use professional tax advice almost always pays more tax than required — and the gap can be enormous, especially in major economic events.

Tax Planning vs. Tax Evasion — Two Different Worlds

This is a fundamental distinction worth explaining: tax planning means using the benefits, reliefs and options the law offers the taxpayer. Tax evasion means hiding income, recording fictitious expenses or filing false reports — criminal acts that endanger liberty, property and reputation. A professional CPA will never advise a client to evade tax. He will help the client structure his activity to make optimal use of the lawful benefits — and will sometimes also explain to a client tempted to act unlawfully why it does not pay off in the long run.

Israel's Supreme Court has said so more than once: a citizen has a legitimate right to structure his affairs in a way that reduces his tax liability. Between the two extremes lies a wide grey area that requires professional judgment and experience.

When Should You Seek Professional Tax Advice?

Many people ask us when it is "worth" seeking advice. The short answer: at every significant event in your economic life. Examples:

• Opening a new business or incorporating a company — the legal structure chosen at this stage affects taxation for years. See our article on Limited Company or Self-Employed.
• A significant increase in income — moving from low to high tax brackets calls for re-examining the structure of the activity.
• Investing in a startup or founding one — the Angels Law offers a significant tax benefit to investors, and eligibility for benefits under the Capital Investment Encouragement Law is also worth examining. See: The Angels Law.
• Digital-currency activity — crypto taxation in Israel is a complex field with unique rules. See: Virtual Currencies and Taxation.
• Real-estate investment or purchasing an income-producing property — the various encouragement laws, such as the Capital Investment Law, offer generous tax benefits.
• Selling a business or a company — one of the most economically significant events in a business owner's life. Early planning, sometimes years in advance, can be the difference between minimal tax and tax that significantly erodes the proceeds. See also: Voluntary Disclosure where past activity is relevant.
• Accompanying major investments — purchasing real estate, building a securities portfolio, investing in a private company. The investment structure (individual, company, trust) directly affects taxation throughout the life of the investment. Advance advice prevents mistakes that cannot be fixed later.
• Investments abroad — real estate in the US or Europe, foreign securities portfolios, investments in foreign companies. A particularly complex field: dual reporting obligations, use of tax treaties, foreign tax credits, Controlled Foreign Company (CFC) rules, foreign trusts and foreign bank accounts. Proper advice prevents double taxation and exposure to penalties.
• Other one-time events — inheritance, severance pay, Section 102 options, exceptional grants — all of these require advance planning.
• Year end — October to December is the time for final actions before the tax year closes. See: Year-End Tax Preparation.

Key Tax-Planning Tools in Israel

Israel's tax-planning toolbox is rich. Here are the main tools, without claiming to present a complete list:

1. Choosing the Legal Structure

A self-employed individual pays marginal tax reaching up to 50%. A limited company pays corporate tax of only 23%, but withdrawing dividends triggers additional tax. The choice depends on income level, the nature of the activity, personal withdrawal needs, and the outlook for coming years. A wrong decision at this point can cost a fortune — sometimes over many years.

2. Using Provident and Study Funds

A self-employed individual can deposit up to NIS 18,270 per year into a study fund (Keren Hishtalmut) and enjoy a full tax benefit. Deposits into a provident fund reduce income tax further and build long-term savings. Salaried employees can ask their employer to increase pension contributions as part of salary planning.

3. Employee Options — Section 102

Employees who receive options under the capital-gains track of Section 102 pay only 25% tax on sale (instead of marginal rates), subject to conditions. Proper planning of exercise and sale timing, combined with a well-planned initial allocation, saves considerable tax.

4. Encouragement Laws

The Capital Investment Encouragement Law, the Angels Law, the Institutional Rental Law — these are just part of the encouragement legislation offering significant benefits for activity the state wishes to promote (industry, R&D, residential construction). Identifying that your activity qualifies for these benefits requires expertise.

5. Offsetting Losses

Business losses, capital losses, passive losses — each type has different offsetting rules. Properly planning the timing of realizing losses against income can significantly reduce tax liability, sometimes over several years.

6. Timing Income and Expenses

For a cash-basis self-employed person, deciding whether to collect a payment in December or January, or to bring an expense forward, can shift income from one tax year to another. Combined with expected changes in tax brackets or personal circumstances, this is a basic but effective planning tool.

7. Accompanying Business and Company Sale Transactions (M&A)

Selling a business or company is probably the most significant economic event in a business owner's life. The difference between a well-structured transaction and a poorly structured one is often measured in hundreds of thousands of shekels, sometimes millions. Questions such as share deal versus asset deal, payment spreading, use of accumulated losses, tax planning for controlling shareholders, advance arrangements with the tax authorities, and handling past liabilities — all require expertise and experience. We accompany sale transactions from the initial negotiation stage through to closing with the tax authorities, working alongside the parties' attorneys.

8. Accompanying Personal and Business Investments

Every investment decision is also a tax decision. Should an investment apartment be purchased personally or through a company? How should a securities portfolio be structured to optimize dividend and capital-gains tax? Should an investment in a private company be made as equity or as a loan? What is the right holding structure over time — and the right exit structure? We accompany private and business investors in choosing the correct investment structures, planning the tax flow over the years, and using the benefits they are entitled to.

9. Investments Abroad and International Taxation

An Israeli resident is taxed on worldwide income — and this field is one of the most complicated in tax law. Real estate in the US or Europe, foreign securities accounts, investments in private companies overseas, foreign trusts — each has unique taxation rules. Proper planning makes use of Israel's tax treaties (with more than 60 countries), the foreign tax credit mechanism that prevents double taxation, and the Controlled Foreign Company (CFC) and foreign vocation company rules. In parallel, reporting obligations must be met: Appendix D to the annual return, reporting foreign accounts above NIS 500,000, reporting foreign real estate, FATCA and CRS. Early advice in this field — before the purchase — prevents double taxation, avoids exposure to penalties and sometimes even investigations, and enables building a tax-efficient international portfolio.

Short-Term vs. Long-Term Planning

Short-term tax planning (the current year) focuses on actions before December 31. Long-term planning — the real accompaniment we provide — looks 5, 10, 20 years ahead. It examines the structure of the activity, the balance between withdrawing profits and retaining them in the company, pension savings, retirement planning and intergenerational transfer. Decisions made today will accompany the client for decades — which is why correct advice at the first stage is worth a fortune.

How We Work

Our firm's model is built on ongoing accompaniment, not just year-end reporting. We know the client's business in depth, are involved in strategic decisions before they are made, and create an annual tax plan that is updated as circumstances change. Every client gets a planning meeting at least once a year, and we are available throughout the year before any significant move.

This approach requires more time and investment than technical bookkeeping — but it lets us deliver real value: our clients pay less tax, save more, and arrive prepared for every significant business or personal move.

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

Sincerely,
Hager-Alperowitz & Co. — Certified Public Accountants