Quick Answer: Israel's Tax Authority runs a Voluntary Disclosure Program (*gilui meda me-ratzono*) that lets individuals — including foreign nationals, new immigrants, and returning residents — self-report previously unreported foreign income, bank accounts, and assets. Come forward before the ITA contacts you and you typically get immunity from criminal prosecution under Section 215 of the Income Tax Ordinance, plus reduced civil penalties instead of the statutory maximum. The process runs 12 to 24 months and requires a licensed Israeli tax attorney or CPA to file in Hebrew.

If you have foreign bank accounts, overseas investments, rental income from property abroad, or undeclared business income that you have not reported to Israel's Tax Authority, you face a real and growing legal risk. Global information-sharing agreements, automatic exchange of financial data between countries, and the ITA's expanding international enforcement unit mean that unreported foreign assets are harder to keep hidden than they were a decade ago.

Most people in this situation aren't deliberate evaders. New immigrants who arrived under the Law of Return often had no idea what they were supposed to report. Diaspora investors bought Israeli property without realizing they'd become tax residents. Israelis who came home after years abroad didn't understand that their tax residency had resumed automatically. For all of them, the VDP exists for exactly this. Acting before the ITA finds you is what determines whether the outcome is manageable.

1. What the Israeli Voluntary Disclosure Program Is

The Israeli Tax Authority (Rashut HaMisim) administers the VDP under ITA Director-General Circular 3/2017, which formalized what had previously been ad hoc procedures. The program lets taxpayers approach the ITA on their own initiative, before any investigation opens, to disclose unreported income, foreign financial accounts, and overseas assets.

The key statutory provisions are in the Income Tax Ordinance [New Version] 1961 (Pekudat Mas Hachnasa [Nusach Chadash] Tash"Kah-1961):

  • Section 131 establishes who must file annual income tax returns, including all Israeli tax residents on their worldwide income.
  • Section 131(g), added in a 2016 amendment, specifically requires Israeli residents to report foreign financial accounts. Failure to comply is an independent reporting violation, separate from any tax owed.
  • Section 215 sets the criminal penalty for deliberate tax evasion: a fine, imprisonment of up to five years, or both.
  • Section 215A covers aiding and abetting — relevant to advisors who help clients conceal assets.
  • Section 191 governs civil penalties for failure to file or filing false returns, which can reach 30% of the unpaid tax in the most serious cases.

Under the VDP, applicants who are accepted, cooperate fully, and pay all taxes owed receive immunity from criminal referral. The ITA treats the case as a civil compliance matter, not a criminal one. That difference matters: criminal prosecution under Section 215 means potential imprisonment, not just a larger tax bill.

In Practice — ITA Circular 3/2017, Admissibility Rules: A VDP application is inadmissible if, at the time of filing, the ITA has already opened a formal investigation, issued a request for information under Section 135 of the Income Tax Ordinance, or referred the matter to the Tax Investigation Unit (Yehidat HaChkirot). The ITA also disqualifies applications where the non-compliance relates to money laundering under the Prohibition on Money Laundering Law 2000. Timing is decisive — applications filed before any ITA contact are processed under the most favorable track and carry the strongest presumption of immunity from criminal prosecution under Section 215.

2. Who Should Consider a Voluntary Disclosure

More people have exposure here than they realise. You may have an unreported foreign asset issue in any of the following situations:

  • New immigrants (Olim Chadashim): You made aliyah and have foreign bank accounts, investments, pension funds, or real estate abroad that you have not disclosed to the ITA — even if you believed the 10-year new immigrant exemption meant you had no reporting obligations at all.
  • Returning residents (Toshavim Chozrim): You lived outside Israel for several years, returned, and resumed Israeli tax residency without filing the required returns on your overseas income during or after that period abroad.
  • Non-residents with Israeli-source income: You are not an Israeli resident but receive income from Israeli sources — property rent, dividends from Israeli companies, business income — and have not filed the appropriate non-resident return with the ITA.
  • Foreign nationals who became residents: You moved to Israel for work or family without formally registering as a tax resident, but by Israeli law you became one once you spent more than 183 days per year in the country, or met the center-of-life test under the Ordinance.
  • Israelis with offshore accounts: You maintained foreign bank accounts and have not reported income — interest, dividends, capital gains — earned in those accounts to the ITA during years when you were an Israeli tax resident.

Whatever your situation, the key factual question is whether you were an Israeli tax resident in the relevant years — that's what determines whether worldwide income was taxable in Israel. A qualified Israeli tax attorney can assess your residency status and exposure before you approach the ITA.

3. What You Must Disclose

The VDP requires complete disclosure. Partial submissions that omit inconvenient assets or income years are grounds for rejection — and the ITA treats incomplete applications as deliberate evasion, not honest mistakes. The ITA cross-references every disclosure against information it receives from foreign tax authorities under the OECD Common Reporting Standard (CRS) and bilateral tax treaties, so gaps tend to surface.

A complete VDP disclosure package typically covers:

  • Foreign bank accounts: Account statements for all years within the look-back period, showing balances, interest, dividends, and capital gains credited to the account.
  • Foreign real estate: Purchase documents, rental income records, and capital gains on any disposals.
  • Foreign company interests: Shareholdings in overseas companies, including dividends received, and whether any Controlled Foreign Corporation (CFC) rules under Section 75B of the Ordinance apply to retained earnings.
  • Foreign pension and retirement funds: The ITA has specific rules on when distributions from foreign pensions are taxable in Israel — particularly relevant for new immigrants with U.S. IRAs, UK SIPPs, or Canadian RRSPs.
  • Trust interests: Beneficial interests in foreign trusts are reportable under the Israeli trust taxation regime in Sections 75C through 75N of the Ordinance. These are among the most complex areas of Israeli international tax law.
  • Foreign employment income: Salary or consulting fees paid abroad during years when you were an Israeli tax resident and subject to Israeli tax on worldwide income.
In Practice — Look-Back Period and the 2016 Reporting Amendment: The standard look-back period under ITA Circular 3/2017 is seven years from the date of the VDP application, extendable to ten years where the ITA has evidence of deliberate concealment. For new immigrants who relied on the Section 14(a) income tax exemption but failed to comply with the separate reporting obligation added by the 2016 amendment to Section 131(g), the ITA's position is that the look-back runs from the first year the reporting obligation applied — not from the year of aliyah. This is a critical distinction: you may owe zero tax on exempt income, yet still face civil penalties under Section 191 for each year you failed to file the mandatory foreign-account disclosure. Confirm the applicable look-back period with your tax attorney before submitting.

4. The Voluntary Disclosure Application Process

ITA Circular 3/2017 gives you two tracks: an anonymous preliminary inquiry and a named formal application.

Step 1 — Anonymous Preliminary Inquiry

Before going on record, applicants can approach the ITA through a representative without revealing their identity. You describe the situation — roughly what income and assets are involved, which years — and the ITA tells you in principle whether the case qualifies for VDP and what its immunity position would be. No legal commitment on either side. Experienced practitioners treat this step as non-negotiable, because it lets you walk away if the ITA's preliminary terms are unexpectedly harsh. Once your name is on the application, that option disappears.

Step 2 — Formal Application

The formal application is filed by a licensed Israeli tax attorney or CPA on the applicant's behalf at the relevant District Tax Office. For most cases involving foreign nationals and new immigrants, this is the Tel Aviv District Office; for those resident in Jerusalem and the surrounding area, the Jerusalem District Office. The application must include:

  • A full factual narrative explaining how the non-disclosure occurred
  • All supporting documentation: bank statements, corporate records, real estate documents
  • Draft amended tax returns for each year in the look-back period
  • A calculation of estimated tax owed, interest, and any applicable penalties

Step 3 — ITA Review and Negotiation

The ITA's VDP unit checks the application against its own records and data received from foreign tax authorities under CRS. Expect 60 to 90 days for the initial response. Then comes the actual negotiation: which years are in scope, how income is characterised, whether penalties are waived, how interest is calculated. That part typically runs another 6 to 18 months. The final assessment (shum mas) is binding — accepting it is a condition of settlement.

Step 4 — Payment and Closure

Once agreed, you pay the tax, interest, and any reduced penalties. Usually a lump sum, though installments are sometimes available. The ITA closes the file and issues a written confirmation that rules out future criminal referral for the disclosed matters.

5. Taxes, Penalties, and Interest You Will Owe

VDP doesn't make the tax go away. You'll owe the full amount that should have been paid, plus interest and, in most cases, a civil penalty. What changes is the criminal exposure and, usually, the size of that penalty.

The underlying tax

The calculation uses rates from each tax year — Israeli income tax, capital gains, or dividend rates as applicable. Non-residents may get reduced rates under a double taxation treaty. Israeli personal income tax runs from 10% to 50% depending on income level; capital gains on securities are generally taxed at 25%; certain residential rental income can elect a flat 10% rate.

Interest and linkage

Under Section 159A, late tax payments carry CPI linkage differentials (hatzmadat keren) plus interest at the ITA's annual rate. On a decade of unreported income, the combined interest and linkage typically adds 40% to 70% to the original tax. That number is not waivable. It just accrues — which is why acting early usually saves more than people expect.

Civil penalties

Section 191 lets the ITA impose civil penalties for filing failures and false returns. In a VDP, the ITA has discretion to reduce or waive them entirely for fully cooperative applicants whose non-disclosure wasn't deliberate. In straightforward cases, penalties typically land at 5% to 15% of the unpaid tax rather than the statutory maximum. Cases involving professional advice to hide assets, or prior ITA inquiries that were ignored, tend to attract higher penalties even within VDP.

In Practice — Section 159A Interest and What It Costs to Wait: Interest compounds annually and is calculated separately for each tax year in the look-back period. For a case involving ₪500,000 of undeclared foreign investment income spanning the years 2016 to 2025, total interest and CPI linkage on that principal can add ₪200,000 to ₪350,000 before any civil penalty is applied. The ITA has no legal authority to waive interest — only to reduce or waive the civil penalty component under Section 191. Applicants who assume that a cooperative disclosure makes the settlement "cheap" are often surprised: the interest calculation is where the real financial exposure sits, and it increases by the day. The arithmetic of delay almost always favors acting now.

6. Special Rules for New Immigrants and Returning Residents

This is the area that generates the most confusion, and the most preventable non-compliance. New immigrants and qualifying senior returning residents who arrived on or before December 31, 2025 receive a 10-year exemption from Israeli tax on all foreign-source income under Sections 14(a) and 14(c) of the Income Tax Ordinance. The exemption covers foreign salary, foreign business income, foreign rental income, foreign dividends, foreign interest, royalties, and capital gains on foreign assets.

A lot of people, including some advisors, interpret this to mean that new immigrants have no Israeli tax obligations at all during the 10-year period. That reading was broadly defensible until 2016. A 2016 amendment introduced the Section 131(g) reporting obligation, which applies during the exemption period. New immigrants must now report their foreign accounts and income to the ITA each year. They just don't owe tax on it during the exemption window. The ITA has started issuing Section 191 civil penalties specifically for reporting failures by olim who assumed silence was fine.

For those who made aliyah after January 1, 2026, the reporting framework has been further tightened and the exemption terms themselves have changed. If you arrived in 2026 or later, talk to a qualified Israeli tax attorney about the specific rules for your immigration year before assuming any exemption covers your reporting obligations.

If you're a new immigrant who has not filed annual reports since arriving in Israel, a VDP is almost certainly the right path — even if you believe you owe nothing. It protects against Section 191 penalties for the reporting failures and gives you a clean compliance record going forward.

7. Risks of Non-Disclosure

Waiting it out is not the low-risk option it once was. The landscape has shifted considerably in the past decade:

  • CRS automatic exchange: Israel participates in the OECD Common Reporting Standard, under which over 100 countries automatically exchange bank account information with the ITA each year. If you hold an account in any participating jurisdiction — including the U.S., EU countries, the UK, Switzerland, Singapore, and Canada — that account data is being shared with the ITA. The question is not whether the ITA will eventually see it, but when.
  • FATCA: U.S. financial institutions report accounts held by Israeli residents to the IRS under FATCA, and the IRS passes that information to the ITA under Article 26 of the U.S.–Israel tax treaty. U.S. citizens who are also Israeli residents can get caught from both sides at once — a letter from the IRS often means the ITA already knows too.
  • ITA's international unit: The ITA's International Taxation Department in Tel Aviv has significantly expanded its capacity to request information from foreign counterpart authorities under treaty provisions and multilateral instruments.
  • Criminal prosecution: Section 215 prosecutions are reserved for the most serious cases — large amounts, deliberate evasion, repeat non-compliance — but the ITA does use them. A conviction carries imprisonment of up to five years plus fines. For professionals and company directors, a criminal tax conviction has additional consequences for licensing and professional standing.
  • No second chance: Once the ITA contacts you — even informally — the VDP window closes. At that point your options narrow sharply: you can cooperate in an audit and potentially negotiate reduced penalties, but you lose the criminal immunity that the VDP provides. The window to act is before contact, not after.