Israel is losing about NIS 340 million in tax revenue every year because partners in business partnerships do not report their income, according to a special report released Wednesday by State Comptroller Matanyahu Englman. The report says that between 2017 and 2023, about 43,000 partnerships operated in Israel with cumulative turnover of NIS 1.535 trillion, but 93% of active partnerships were not registered with the Partnerships Registrar, 39,844 out of 42,868. The average annual turnover of unregistered partnerships was NIS 196 billion.
Englman said the Partnerships Registrar did not enforce the registration requirement, while the fine for failing to register has not been updated since 1975 and remains 15 lira per partner for each day a partnership operates unregistered, a sum now worth less than one agorot. He warned that this weakens deterrence and limits the state’s ability to track business activity, saying it increases the risk that partnerships are used to conceal illegal activity, tax evasion and aggressive tax planning.
The report notes that many professional firms, including law offices, accounting firms, architectural practices and private medical clinics, use the partnership structure because it is easy to establish. Partnerships do not have an income tax file and do not file annual income reports as entities, so tax officials must assess the partners individually. Yet 94% of partners in active partnerships from 2017 to 2023 did not declare in their annual returns that they were partners, leaving them unidentified in income tax systems. About 2,400 partners failed to declare partnership status even though their partnerships reported average annual VAT turnover of more than NIS 100 million.
The comptroller also found major discrepancies in financial statement attachments filed with the tax authorities. About 20% of 82,000 attachments submitted for partnerships between 2017 and 2023 did not match VAT reports, including around 11,700 cases where a partner’s share of partnership income did not align with the partner’s share of taxable income. In one case, a partner reported a 50% share in a partnership with taxable income of about NIS 10 billion, but said their taxable share was only NIS 78 million. Englman wrote that these errors make it hard to rely on the information in tax systems and limit the tax authority’s ability to identify cases needing audit.
The report says the Tax Authority found more than 7,000 cases in 2021 where partners failed to report the full partnership income, with total unreported income of about NIS 1.35 billion. Despite this and the estimated annual loss, the authority opened only one investigation from 2019 through November 2025 into a partner who failed to report partnership income. The Tax Authority said it is still advancing legislation, has begun targeted intelligence activity since 2024, and now has about 1,500 unresolved cases of non-reporting partners. It also said it started automating Form 1504 in 2025 and plans to make disclosure of partnership status mandatory in the 2026 annual return.
