Israel Cracks Down on Unregistered Professional Partnerships
Translated & summarized from NEWSru Israel by baba
Israel's Ministry of Justice is demanding that 22,370 unregistered professional partnerships register within 45 days or face sanctions and tax investigations. This move follows a state comptroller's report revealing significant tax losses due to lax enforcement. The partnerships, popular among professionals, are tax-transparent but often used to underreport income. A negligible fine for non-registration has been in place since 1975.
The story in 5 lines · by baba
- 22,370 unregistered professional partnerships in Israel received warning letters to register within 45 days.
- Failure to register will result in sanctions and referral to tax authorities for underpayment checks.
- A state comptroller report cited years of lax enforcement leading to hundreds of millions in lost tax revenue annually.
- Approximately 43,000 partnerships operated between 2017-2023, with 93% unregistered, generating 1.535 trillion shekels.
- The penalty for non-registration has not been updated since 1975 and is now negligible.
The Registrar of Partnerships at Israel's Ministry of Justice has initiated a crackdown on unregistered professional partnerships, sending out 22,370 warning letters. These entities have 45 days to register, or face sanctions and referral to the tax authorities for potential underpayment investigations. Currently, only about 8,000 partnerships are officially registered with the Corporations Authority. The authority recently received data on an additional 26,000 entities that had registered for VAT but not for partnership status. This partnership structure is favored by independent professionals like lawyers, auditors, and architects, as well as private medical practitioners, due to its ease of formation. Partnerships are considered tax-transparent, meaning their income is taxed at the partner level according to their ownership stakes, rather than at the entity level. A state comptroller's report highlighted that the registrar had long failed to enforce mandatory registration, leading to annual tax revenue losses in the hundreds of millions of shekels. Between 2017 and 2023, approximately 43,000 partnerships operated in Israel with a combined turnover of 1.535 trillion shekels, yet 93% remained unregistered. Many partners failed to declare their involvement or understated their income. The penalty for non-registration, unchanged since 1975, is a nominal 15 Israeli lira per partner per day, now equivalent to less than one agora.
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