- with Senior Company Executives, HR and Finance and Tax Executives
- in United States
- with readers working within the Accounting & Consultancy and Property industries
August 2025 Changes: Launch of the Israeli Voluntary Disclosure Procedure (VDP)
In August 2025, the Israel Tax Authority (ITA) introduced a new
Voluntary Disclosure Procedure (VDP) effective until August 31,
2026. This program allows taxpayers to voluntarily report
previously undisclosed income and assets and provides
immunity from criminal prosecution, provided full, honest,
and timely disclosure is made.
Key aspects of the August proposals include:
- Elimination of anonymous filings; applicants must fully identify themselves.
- Two tracks for disclosure: a Regular Track for fully documented cases and a Green Track for cases with limited documentation.
- Inclusion of foreign residents and taxpayers, explicitly covering Canadian residents with Israeli assets or income.
- Required disclosure of global income and assets, including real estate, digital/crypto assets, and foreign bank accounts.
- Thresholds for the Green Track: financial assets under ILS 4,000,000; rental income up to ILS 250,000 per year; digital asset income up to ILS 500,000; total digital asset value capped at ILS 1,500,000 as of December 31, 2024.
- Eligibility conditioned on no ongoing tax audits or investigations and no previous convictions for tax offences.
October 2025 Clarifications from the ITA
Following the initial rollout, the ITA issued clarifications in October 2025 to address questions regarding eligibility, documentation, and scope. Canadian taxpayers should be aware of the following:
- Mandatory disclosure: Applicants must provide full identification, all relevant tax years, details of income and assets, and supporting documentation. Partial or incomplete submissions are not acceptable.
- Eligibility restrictions: Taxpayers under investigation or audit, even for unrelated matters, may be disqualified.
- Documentation flexibility: Where original documentation is missing, professional affidavits from accountants or lawyers outlining estimated values are acceptable, though subject to ITA discretion.
- Penalty mitigation: Taxpayers acting in good faith and paying all assessed taxes on time will generally not face criminal or civil penalties beyond the taxes owed.
- Professional fees: Only 50% of fees for professional services related to the VDP are deductible.
- Foreign income and tax credits: Offsets or foreign tax credits are allowed only for years covered by the VDP and must be supported by evidence of taxes paid abroad.
Cross-Border Specific Risks for Canadian Taxpayers
Canadian residents with Israeli ties must carefully navigate the interaction between the Israeli VDP and Canadian tax law:
- Canada and Israel exchange tax information under the Canada-Israel Tax Treaty; any VDP disclosures may be visible to the CRA.
- CRA reporting obligations, including T1135 filings for foreign property, must still be met to avoid penalties.
- Valuation of digital assets must comply with both Israeli and Canadian rules; discrepancies could trigger additional scrutiny.
- Criminal immunity in Israel does not equate to immunity in Canada. Misstatements or omissions may lead to CRA penalties or interest.
- Foreign tax credits may be limited under Israel's clarified rules, so Canadian taxpayers should plan to avoid double taxation while ensuring compliance.
Pro Tax Tips
- Begin planning early and gather all necessary documentation for Israeli and Canadian reporting.
- Determine whether the Green Track or Regular Track is appropriate based on documentation completeness and asset complexity.
- Coordinate disclosure with a Canadian tax lawyer to mitigate risks of double taxation and CRA penalties.
- Maintain accurate valuations and detailed records for all foreign assets, including crypto holdings.
- Ensure that any professional fees for disclosure preparation are properly tracked to claim partial deductions under the Israeli rules.
- Confirm eligibility carefully; any ongoing audits or investigations may disqualify the taxpayer from the program.
FAQs
Who is eligible for Israel's VDP?
Individuals, corporations, and trusts not under investigation or with prior convictions may participate. Full, honest disclosure is mandatory.
Can Canadian taxpayers use the VDP for Israeli income or assets?
Yes. Canadian residents with Israeli assets or income may regularize their holdings under the Israeli VDP, but must also comply with Canadian reporting obligations, including Form T1135 for foreign property.
What happens if the documentation is incomplete?
Applicants may provide affidavits from qualified professionals for missing documentation, but the ITA may issue a best-judgment assessment that could increase liability.
Does participation in the Israeli VDP protect Canadian taxpayers from CRA scrutiny?
No. The VDP does not replace or excuse Canadian reporting obligations. Coordinated planning with experienced Canadian tax counsel is essential.
How are foreign tax credits treated?
Offsets are permitted only for years covered by the VDP and with evidence of taxes paid abroad. This limitation may require careful planning to prevent double taxation.
When does the VDP expire?
The procedure remains open until August 31, 2026. Late or incomplete filings may be disqualified or redirected to the Regular Track.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
