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August 2025 Changes: Launch of the New Israeli Voluntary Disclosure Procedure (VDP)
In August 2025, the Israeli Tax Authority (ITA) introduced a new Voluntary Disclosure Procedure (VDP), designed to allow taxpayers to report previously undisclosed income and assets. The new framework replaced the earlier 2018 program and aimed to balance compliance with deterrence by emphasizing full transparency.
The August framework required that all applicants identify themselves, ending the anonymity option that existed in earlier iterations. The procedure established two main tracks: a regular track for fully documented disclosures and a green track for cases with incomplete documentation.
Both individuals and corporate entities, including trusts and estates, could apply, provided they were not under current investigation or subject to previous criminal tax convictions. The ITA clarified that full disclosure of global income and assets was mandatory, with tax assessments based on Israeli tax residency and source rules.
October 2025 Clarifications: Additional Guidance from the Israeli Tax Authority
Following the launch of the program, the ITA issued clarifications in October 2025 to address taxpayer concerns and procedural ambiguities. These updates emphasized transparency and compliance standards to ensure that the process remains credible and consistent with international exchange-of-information obligations. The key clarifications included:
- Mandatory details for applications: All submissions must include complete identification, asset listings, income sources, affected tax years, and supporting documentation. Partial or incomplete filings will not be processed.
- Eligibility restrictions: Applicants under tax audit or investigation are automatically disqualified, even if the matter concerns unrelated income or assets.
- Documentation flexibility: Where bank statements or valuation records are unavailable, applicants may attach a professional affidavit from a lawyer or accountant outlining the missing evidence and estimated values.
- Penalty mitigation: The ITA confirmed that applicants who act in good faith and pay assessed taxes promptly will not face criminal prosecution or civil penalties beyond the calculated tax and interest.
- Deductibility of professional fees: Only 50% of professional fees incurred for preparing or submitting VDP applications are deductible.
- Foreign income and credit coordination: Taxpayers may apply available foreign tax credits, but only for years covered by the VDP and with supporting documentation verifying the taxes paid abroad.
Pro Tax Tips
- U.S. taxpayers with dual Israeli connections should carefully align their disclosures with both the IRS Voluntary Disclosure Program and ITA requirements, as information sharing under the U.S.–Israel tax treaty increases scrutiny.
- Retain complete documentation for both U.S. and Israeli reporting periods to avoid discrepancies in income recognition, especially where foreign tax credits are involved.
- Consider engaging both Israeli and U.S. tax attorneys early in the process to coordinate amnesty filings and minimize potential double taxation.
- Avoid partial or selective disclosures; inaccurate or incomplete filings may revoke the immunity protections under the program.
- Time is limited — the procedure remains open only until August 31, 2026. Early preparation ensures a more defensible and efficient filing.
FAQs
Who is eligible for the Israeli VDP?
The program is open to individuals, corporations, and trusts that have not been subject to a prior investigation or conviction for tax offenses. Eligibility requires full transparency and good faith disclosure.
Can U.S. taxpayers use the Israeli VDP for undeclared foreign accounts?
Yes, U.S. citizens or residents with Israeli assets can regularize those holdings under the Israeli VDP, but they must also comply with U.S. reporting obligations such as FBAR and FATCA to avoid double exposure.
What happens if the documentation is incomplete?
Applicants lacking full documentation can submit professional affidavits estimating amounts, but the ITA retains discretion to issue best judgment assessments, which may increase assessed liabilities.
Does participation in the Israeli VDP affect U.S. tax obligations?
Yes. Disclosure in Israel does not replace or excuse U.S. reporting requirements. However, coordination with experienced cross-border tax counsel can reduce risks of inconsistent reporting or duplicate taxation.
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.
