A declaration of capital is the report of assets and liabilities of an Israeli resident to the Tax Authority, when demanded.
In most cases, one is required to submit a first capital declaration to the Income Tax Authorities when opening a file with the Income Tax Authority. (Independent / Limited Company).
The capital declaration is one of the effective tools available to the Tax Authority to determine the reasonableness of the taxpayer’s income level.
The capital declaration is structured in the form of a report of an individual, spouses or a family, and includes a report on all the taxpayer’s property. The difference between the assets and the liabilities is the sum of the capital to be declared by the taxpayer.
The determination of income by means of a capital declaration is based on the principle that the taxpayer’s capital – including its expenses – is derived from any income or receipts, and the numbers must be reasonable. In cases where there are unexplained differences, the tax assessor will require explanations.