How to File an Annual Report

What is an Annual Report and Who Must File

An annual report is a mandatory report to the Israeli Tax Authority that describes the business activities, income, expenses, and profit or loss results of a self-employed individual or company over a fiscal year (typically a calendar year). It is an essential document for compliance with the Tax Authority and serves as the basis for calculating tax liabilities.

The filing obligation applies to:

• Exempt self-employed individuals and authorized self-employed individuals — anyone managing an independent business and required to file an income tax return
• Limited companies and other corporations — companies operating a business
• Associations and organizations — under certain conditions
• Employees requiring tax refunds — when there are excess deductions or additional income

The annual report serves as the basis for tax planning, verifying eligibility for tax benefits, and routine coordination with the Tax Authority. It is important to file an accurate and timely report to avoid penalties and subsequent audits.

Who Needs an Annual Report — Main Categories

Not every self-employed individual or company is required to file an annual report in exactly the same format. The obligation depends on the type of entity and the scope of its activities:

• Exempt self-employed individual — a self-employed person whose annual income does not exceed a certain threshold. Usually files a simplified report or simple statement
• Authorized self-employed individual — a self-employed person required to file a full report, including a detailed annual report with evidence and accounts
• VAT-liable self-employed individuals — required to file bimonthly reports and also a summary annual report
• Limited companies — required to file complete financial statements, an audit report, and an annual report to the Tax Authority
• Startups and e-commerce businesses — required to file a detailed annual report, even if in their first year of operation

Each category requires a different level of detail and documentation. Therefore, it is important to consult with an accountant at the establishment stage to ensure records are maintained correctly.

Steps for Submitting an Annual Report — A Practical Guide

Submitting an annual report is a process that requires planning and document organization. Below are the main steps:

Step 1: Collecting Documents and Accounts

Before beginning to write the report, you should collect all relevant documents:

• Invoices and income receipts (for sales, services, royalties)
• Expense invoices (salaries, office fees, equipment, insurance, maintenance, etc.)
• Bank statements and financial records
• Inventory management (if applicable)
• Income tax and National Insurance documents from the previous year
• Identity documents and details of controlling shareholders (in companies)

These documents can be managed in various ways: physical folders, Excel spreadsheets, digital accounting management software, or organizing applications. Our office at Ben Aur Kook assists entrepreneurs and companies in organizing digital management to facilitate this process.

Step 2: Preparing Accounting Data

After collecting the documents, you should summarize the data:

• Total income from all sources
• Sum of recognized expenses (any expense directly related to the business)
• Review of non-deductible costs (personal expenses, fines, etc.)
• Calculation of profit or loss before tax
• Review of tax incentive eligibility (such as discounts for new entrepreneurs, encouraged sectors, etc.)

This step requires high accuracy. Errors in summation or expense classification may lead to tax adjustments or penalties later on.

Step 3: Completing the Form and Report

The Israeli tax authority provides standard forms for submitting an annual report. The forms vary according to the type of entity:

• Self-employed individuals — Self-employed income report (income tax form)
• Companies — Company income report, audited financial statement, and management report
• VAT — Annual VAT summary report

The forms are generally available in Hebrew and require detailed information: identification number, type of activity, income, expenses, deductions, and tax calculations. Some forms can be completed through the tax authority's electronic tax portal.

Step 4: Review and Signature

Before submission, it is important to review the report:

• Review of calculations and amounts
• Verification that all data matches the original documents
• Check that no mandatory fields are missing
• If it is a company — verify that the report is signed by the company manager or accountant

For certain self-employed individuals, an accountant's signature is mandatory; for companies, it is almost always required.

Step 5: Submission to the Tax Authority

Submission can be made in various ways:

• Electronic submission — Through the Israeli tax authority's tax portal (recommended method)
• Mail submission — Sending the report by registered mail to the tax authority's address
• Submission through an accountant — An accountant can submit the report on your behalf and follow up on processing

Electronic submission is the fastest and most secure method — it provides immediate confirmation and status can be easily tracked.

Step 6: Receiving Confirmation and Handling Updates

After submission, the tax authority will send a receipt of receipt. In the following months, you may receive requests for clarifications or updates. It is important to keep all documents and respond promptly to tax authority requests.

Final Deadlines for Submitting an Annual Report

Submission deadlines vary according to the type of entity and type of fiscal year. Below is general information:

Self-employed Individuals (Exempt Self-employed and Licensed Self-employed)

Self-employed individuals managing a calendar fiscal year (January–December) are generally required to submit an annual report by a fixed date in March of the following year. For example, a report for 2025 would need to be submitted by a certain date in March 2026. However, it is recommended to confirm the exact deadline with the tax authority or an accountant, as deadlines may change.

Limited Companies

Companies are generally required to submit an annual report within a shorter period than self-employed individuals — usually by a fixed date in March or April of the following year, depending on the company's fiscal year. Companies with a fiscal year other than the calendar year must submit within 90 days of the end of the fiscal year.

Extensions

In some cases, an extension to the submission deadline may be requested. Typically, the request must be submitted before the final deadline, and it is important to prove a reasonable cause for the extension (such as a technical issue, illness, or difficulty obtaining documents). An extension is not guaranteed, but generally the tax authority tends to approve reasonable requests.

Important tip: Do not wait until the final deadline. Early submission allows time to correct errors and prevents congestion near the deadline date.

Common Mistakes in Filing Annual Reports — How to Avoid Them

In our work with businesses and companies, we observe recurring mistakes that can lead to updates, penalties, or later audits. Below are the most common mistakes:

1. Incorrect Classification of Expenses

Business owners sometimes attempt to deduct expenses that are not recognized by law (such as personal expenses, gifts, fines, etc.). This raises red flags with the tax authority and may lead to a thorough audit. It is important to maintain correct classification: a recognized expense is only one directly related to business activities.

2. Lack of Documentation of Expenses

Without invoices, receipts, or supporting documents, an expense cannot be deducted. Business owners maintaining partial or informal records may lose legitimate expenses and pay more tax than required.

3. Non-Reporting of Income

All income must be reported, even if it is small or from various sources (salary income, business percentages, investment income, etc.). The Israeli tax authority receives information from banks, employers, and other entities, and discrepancies in reporting alert it to audit.

4. Inconsistency Between Different Reports

If periodic VAT reporting does not match the annual income report, or if there are contradictions between the national insurance report and the income report, the tax authority will notice. It is important that all reports are consistent and coordinated.

5. Late Filing

Filing after the deadline incurs penalties and interest on unpaid taxes. Even one day of delay can lead to additional costs. It is important to plan ahead and file on time.

6. Lack of Pre-Filing Review

Filing a report without preliminary review may expose calculation errors, missing fields, or incorrect information. Careful review before filing saves many troubles.

7. Failure to Preserve Supporting Documents

If the tax authority requests you to show supporting documents (invoices, bank statements, contracts, etc.), it is important that you have them readily available. Failure to keep documents may lead to rejection of expenses or even a fine.

Annual Report for Different Business Types — Important Differences

The annual report is not the same for all entities. Below is an overview of key differences:

Annual Report for Exempt Business

An exempt business owner is one whose annual income is below a certain threshold (the threshold varies by year). For an exempt business owner, reporting requirements are generally relaxed — they can file a simpler report and, in some cases, are not even required to file periodic VAT reports. However, they must still maintain clear records of income and expenses.

Annual Report for Authorized Business Owner

An authorized business owner is one whose income exceeds the threshold, or who chose to report in full form. An authorized business owner must file a detailed annual report, periodic VAT reports, and report details of each major expense. The report must be supported by invoices and complete documents.

Annual Report for a Private Limited Company

A private limited company must file a very detailed annual report, including audited financial statements, management report, ownership structure report, and corporate income tax report. In large companies, it is mandatory to employ an authorized accountant to sign the report.

Annual Report for an Association

An association that receives donations or pays employees must file an annual report different from that of business owners and companies. The report must include details of activities, donation expenses, and details of all employees.

Annual Report for a Startup or E-Commerce Business

Startups and e-commerce businesses must file an annual report like any other business owner or company. However, due to their digital nature, there are often unique issues: income from online platforms, tax on foreign sales, international VAT reporting, etc. It is important to work with an accountant familiar with tax issues in digital businesses.