Israel – Tax Authority Targets Rabbis

A new tax circular defines criteria for taxation of income from services such as weddings and circumcisions.

Religious services provided by rabbis and kabbalists will be taxed, according to a taxation circular recently approved by the Israel Tax Authority.

As reported by “Globes” last June, the circular regularizes taxation of income received for services provided by rabbis, kabbalists, circumcisers, cantors, and rabbinical courts, such as conducting weddings, performing circumcisions, conducting prayers, kabbalistic gatherings, giving blessings, consultations, distribution or sales of talismans, holy water and various other items of religious significance, and kashrut services.

The circular, which was formulated in the wake of a State Comptroller’s report on the matter, defines how income tax and VAT liabilities will be determined in the case of money received by people providing religious services.

The criteria will include the frequency and length of time that the services are provided, the qualifications and expertise of providers and the spiritual talents attributed to them, the amounts involved, and the existence of an organization supporting the services.

Not all the criteria have to be met, and each case will be examined on its merits.

The circular also states that it is sufficient that money was received in exchange for a service to make it liable to tax, even if the service provider did not demand payment and even if there is no social norm of payment for the service in question. Giving money as an expression of gratitude on an emotional level or as charity, as long as it is not connected with provision of a service, will be considered a gift that is not liable to tax.

As far as VAT is concerned, the circular states that if the provision of services has the characteristics of a business, the providers must register for VAT and will be liable to pay VAT like any other service provider.

The circular makes clear that providers of religious services will have to keep accounts, file returns on their worldwide income, make declarations of assets, and so forth.

In a surprise audit carried out by the Tax Authority in December among some 400 circumcisers and rabbis providing various religious services, it was found that about a quarter of those examined had never reported their income.

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