The Ministry of Finance recently published new Memoranda of Law, as part of the draft Economic Plan for 2026 (Legislative Amendments for the Implementation of Economic Policies for the 2026 Budget, 5786-2025) (the Economic Plan). These memoranda continue the series of recently published tax legislative proposals, as reviewed by us in our December 2025 Tax Newsflash (to read). This time, we will focus on two significant Memoranda of Law: the first dealing with the imposition of a reporting duty on online channels involving the short-term rental of residential apartments, and the second proposes comprehensive regulation on the taxation of digital assets (crypto). These two memoranda seek to enhance transparency, reduce undeclared capital in Israel and create regulatory certainty.
Recently, a Memoranda of Law titled “the Reporting Duty of Online Platforms” was published. The Memorandum of Law proposes to add new provisions to the Income Tax Ordinance [New Version], 5721-1961 (ITO), that will oblige landlords in Israel who operate through an online channel (an online system facilitating a connection between landlords and users for the purpose of entering into a rental transaction such as Airbnb and Booking), to report to the Israel Tax Authority (ITA) on rental income generated by them.
The current Bill comes against the backdrop of a significant development in the short-term apartment rental market in Israel, via digital platforms. In this context it should be recalled that, already back in 2016, the ITA conducted focused audit operations in the short-term apartment rental sector, that revealed high non-reporting rates amongst the taxpayer public. The issue of regulating this market even reached the doorstep of the Supreme Court within the framework of HCJ 4768/20 Israel Hotel Association v. Israel Tax Authority, where the petitioners argued of there being unfair competition between the short-term rental of apartments by landlords operating through digital platforms, and hotels that are subject to stringent regulatory requirements. The petitioners thus demanded, inter alia, that the digital platforms be obliged to withhold tax at source and provide the Israeli authorities with detailed information about the activities of landlords. The ITA and Airbnb sought to dismiss the petition, arguing that it concerns an issue that requires a regulatory solution and not a judicial ruling. The Supreme Court accepted their position and the petition was denied.
In the explanatory notes to the Memorandum of Law, it states that its purpose is to reduce undeclared capital and the tax loss stemming from the non-reporting of income generated by online channels. The memorandum points out that global technological changes have resulted in an increase in the scope of online transactions, and of there being a substantive lack of information about these transactions, particularly where the channel is managed outside Israel, a phenomenon that has resulted in tax losses estimated at hundreds of millions of shekels annually.
The memorandum emphasizes that the proposal falls into line with international models adopted by the OECD, the European Union and other countries such as Australia and England, which oblige operators of online channels to report to the local tax authorities about users who generate income through them.
The Memorandum of Law proposes to add section 141C to the ITO, which will impose a reporting duty on “an online channel operator” (a person who operates an online system, facilitating a connection between landlords and users for the purpose of entering into real estate rental transactions in Israel), and through which the transaction price is determined and details of the means of payment for the transaction are transferred).
The reporting duty will apply to a “reportable user” – a landlord in Israel who enters into at least ten real estate transactions in Israel through the online channel in the tax year and in consideration for which received payments in a cumulative amount surpassing NIS 8,000 annually.
Pursuant to the Memorandum of Law, the report will include, inter alia, the following details:
– particulars of the channel operator and the online channel;
– personal details of the landlord (name, identity/passport number, residential address, date of birth);
– address of the rented real estate;
– the annual amount received;
– the number of transactions entered into and the number of rental days;
– the amounts of any commission or payment collected by the channel operator from the landlord.
– Scope of application of the reporting duty: the duty will apply only to online channels through which the transaction price is determined and details of the means of payment are transferred, even if, in practice, the payment is not made through the system. Only marketing platforms that do not broker the transaction in practice, will be excluded from the reporting duty.
– Data collection and evaluation: the channel operator will be required to collect information from landlords (including personal details and particulars about the property) and assess its credibility by means of available records and an examination of public sources.
– The duty to inform users: the channel operator will be obliged to inform users of the channel, clearly and conspicuously, about the duty to report to the ITA.
– Prevention of duplicate reporting: the reporting duty will not apply if the channel operator has already submitted a report on the withholding of tax from source concerning the landlord.
– Sanctions: the memorandum proposes to add a new section (195J1), that will empower the Director to impose monetary sanctions on an online channel operator who breaches the reporting duty: NIS 20,000 if the channel operator does not file any report at all, NIS 1,000 for every reportable user where the information about him was not requested, nor its credibility evaluated, or where the information about him was not included in the report that was submitted.
– Commencement and transitional provisions: it was proposed that the reporting duty and the authority to impose monetary sanctions will enter into force six months from the date of commencement of the Bill. Nonetheless, the duty to inform users about the reporting duty will enter into force already four months from the commencement date.
A Bill for the Amendment of the Income Tax Ordinance (No. 285) (Digital Assets), 5786-2026 was recently published, the foregoing as part of the Economic Plan Memorandum of Law. The proposal includes a series of legislative amendments regarding the taxation of digital assets.
The proposed amendment seeks to add to section 1 of the ITO an independent definition for the term “foreign currency”, pursuant to which foreign currency will mean – bank notes or coins or their digital representation, constituting legal tender in foreign countries, and which are issued by a governmental body having monetary authority according to the law of that country. The implication of the amendment is, that even where a digital asset constitutes legal tender in a foreign country, but is not issued by a person having monetary authority in a country, it will not fall within the realm of foreign currency for Israeli tax purposes and, therefore, the holder thereof will not be entitled to a tax exemption with respect to linkage differentials pursuant to the provisions of section 9(13) of the ITO.
Moreover, it was proposed to amend the provisions of section 88 of the ITO and to add a comprehensive definition for the term “digital asset”. It was thus proposed to determine that the term “digital asset” be defined as a digital representation of a value or right, that can be transferred and stored digitally, and uses decentralized registration technology or other similar technology as may be determined by the Minister of Finance in an order. Due to the dynamism that characterizes the field, it was proposed to confer authority on the Minister of Finance to determine in an order additional types of assets that will be considered digital assets or excluded from the definition, thus facilitating a rapid adaptation of the tax system to future technological developments.
It was proposed to add subparagraph (4) to section 89(b) of the ITO and to clarify within its framework rules for determining the location of the generation or growth of the capital gain in relation to a digital asset, and correspondingly its taxation in Israel. According to the amendment, the place for generating the capital gain will be Israel in each of the following cases:
– The residency test at the time of purchase: the capital gain will be taxed in Israel if on the date of purchase of the digital asset the seller was an Israeli resident or a foreign resident group of persons controlled by an Israeli resident.
– Representation of rights in Israeli assets: the digital asset represents a right (direct or indirect) in an asset, inventory, real estate or a right in a real estate corporation, located in Israel.
– Rights in an Israeli association of persons: the asset represents directly or indirectly a right in an association of persons that is an Israeli resident.
We would like to point out that the proposed Memorandum of Law in this context may have far-reaching implications for many taxpayers. Thus, for example, new immigrants or returning veteran residents who purchased digital coins after having immigrated/returned to Israel, during the benefits period, may find themselves liable for tax on the capital gain deriving from sale of the coins, since it speaks of a gain sourced in Israel. Thus, intelligent planning of the holding structure in digital assets, prior to the law becoming effective, may result in a significant tax saving at the time of their sale.
The ITA recently published a list of new reportable positions, updating and clarifying the various tax issues. These positions, some of which constituting an update on previous positions, impact a broad array of taxpayers, including trusts, Israeli residents with foreign income, companies that receive dividends from foreign subsidiaries and closely-held companies that transferred assets or were liquidated within the ambit of the Temporary Provision. In this newsflash, we will focus on two primary positions out of the newly-published list:
This position clarifies that calculation of the taxable income stemming from income generated by an Israeli resident outside Israel will be done according to the provisions of Israeli tax laws (and not necessarily according to the laws applicable in the foreign country). An Israeli resident who generates income outside Israel directly or through an entity held by him (“a transparent entity”), will be subject to a reporting duty. In this context, the tax advantage will be examined as the difference between the tax liability according to the ITA’s position and the tax liability according to the taxpayer’s position.
It should be clarified that this position constitutes an update of Position 27/2016. Thus, while in the past the reporting duty applied only in cases of a holding of more than 10% of the means of control in the transparent entity, at present it will apply only in respect of a holding of 25% and more of the means of control in the transparent entity.
This position clarifies, that a closely-held company that neither sought nor obtained the ITA’s approval regarding the transfer of an asset or its liquidation pursuant to the provisions of section 6 of the Israeli Economy Efficiency Law (Temporary Provision), will not be subject to the Temporary Provision.
Thus, where the transfer of an asset has neither been reported nor approved as required, the provisions of the ITO will apply and it will be perceived as a dividend in kind to the shareholders (the sale of an asset at market value at the company level and a dividend in the scope of the gross asset consideration for the shareholder).
Moreover, where a liquidation has neither been reported nor approved as required, the provisions of the ITO will apply and the assets of the company being wound-up will be perceived as having been sold at market value.
This position will not apply to companies that implemented the asset transfer/were liquidated prior to the date of publication of Income Tax Circular dated 3 April 2025, or with respect to companies that shall have submitted a request through the tax ruling system up until 30 June 2026 and shall have attached a certificate for the withholding of tax at source on the dividend that was paid or actual evidence demonstrating that the transfer was made on time.
