Tax Authority Attachments and Collection Proceedings

The Israel Tax Authority collects tax debts on its own, without a court judgment and without enforcement proceedings, under the Tax Ordinance (Collection). The condition is a tax amount that was not paid within 15 days of its due date, after a written payment demand was sent to the debtor (Section 4). From that point, the collection officer may garnish funds held by a third party, register a lien on a vehicle, and register a charge on real property. Send us the payment demand or the attachment order, and we will check whether the debt is final, how much of it is in dispute, and what can be offered in lieu of the attachment.

Clients typically reach out after receiving a letter from the collection officer, or when someone else tells them they received an attachment order:

• You received a payment demand for an income tax, VAT, or land taxation debt, and you are not sure the debt is final.

• A client or tenant informed you that they received an attachment order on funds owed to you.

• A lien was registered on your vehicle, and you cannot sell it or transfer ownership.

• Your company ceased operations, and you received notice that its debt will be collected from you personally.

• You filed an objection or appeal, yet collection proceedings were initiated on the full amount.

• You were summoned to a hearing before the Registrar of the Center for Collection of Fines regarding a request to impose restrictions on you.

The Ordinance enables the Tax Authority to collect tax debts through an administrative process, and it is used to collect income tax, VAT, land taxation, and customs debts.

Payment Demand and Authorization

The process begins when a tax amount is not paid within 15 days of its due date and a written demand has been sent. The collection officer then issues an authorization to collect the debt, including by seizure and sale of movable property (Section 4).

Third-Party Attachment

The collection officer may attach the debtor's assets held by another party, such as a bank or client, and the order also applies to assets that come into that party's possession within three months of service (Section 7(1)). The third party must notify the collection officer within 10 days of what it holds (Section 7A). For property that is not cash or a debt already due, an order for delivery may be issued only 14 days after notice is sent to you, and during that period you may pay, reach a settlement, or request that the debt be satisfied from a specific asset (Section 7A(5)). The collection officer will not order delivery of an asset if the debt can be satisfied from another attached asset that causes you less harm (Section 7B(1)(e)). We wrote about attachment of bank accounts, and the difference between such attachment, criminal seizure, and a bank-imposed freeze, on our page Releasing a Frozen or Attached Bank Account.

Vehicles, Apartments, and Real Property

• An attachment on a vehicle or other registrable asset: a notation is registered, and no transaction involving the asset may be registered without the approval of the Head of Collection (Section 12A).

• Tax owed on the real property itself constitutes a first charge on it. Any other tax debt becomes a charge if a notation is registered in the Land Registry (Section 11A).

• A transfer of a debtor's real property will not be registered until the tax owed on it is paid, unless the Head of Collection consents (Section 12).

• Sale of real property is permitted only when there are insufficient movable assets, and if the property is the debtor's residence, the debtor must be left with a dwelling necessary for the debtor and the debtor's household (Section 8).

Restrictions Through the Center for Collection of Fines

Once at least one year has passed since an authorization to collect the debt was issued, the Director of the Tax Authority may ask the Registrar of the Center for Collection of Fines to impose restrictions on the debtor (Section 194A of the Income Tax Ordinance). The Registrar may restrict a passport, order a stay of exit from Israel, restrict the use of a charge card, designate the debtor as a specially restricted customer under the Dishonored Checks Law, and restrict the incorporation of an entity (Section 7A(c) of the Center for Collection of Fines Law). The Registrar does so only after a hearing at which you may present arguments, and will not impose restrictions if satisfied that you lack the ability to pay.

Company Debt Collected from Directors and Shareholders

Section 119A of the Income Tax Ordinance allows the collection of a company's tax debt from others in defined circumstances:

• The company was wound up or transferred assets without consideration, or for partial consideration, and has no remaining means to pay: the debt is collected from the recipient of the assets.

• The company has a final tax debt and was wound up or ceased operations without paying: its assets are deemed to have been transferred to its controlling shareholders — i.e., holders of at least 25% — unless proven otherwise.

• A director who is a controlling shareholder was convicted of failing to remit withheld tax: the unremitted tax is collected from that director.

A recipient of assets is not liable for more than the value of what was received without consideration (Section 119A(c)). An objection to the decision must be filed with the Director within 21 days, and an appeal against the Director's decision must be filed with the District Court within 30 days (Section 119A(f)). The VAT Law contains a similar provision in Section 106.

Collection During an Objection or Appeal

For income tax, a taxpayer who filed an objection or appeal must pay within 15 days only the undisputed portion (Sections 183 and 184 of the Ordinance). For VAT, during the objection stage only up to half of the disputed amount may be deferred (Section 91(a)(1) of the VAT Law). The Assessing Officer may also extend payment deadlines for good cause, subject to linkage differentials and interest (Section 186). For the procedure itself, see Objection and Appeal Against an Income Tax Assessment.

1. We examine the debt itself: whether the assessment is final, whether a demand was sent, whether 15 days have elapsed, and whether the amount includes a disputed portion.

2. We submit a reasoned request to the collection officer to cancel or reduce the attachment, accompanied by supporting documents. When the asset belongs to a family member or another company, we attach proof of ownership.

3. We propose an alternative: a guarantee, a charge on a different asset, or a payment arrangement. For VAT debts, under a procedure published by the Tax Authority on 29.5.2022, an arrangement is conditional on filing all returns and sometimes on providing collateral.

4. If the request is denied, we choose the appropriate forum. A decision under Section 119A is appealed to the District Court. A person claiming that the attached asset belongs to them and not to the debtor may seek a declaratory remedy, as in CA 2921/21, where the District Court canceled an attachment on a vehicle but upheld the attachments on a plot of land and a bank account, and the Supreme Court dismissed the appeal.

Collection and attachment cases are handled by Adv. and CPA Shlomi Vaknin and his team. Shlomi previously served as a national supervisor in the professional division of VAT at the Israel Tax Authority. In a collection case, he first examines the source of the debt: how the assessment was determined and what remains open.