The State of Israel loses 340 million shekels each year due to non-reporting of income by partnerships for tax purposes, according to an estimate by the Israel Tax Authority published last week in the State Comptroller’s report. According to the report, only 7% of partnerships are properly registered with the Partnerships Registrar.
A partnership is a form of business incorporation between several individuals, in which tax is imposed on each of the partners separately. In 2023, the annual turnover of partnerships stood at NIS 228 billion.
According to the law, a partnership is required to register with the Partnerships Registrar, but the State Comptroller reveals that 93% of partnerships, about 39,000 out of 42,000, did not do so. This is possibly related to the cost: the fine for failing to register a partnership has not been updated since 1975 and stands at 15 lira per partner per day, less than a cent in today’s terms. Between 2019 and November 2025, the Tax Authority conducted only one investigation regarding a partner who failed to report income from a partnership.
Every partnership is required to open a file with VAT authorities, meaning its existence is known to the state. Nevertheless, only in 2024 did the Partnerships Registrar first approach the VAT authority to obtain information on existing partnerships for enforcement purposes.
The Comptroller’s report states that “this situation increases the concern over the use of partnerships to conceal illegal activity, tax evasion, and aggressive tax planning.”
Alongside weak enforcement, the failure to fully collect taxes stems from the complex structure of partnership taxation. Each partner holds a separate file with the Income Tax Authority, and they are examined by tax officials independently of one another.
Although a partnership taxation team recommended in 2017 changing oversight and reporting procedures for partnerships, and a relevant bill was already placed on the Knesset agenda in 2021, no changes have been advanced.
“This situation may lead to inequality in determining tax liability among different partners,” the Comptroller writes, “and may also enable the exploitation of the existing structure in order to evade reporting and payment of tax on the full income of the partnership.”
