In our weblog there is already a feature about “Tax Optimization for Business in Israel: Accounting for Business Travel Expenses.” There we have examined in detail the items of expenses during business trips around the country, which may be taken into account as the cost of doing business. It will be recalled that such costs are recognized by the tax authorities and reduce the tax burden on the enterprise, in other words, they reduce the amount of tax to pay. Now let’s figure out what the criteria are for the tax inspection to recognize expenses associated with trips abroad. There are some finer points here, too.
The main and basic criterion is that the trip of an employee or business owner abroad should be closely related to business activities, and directly involve generation of revenue.
For example, a business trip abroad will be recognized by the tax office if it concerns:
Please note! Travels to purchase equipment will not be included in operating expenses, but will be accounted for in the cost (added to the cost) of the purchased equipment, from which depreciation will be written off.
Tax authorities DO NOT recognize foreign travel that was not really necessary or did not directly involve acquisition of income. For example:
Not least important for the tax office is a sufficiently detailed trip report. It is important to draw up the document in strict accordance with the requirements so that a trip abroad is recognized by the tax office as a permitted expense.
Drafting a business trip report (duakh nesia le-khul) begins at the planning stage of the trip itself.
The report should contain the following information:
Purchase of air tickets
The expenses will include the full cost of economy and business class tickets, but in the case of buying the first class, only the cost of a business class ticket for this flight will be taken into account.
Living arrangements abroad
What amounts will be counted as accommodation expenses during a business trip depends on the duration of the trip.
For example, when staying abroad for up to 90 nights:
up to $289 per night can be refunded for the first seven nights;
starting from the eighth night, 75% of the cost of accommodation is recognized, but not less than $127 per night.
If you travel abroad for more than 90 nights, living expenses up to $127 per night will be recognized as accommodation expenses.
There is also the option to declare “overnight accommodation costs” without providing receipts for up to $73 per day.
In some countries with a high cost of living, all of the above expenses under this item may be raised to 125%. Here is an incomplete list of countries that are allowed to exceed the limit on accommodation expenses: Australia, Luxembourg, Italy, Norway, Iceland, Spain, Finland, Belgium, France, Hong Kong, Sweden, United Kingdom, Switzerland.
The tax office recognizes amounts up to $136 per day as expenses for meals.
The amount recognized as vehicle rental expenses is up to $ 64 per day.
Keep in a safe place all documents and receipts associated with expenses during a business trip abroad. They do not have to be included all in the report, but in theory they may be required to prove the authenticity of expenses during a tax audit. This is especially true if we are talking about lengthy trips or if the tax authorities have doubts that the trip was related to the provision of income.
The exchange rate for foreign currency accounts will be the rate of the day on which the expenses were incurred.
Each year, the amounts allowed for travels abroad change slightly, literally by a few dollars. Before preparing the report, we recommend that you double-check the current limits. All the amounts indicated in this article are relevant for the year 2020.
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