Tax Optimization for Business in Israel: Business Travel Abroad
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 purpose of the trip: business activity, income generation, conclusion of a transaction
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:
carrying out the main business activity (for example, reading lectures, conducting seminars, giving consultations, etc.);
travels within the framework of providing services to the company’s customers (both Israeli and foreign);
conclusion of a transaction (only for non-Israeli clients);
training, advanced training, study of new production methods used in the line of business.
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:
trips to meet clients who are residents of Israel;
trips to find new clients.
trips to expand business activities: preparation of new infrastructures, search for a location to open a company branch,
meetings with your own contractors (unfortunately, these expenses will not be recognized even as capital costs and
depreciation cannot be written off therefrom).
personal delivery of documents abroad (in this case, the cost of service from the delivery service can be written off as expenses).
Basis for writing off expenses – a detailed report covering the business trip
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:
Given name, family name and position (official capacity) of the employee who went on a business trip;
Evidence that the trip was related to the business activities of the company (receipts for the import or export of goods, an invitation to read a lecture, hold a seminar, booklets and tickets to an exhibition, transactions signed as a result of the trip, names of customers or suppliers and their business cards). It makes sense to think this point over in advance and ask foreign partners to prepare documents on their part.
Purpose of the business trip.
Number of days spent abroad.
Dates, from and to which date.
The amount spent on air tickets.
The amount spent on accommodation.
The amount spent on car rental or other transportation expenses abroad.
The amount of other expenses (meals, tuition fees, the cost of participation in the exhibition), detailed and separated by type.
All specified amounts must be supported by bills and invoices attached.
Permitted items of expenditure and restrictions on their amounts
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.
Food expenditures. The tax office recognizes amounts up to $136 per day as expenses for meals.
Vehicle rental The amount recognized as vehicle rental expenses is up to $ 64 per day.
Some important nuances about accounting for travel expenses abroad
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.