Tax estimates and advance payments during the year

Sections 62A and 81 impose a tax liability on profits that accumulated in the company and were not distributed, or on income attributed to the shareholders. Reviewing the figures only after the tax year ends limits the planning options — so it is recommended to prepare a tax estimate during the year.

The basis — a trial balance for the period

The tax estimate is based on a trial balance for the period (for example, nine months). A full trial balance is recommended — not only a profit and loss statement — so that the assets shield under section 81 can also be estimated. The amounts for the period are extrapolated to a full year — proportionally, or by an estimate for the remaining months.

Section 62A — what is reviewed

• The scope conditions of section 62A(a1): turnover, the expected profitability rate and accumulated profits.
• The income expected to be attributed to the active shareholders, and the choice of attribution route (expense recognition, salary or dividend).
• The advance payments required in the company and in the individual's file, according to the chosen route.

Section 81 — what is reviewed

• The expected excess profits, according to the fixed shield, the expenses shield and the assets shield.
• The required distribution — 6% of accumulated profits, or more than half of the excess profits (subject to the transition rule).
• The effect of the section 62A attribution route on the expenses shield and the assets shield.

Example

A trial balance for nine months shows expenses of ILS 900,000. Extrapolated proportionally to a full year: 900,000 × 12 ÷ 9 = ILS 1,200,000. This amount is the basis for estimating the expenses shield for the tax year.

Deadlines

Applying section 81 by distributing a dividend is possible until the end of the year following the tax year (or the filing date, if earlier). However, late application may incur interest and linkage charges — so it is better to plan during the year.

Frequently asked questions

Is the tax estimate binding? No — it is a planning tool. The final computation is made on the annual figures.

What is the difference between the section 62A attribution routes? In the expense-recognition route the attributed income is recognized as an expense in the company; in the dividend route the income is liable to corporate tax and the balance is distributed as a dividend. The choice also affects the distribution requirement under section 81.