The Knesset recently approved the Law for the Reduction in the Use of Cash. This law imposes bans and restrictions on the making and receiving of payments using cash and checks at the sums therein prescribed. The provisions of the law apply both to “dealers” who are defined as “anyone who sells an asset or provides a service during the course of his business,” and to “non-dealers,” as the case may be. Further, the law restricts cash-payment transactions being transacted under various contexts, including deals, gifts, donations, loans, and wages.
The law, which will come into effect on January 1, 2019, constitutes another component of the battle against the “shadow economy” in Israel. This shadow economy is made up of income-generating economic activities that are not being reported to the tax authorities, in evasion of the legal obligations that apply to such economic activities. Actions attributed to the shadow economy in Israel include tax evasion, criminal activities, money laundering, the financing of terror, etc.
According to the law’s explanatory notes, the need to restrict the use of cash and checks derives from the strong connection between their use and the shadow economy in Israel. Namely, cash and certain types of checks are anonymous, and thus facilitate the use of funds in ways that cannot be traced by the financial system, the tax authorities and the law enforcement authorities.
The law differentiates between the restrictions that will apply to dealers, i.e. anyone conducting transactions during the course of business (and this definition also explicitly includes the activities of NPOs), and those that will apply to non-dealers, i.e. anyone conducting transactions outside the framework of a business, as to the specific restrictions that apply.
Restrictions Applying to Dealers
For cash payments – The law prohibits dealers from issuing or receiving payments in cash for transactions within the scope of their businesses if the transaction price exceeds NIS 11,000. However, a specific provision applies in relation to tourists, whereby dealers are prohibited from accepting cash payments from tourists (and vice versa) for transactions within the scope of their business if the transaction price exceeds NIS 55,000. This restriction does not apply to cash payments between relatives or to particular authorities.
For payments by check – The law prohibits dealers from issuing or receiving payments by checks within the scope of their businesses—either for transactions or as wages, donations, loans, or gifts—without recording on the check the name of the recipient of the paid or endorsed payment.
Restrictions Applying to Non-Dealers
For cash payments – The law prohibits non-dealers from issuing payments in cash to dealers for transactions within the scope of their businesses, if the transaction price exceeds NIS 11,000. In addition, non-dealers are prohibited from issuing or receiving cash payments in transactions with other non-dealers if the transaction price exceeds NIS 50,000. This restriction does not apply to cash payments between relatives or to particular authorities.
For payments by check – The law prohibits non-dealers from receiving a payment by check that exceeds NIS 5,000, or from issuing a payment by check to another non-dealer that exceeds this sum—for a transaction or as wages, donation, loan, or gift— without recording on the check the name of the recipient of the paid or endorsed payment.
Restrictions Applying to Lawyers and Accountants
The law also includes a specific provision that pertains to lawyers and accountants. This provision prescribes that, within the scope of providing a business service to a client, referring to those services with respect to which lawyers and accountants are subject to obligations by virtue of the Prohibition of Money Laundering Law, lawyers and accountants are prohibited from accepting a payment in cash or by check at a sum exceeding the maximums stipulated for dealers and non-dealers (a sum in cash exceeding NIS 11,000 or NIS 50,000, as the case may be).
The law limits the ability to use “open checks”—checks that do not record the name of the recipient of the payment either as the payee or the endorsee, and checks that have been endorsed more than once (other than within the framework of the supervised financial system).
The law further prescribes that when reporting a real estate transaction for the purpose of purchase tax, the buyer must also specify how the payment was rendered. Submitting this report is a precondition to receiving confirmation from the tax authorities of the payment of the tax, required, inter alia, for registering the transaction.
The law also authorizes the Minister of Finance to prescribe provisions for the purpose of encouraging the use of electronic payment means, including by specifying a compulsory acceptance for a specific electronic means of payment by merchants.
Dealers and non-dealers should note that the law also prescribes hefty fines for offenses and compulsory criminal punishment for criminal offenses.