Taxation in Israel

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The principal taxes in Israel are income tax, capital gains tax, VAT and land appreciation tax. The primary law on income taxes in Israel is codified in the Income Tax Ordinance. There are also special tax incentives for new immigrants to encourage aliyah. Following Israel’s social justice protests in July 2011, Prime Minister Benjamin Netanyahu appointed during on August, 2011 a special committee headed by Professor Trajtenberg to hold discussions and make recommendations to the government's socio-economic cabinet, headed by Finance Minister Yuval Steinitz. During December 2011 the Knesset reviewed these recommendations and approved a series of amendments to Israel's tax law. Among the amendments were the raising of the corporate tax rate from 24% to 25% and possibly 26% in 2013. Additionally, a new top income bracket of 48% (instead of 45%) would be introduced for people earning more than NIS 489,480 per annum. People who earn more than NIS 1 million a year would pay a surtax of 2% on their income and taxation of capital gains would not be decreased to 20% but remain at 25% in 2012.

Personal Income tax[edit]

Basis - Israeli residents are taxed on their worldwide income, while non-residents are taxed only on their Israeli sourced income.

Residence - An individual is resident if his "centre of life" is in Israel. If an individual spent 183 days or more, in Israel during the current tax year or; if an individual spent 30 days or more in Israel during the current tax year and the total days spent in Israel during the current tax year AND the preceding two years were 425 days or more.

The basic rates of income tax are as follows (according to the Israeli Tax Authority).

Annual Income level (NIS) 2011
0 – 60,840 10%
60,841 – 103,920 14%
103,921 – 168,840 23%
168,841 – 254,880 30%
254,881 – 482,760 33%
over 482,760 45%
Annual Income level (NIS) 2012
0 – 62,400 10%
62,401 – 106,560 14%
106,561 – 173,160 21%
173,160 – 261,360 30%
261,360 – 501,960 33%
over 501,961 48%

Filings - A married couple will generally file a join assessment. Individuals must file their annual tax returns by the 30 April of the following year (however accounting firms are able to receive extensions for their clients and file at a later date)

Taxable Income - All income from employment and business is taxable. Passive income from bank deposits and savings, both in Israel and abroad are also taxable.

Capital Gains - Capital gains may arise on the sale of assets; for individuals this is generally 25%.

Tax year - Calendar year

Inheritance/estate tax - None

Corporate tax[edit]

Residence - A corporation is deemed to be resident if its activities are managed and controlled within the State of Israel or established under its laws.

Scope - Israeli resident companies are taxed on their worldwide profits, with credits granted for overseas taxes paid. Non-resident companies are only taxed on their Israeli sourced income.

Tax Rate - In 2011 the corporate tax rate was 24%. In 2012; in accordance with the Knesset passing an amendment pursuant to the Law for Change in the Tax Burden (Legislative Amendments), passed on December 6, 2011; raised the expected corporate tax rate in 2012 to 25%, with future expected reductions being repealed.

VAT[edit]

Value Added Tax (VAT) in Israel, is applied to most goods and services, including imported goods and services. The standard rate is 18%, it rose from 17% on 2 June 2013.

Certain items are zero rated which includes exported goods and the provision of certain services to non-residents. The value of imported goods for VAT purposes includes the customs duty, purchase tax and other levies.

As of 2012, e-filing will be mandatory.

National insurance (Social Security)[edit]

Current rates of national insurance for employees, including health insurance and Bituah Leumi contributions (current for 2012, in NIS)

up to 5,171 monthly salary 5,171-41,850 monthly salary
Employee’s share 3.50% 12.00%
Employer’s share 3.45% 5.90%

Stamp duty[edit]

Stamp duty on signed documents was abolished in 2006.

New immigrants and returning citizens[edit]

New immigrants and returning citizens are entitled to various benefits granted by the Tax Ordinance. These benefits were extended in 2008 in commemoration of Israel's 60th anniversary to try further to provide incentives for Jews to make Aliyah. A returning citizen is someone who has either resided overseas for at least 10 years; or resided overseas for 5 years and returned to Israel during 2007-2009; or were considered foreign residents on January 1 2007. Special benefits also exist for returning scientists, and entrepreneurs. The law was introduced in order to persuade many Israelis, who had made yerida (left the state of Israel) to return.[1] These tax benefits are offered to new immigrants who made Aliyah after January 1, 2007 as follows:

10 Year Tax Exemptions for Companies Managed by Returning residents or New Immigrants[edit]

Returning residents or new immigrants who own and manage a foreign company that is active abroad, or own its shares, will no longer be automatically subject to Israeli taxes. Thus, the company will be able to continue generating tax-free revenues, so long as these revenues are not generated in Israel.

10 Year Exemption from Reporting Earnings Whose Source is from Abroad[edit]

Returning residents or new immigrants, and the companies that are under their direction, are not obligated to report earnings that benefit from exemption. Only income from activities in Israel and from Israeli investments and assets that is generated following Aliyah or return to the country is subject to reporting and taxation according to regular tax laws.

Expansion of tax benefits for returning citizen and new immigrant[edit]

Returning residents and new immigrants will now be exempt from taxes for 10 years on income generated outside Israel. This covers all income, active or passive, such as interest, dividends, pensions, royalties and rental of assets. All income, whether from the realization of assets and investments abroad or from regular income abroad, is tax exempt.

Pension benefits for returning residents and new immigrants[edit]

New immigrant will be exempt from paying taxes on their pension. Returning residents will be exempt from paying taxes on their pension for a period of 10 years.

Tax benefits for new immigrant[edit]

New immigrants will enjoy tax deductions based on the following division:

  • During your first 18 month – 3 tax credit points.
  • During the following year – 2 points.
  • During the third year – 1 point.

Tax benefits for new immigrants on interest from foreign currency deposits[edit]

New Immigrants are entitled to exemption from paying tax on interest on foreign currency deposits for 20 years, so long as the source of those deposits is capital they possessed prior to their immigration, and which was deposited in an Israeli banking institution.p

An adjustment year[edit]

New immigrants and returning residents can fill an application form for an adjustment year. During the year they will not be considered Israeli citizens for tax purposes. At the end of the year, If they decide to stay in Israel they will enjoy all the benefits that are part of the new tax reform.

References[edit]

  1. ^ [1], [2], [3]

External links[edit]