Taxation in Israel

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Taxation in Israel include income tax, capital gains tax, value-added tax 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 created the Trajtenberg Committee 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.

Individual tax[edit]

Filing status[edit]

As a basis for income, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on their Israeli sourced income.[1] Income includes, employment, business income and passive income from bank deposits and savings.[2]

An individual is resident if his "center 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.[2]

A single filer will file a single assessment, while a married couple will file a joint assessment, but may opt out if the need arises.[2]

A year for tax purposes for individuals is a calendar year and must file their annual tax returns by the 30 April of the following year.[3]

Tax rates[edit]

The basic rates of income tax are as follows (according to the Israeli Tax Authority). Taxes are charged based on annual income; salaries in Israel are usually discussed at the monthly rate so these are included for convenience.

Annual income level (NIS) Monthly income level (NIS) 2017 tax rate[4][5]
0 – 74,640 0 - 6,220 10%
74,641 – 107,040 6221 - 8,920 14%
107,041 – 171,840 8921 - 14,320 20%
171,841 – 238,800 14,321 - 19,900 31%
238,801 – 496,920 19,901 - 41,410 35%
496,921 - 640,000 41,411 - 53,333 47%
over 640,000 over 53,333 50%
Other income sources 2014 tax rate
Capital gains[1] 25-32%
Interest[1] 25-32%
Dividends[1] 25-32%
Inheritance[6] None

Corporate tax[edit]

Filing status[edit]

A corporation is deemed to be subject to Israeli taxes if its activities are managed and controlled within the State of Israel or established under its laws.[7] A domestic corporation is subject to taxation on its worldwide income. A foreign corporation with an Israeli subsidiary is only taxed on income derived from, accrued or received in Israel, while a non-resident company without a subsidiary is only taxed on income sourced in Israel.[7]

A year for tax purposes is a calendar year, however businesses may request a different schedule. Businesses must file their annual tax returns five months after the end of their year.[3]

Tax rates[edit]

As of January 2016, the corporate tax rate in Israel is 25%.[8] On January 1, 2017 the rate was lowered to 24%, with an additional reduction on January 1, 2018 to 23%.[9]

VAT[edit]

Value-added tax (VAT) in Israel, is applied to most goods and services, including imported goods and services. As of 1 October 2015, the standard was lowered to 17%, from 18%.[10] [11] Beforehand, it was raised to 18% from 17% on 2 June 2013,[12] which it stood at after being raised from 16% on 1 September 2012.[13]

Certain items are zero-rated like exported goods and the provision of certain services to nonresidents. The value of imported goods, for VAT purposes, includes the customs duty, purchase tax and other levies.[14]

Multinational companies that provide services to Israel through the Internet, such as Google and Facebook, must pay the VAT tax rate.[15]

Electronic filing of VAT is mandatory in Israel.[16]

National insurance (Social Security)[edit]

Current rates of national insurance for employees, including health insurance and Bituah Leumi contributions (as of September 2013, in NIS)[17]

up to 5,171 monthly salary 5,171-42,435 monthly salary
Employee’s share 3.50% 12.00%
Employer’s share 3.45% 7.50%[18]

Additionally self-employed individuals pay between 9.82%-16.23%.[17]

Stamp duty[edit]

Historically, Israel had a stamp duty on signed documents.[19] Documents and duties were regulated by the 1961 "Stamp Tax on Documents" (Law 5731-1961),[20] the 1965 "Stamp Tax on Documents Regulations",[19] and subsequent Additions.[19] Documents below a certain value could be self-stamped at a postal-bank; in 2004, this threshold value was raised from 62,500 NIS to 125,000 NIS.[19] As of 2006 this tax is no longer collected.[21]

Israel has no other stamp-based taxes.[22]

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.[23] 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.[17]

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.[17]

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.[17]

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.[17]

Tax benefits for new immigrant[edit]

New immigrants will enjoy tax deductions based on the following division:[17]

  • During the first 18 months – 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.[citation needed]

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.[17]

References[edit]

  1. ^ a b c d Your taxes: Tax rates for 2014 - Retrieved 9 September 2014
  2. ^ a b c Israel Highlights 2014 Archived 2014-09-11 at the Wayback Machine. Section - "Personal Taxation", page 2
  3. ^ a b Taxation and Investment in Israel 2012 Section - "3.7 Administration", page 12
  4. ^ Tax brackets 2017 (Hebrew) - MeHeshbon Sakhar
  5. ^ Income tax brackets (marginal rate levels) in Israel (Hebrew) - Prisha
  6. ^ Israel Highlights 2014 Archived 2014-09-11 at the Wayback Machine. Section - "Other taxes on Individuals", page 2
  7. ^ a b Taxation and Investment in Israel 2012, page 9
  8. ^ Knesset gives final approval to corporate tax cut
  9. ^ "Israel approves new innovation box regime and reduces tax rates". taxinsights.ey.com. Retrieved 2017-10-16. 
  10. ^ Israel Lowered the Value-added Tax, but Consumers May Have Little to Celebrate
  11. ^ Israel – VAT rate reduced to 17%
  12. ^ VAT hits 18% high for third time in Israel's history
  13. ^ Taxation and Investment in Israel 2012 Section 5.1, page 15
  14. ^ Israel Highlights 2014 Archived 2014-09-11 at the Wayback Machine. Section - "Value added tax", page 3
  15. ^ Israel to Levy New Taxes on Google, Facebook in Policy Shift
  16. ^ VAT/GST electronic filing and data extraction Section - "Is electronic filing of periodic VAT/GST returns mandatory or optional?", p. 11
  17. ^ a b c d e f g h Immigration to Israel: Israeli Tax Ramifications and Benefits - Retrieved 9 September 2014
  18. ^ "Israel - CountryPedia - Papaya Global". CountryPedia - Papaya Global. Retrieved 2016-12-28. 
  19. ^ a b c d Department of Customs & VAT (5 May 2004). "Notice to the Public: Stamp Tax". The State of Israel. Retrieved 27 November 2017. 
  20. ^ Stamp Tax on Documents: Law 5731-1961, a full text English translation incorporating all changes up to and including September 1, 2003, Haifa: Aryeh Greenfield-A.G., September 2003, LCCN 2004418547, OCLC 54429051, OL 3361544M 
  21. ^ Taxation and Investment in Israel 2012: Reach, relevance and reliability (PDF), Deloitte Touche Tohmatsu Limited, p. 14 
  22. ^ "Israel Corporate - Other taxes". PwC Worldwide Tax Summaries. PricewaterhouseCoopers. 4 April 2017. Retrieved 27 November 2017. Stamp taxes. There are no stamp taxes imposed in Israel. 
  23. ^ New Israeli Tax Incentive for Foreign Residents

External links[edit]