– Tax System
Israeli Shekel (NIS)
Exchange Control :- There are no foreign currency restrictions.
Principles / Financial Statements :- Accepted accounting
principles according to the Israeli accounting standards board / IFRS apply.
Financial Statements must be prepared annually (quaterly in case of Public
Business Entities :- These are the public & private limited
liability company, partnership (registered & non-registered) & branch
of a foreign corporation.
- A corporation is
deemed to be resident in Israel if its activities are managed & controlled
by Israel or if it is organized under the laws of Israel.
A foreign Corporation
managed & controlled by a new Israeli resident or a senior returning
resident (i.e. an individual who spends 10 years abroad) generally will not be
classified as an Israel resident company for 10 years.
- Israeli resident conpanies are subject to tax
on worldwide profits & gains, with a credit granted for overseas taxes
paid. A non-resident company is subject to tax only on Israeli-source profits,
which include income derived from an Israeli permanent estabilishment (PE) or
income accrued & produced in Israel, as well as capital gains from the sale
of Israeli assets.
Income – An Israeli resident Corporation is subject to corporate
income tax on its worldwide income, and to capital gains tax on worldwide
of Dividends - The
tax rate on dividend distributed by an Israeli resident company to another
Israeli company is 0%, provided the dividends arise from income produced
oraccrued in Israel. The tax rate on dividends from income produced abroad or
from dividends received from abroad, is 25 %; a tax credit will be granted for
tax withheld. Alternatively, the gross dividend will be subject to the regular
corporate tax rate, with a direct & an indirect foreign tax credit if the
Israeli company qualifies for the indirect tax credit mechanism.
Dividends distributed by a
“preferred enterprise” are taxed at 20% rate. Dividends distrbuted by an
approved / benefited enterprise generally are taxed at a 15 % rate if the
distribution id made from profits attributable to the approved / benfitted enterprise,
or at reduced rate of 4% on the alternative incentive track. Dividends
distributed from a revaluation of assets will be taxed as a sale of the assets,
and thus will be subject to capital gains tax, levied on the diffrence between
the original purchase price of the assets & the gross amount distributed.
Gains – The capital gains tax rate depends on the purchase date
and the nature of the asset. The general capital gains tax rate for a
corporation is the standard corporate tax rate. The Inflationary component of
the gain is exempted from tax.
An Israeli resident is
subject to capital gains taxon the disposal of its asset, regardless of whether
the assets are located in Israel. Capital gains derived from the sale,
exchange, transfer or other, diposition of tangible and intangible capital
assets located in Israel or constituting a direct or an indirect ownership
interest of assets in Israel are treated as Israeli-source income & are
subject to capital gains tax, regardless of whether the seller is a resident of
Israel for Israeli tax purposes. Shares & the other securities of Israeli
companies, or shares & other securities of non – Israeli companies holding
their main assets in Israel, also may be treated as Israeli assets.
Persons who are not residents
for Israel for tax purposes are exempt from Israeli capital gains tax on gains
from the sale of shares traded on the Tel Aviv stock exchange, unless the gain
is attributable to a PE the seller maintains in Israel.
A broad exempting from
capital gains tax applies to gains derived from the sale of sevurities in
Israel or Israeli-related companies acquired on or after 1st January
2009 by all non-residents, regardless of whether the non-residentis eligible for
benefits under a tax treaty, The exemption does not apply (1) to shares of companies whoes assets
consist primarily of real estate located in Israel; (2) if the shares sold were
purchased from a related party or by way of certain tax – deferred
reorganizations; (3) if the shares were held through a PE; or (4) if the
non-resident selling entity is 25 % or more controlled by Israeli resident.
:- Trading or business losses may be offset
against income from any source in the same year. Losses may be carried forward
indefinitely to be offset against business income & business capital gains.
Losses may not be carried back.
:- The Basic tax rate for companies is 25%. An
Israeli company classified as a preferred enterprise is taxed depending on where
its facilities are located.
An Israeli company
classified as an approved or a benefited enterprise is entitled to reduce tax
rate of between 0 % & 25 %, with the period of benefits depending on
whether the company’s facilities are located & whether certain conditions
are satisfied. The benefits will be revoked if profits deriving from the benefited income are distributed.
Qualified companies may be eligible
for both reduced corporate tax rates & grants from the investment center.
There are no basic
diffrences in the tax regime as applied to different forms of business
organizations. However, partnerships are transparent for tax purposes.
& Alternative Minimum Tax :- No
Tax Credit :- Israel grants a direct tax credit on foreign
taxes paid on Non Israeli source income. An Indirect tax credit is granted in
Exemption :- A special tax regime applies to Israeli holding
companies that invest in foreign corporations. An eligible corporation is
entitled to an exemption from tax on dividends received from a qualified
foreign subsidiary & on capital gains derived from the sale of shares in
such a ,subsidiary, as well as a full exemption from tax on financial income
derived from investments in the Israeli Capital market. In addition, dividends
paid by the holding company to a non-resident shareholder are subject to a 5 %
withholding tax, rather than the nornal 25 % or 30 % tax.
programmes are available eg. Foreign investment incentives, a holding company
regime & R&D incentives.
Holding Tax :-
:- Dividends paid to a non-controlling foreign
resident are subject to a 25 % withholding tax, otherwise the rate is 30. These
rates may be reduced under a tax treaty or incentives regime.
Dividends distributed by a
preferred enterprise are taxed at a 20% rate. Dividends distributed by an
approved/benifitted enterprise generally are taxed at a 15 % rate if the
distribution is made from profits attributable to the approved enterprise, or
at a reduced rate of 4% on the alternative incentive track.
Income Tax (currently 25%, reduced from 26.5% as from 1st January
2016) will be imposed if the recipient of the interest is a ‘body of persons’ ,
although the rate may be reduced under a tax treaty. A 0% withholding tax
applies to interest on certain bonds.
25 % withholding tax is levied on royalty payments to nonresidents. The rates
may be reduced under a tax treaty.
Remittance Tax :- There is no specific Tax on the remittance of
profits; however, in case of an approved enterprise, a branch may be subject to
a tax rate of 15 %, in addition to the corporate income tax.
payments to non – Israeli corporations are subjected to withholding tax at a
rate of 25 %, & a 25% rate applies to non-israeli individuals, The rate may
be reduced under a tax treaty.
Taxes on Corporations :-
Duty / Stamp Duty :- No
Tax :- Payroll tax is levied only on non-profit organizations,
at a rate of 7.5 % of wages, & financial institutions, at a rate of 17 % of
Property Tax :- Property betterment tax is applicable to the
sale of real property,. The principles of the property. The principles of the
property betterment tax are similar to those of the capital gains tax. The
betterment is calculated from the date of purchase untill the date of sale,
& the amount of betterment is subject to the corporate tax rate at the date
Security :- National Insurance is required by law
(covering allowances & stipends), Some employers pay part or all of employees
compulsary contributions to the national insurance scheme.
purchase of real property is subject to a
purchase tax of 6 %, When the asset purchased is a residential
apartment, the purchase is subject to tax at progressive rates ranging
from 0% - 10%.
A purchase tax is levied on
certin imports or local industrial production & is collected from local
manufacturers 15 days after the end of the month in which the goods are sold.
Importers are required to submit the collected tax when the goods are released
– Avoidance Rules :-
pricing :- The
transfer pricing rule, which are based on the OECD guidelines, apply to
transactions between an Israeli resident & its related non-residents. A
hierarchy of transfer pricing methodologies applies, with preference given to
transaction-based methods over profit-based methods. Documentation requirements
mandate that the taxpayer attach the statement to the annual tax return &
provide a detailed transfer pricing study at the request of the tax
authorities. An advance pricing agreement may be obtained.
Capitalization :- No
Foreign Companies :- A foreign company that is ‘controlled’ by
Israeli shareholders & that has accumulated undistributed passive profits
taxed at a rate lower than 15 % will be considered a controlled foreign company
(CFC). In such a ase, the israeli controlling the CFC will be treated as if it
had received its proportionate share of the profits as dividends. Upon the
distribution of profits, the Israeli controlling shareholder will be eligible
for a deduction in the amount of the gross national dividends that were subject
to Israeli tax, in addition to a tax credit for foreign tax paid.
Requirements :- The
tax payer generally must disclose all facts relevant for taxation, especially
with respect to transactions with related parties.
The Israeli tax authorities can challenge artificial transactions.
for Corporations :-
Year :- The tax year begins in January. Taxpayers may apply for a
special tax year, but the application will be approved only in special
Returns :- The filling of a consolidated return
generally is not permitted; each company in a group is required to file its own
return. However, if certain conditions are satisfied, qualified ‘industrial
companies’ may file a consolidated tax return.
Requirements :- Companies must file an annual tax return
later than 5 months following the end of the tax year. The tax authorities
determine advance tax payments, with some tax payers required to pay tax
according to their monthly turnover.
apply if advance payments are overdue or if tax pay returns are filled late.
The balance of any tax due is payable as of the beginning of the following tax
year. Overdue tax is subject to an annual 4 % interest rate untill paid in
taxpayer may request a ruling on the tax consequences of a proposed
residents are taxed on their worldwide income. Non-residents are taxed only on
israeli source income.
individual is resident in Israel if his/her ‘center of vital interests’ is in
Israel. The number of days spent in Israel and overseas also affects residence status:
an individual will be deemed to be resident id he/she has spend 183 days or
more in Israel or if during the current year, he/she spends 30 days or more in
Israel and the total duration of his/her stay in Israel in the tax year and in
the two preceding tax years, on a cummulative basis, amounts to 425 days or
An Israeli resident who
spends two consecutive year abroad and whose center of vital interests in the
two subsequent years was located abroad will be deemed to be a foreign resident
as from the date the individual chooses to leave Israel.
Status :- A married couple, living together, may opt for separate
tax assessment in certain circumstances; otherwise, they may file jointly.
Income :- All income from employment and/or a vocation is taxable,
including the value of fringe benefits & cos-of-living allowances. Passive
income from bank deposits & savings, both in Israel & overseas, also is
New Israeli residents &
senior returning residents are entitled to a tax exemption for certain types of
foreign-source income for a period of 10 years as from the date of
immigration/return to Israel. The benefit period may be extended for a minimum
of an additional 10 years period, provided certain investment criteria are
fulfilled and approval is obtained from the minister of finance.
Gains :- Real gains derived from the sale of shares in a publicly
traded company are subject to a 25 % tax rate if derived by non-controlling
shareholders; otherwise the rate is 30 %. Gains derived from the sale of bonds,
commercial securities or loans that are not linked to the CPI generally are
subject to a 15% tax.(however, a controlling shareholder that holds more than
10 % of the Israeli payer company’s shares will be taxed on both the real &
the inflationary component of gains at a rate of 20%)
The tax rates on capital
gains on all other assets range from 20% upto the individuals marginal tax
rate, depending on the date of acquisition & the type of asset (the minimum
tax rate for the sale of shares of nonpublic traded companies by an individual holding more than 10 % of
the company’s shares is 25%)
The inflationary component
of gains accrued as from 1st January 1994 is exempt from tax. The inflationary components of gains accrued before 1st January 1994 is
subject to a 10 % tax.
& Allowances :- Deductions are granted for pension fund
contributions, and individuals are entitled to various personal allowances
income tax rates are progressive upto 48 %. An additional 2 % surtax is levied
on annual taxable income exceeding approximately NIS 810,720. The surtax is not
applicable to certain types of income.
Tax on Individual :-
Duty/Stamp Duty & Capital Acquisitions Tax :- No
Property Tax :- Property
betterment tax is applicable to the sale of real property. The principles of
the property betterment tax are similar to those of the capital gains tax. The
taax regime uses a linear tax model that taxes the real bettermentof different
rax rates, depending on the dates on which the betterment was accrued.
Betterment accrued from the date of purchase upto 7 November 2001 is subject to
the marginal individual tax rates, betterment accrued from8 November 20011 to 1st
January 2012 is subject to the marginal individuals tax rates upto 20 %; &
betterment accrued after 1st January 2012 is subject to the marginal
individual ta rates upto 25% (30% if the sellerholds more than 10% of a real
If the asset is a
residential apartment, all real bettermentaccrued before 1st January
2014 is exempt, and all subsequent betterment is subject to the marginal
individual tax rates upto 25 %.
The purchaser of real
property is subject to a purchase tax of 6%. When the asset purchased is a
residential apartment, the purchaser is subject to purchase tax at progressive
rates ranging from 0% to 10%.
In certain cases (especially
when real property is sold), the municipal authorities may impose a ‘betterment
levy’ at a rate of 50 % on the betterment. The real property has gained as a
result of actions of the local municipal authorities. The bettrment levy paid
may be deducted from the betterment subject to the property betterment tax.
Security :- National Insurance is required by law
(covering allowances stipends for
pensioners, widowers, disability, maternity, hildren’s allowances, industrial
accidents, military service pay and unemployment). Some employers pay part or
all of employees compulsor contributions to the national insurance scheme. In
addition, every individual is subject to health care tax.
for Individuals :-
Year :- Calander Year
& Payment :- An individual must file an annual tax return
no later than 30 April of the following year. An extension of the deadline or
an exemption from filing may be granted in certain cases.
A new Israeli resident or a
senior returning resident will not be subject to the reporting requirements in
Israel on income derived from or accrued outside Israel, or sourced from assets
outside Israel for the 10 Year benifited period.
apply if advance payments are overdue or if tax returns are filed late. The
balance of any tax due is payable as of the beginning of the following tax
year.Overdue tax is subjet to an annual 4 % interest rate (both the interest
& principal are linked to the CPI) untill paid in full.
added Tax :-
Transactions :- VAT applies to most goods & services, and
standard VAT rate is 17 %. Certain items are subject to a 0% rate, including
exported goods, intangible goods & the provision of certain services to non
residents (ie. Tourism services), the transport of cargo to and from Israel,
the sale of goods & services to the Eilat free-trade zone and the sale of
fresh fruit & vegetables.
Payroll tax, which is levied
on non profit organizations at a rate of 7.5 % of wages and on financial
institutions at the rate of 17% of wages, is imposed in lieu of the VAT for
these type of entities.
Israeli Company, or a foreign company
conducting business in Israel, generally must register for VAT purposes, A non
registered foreign company operating in Israel generally must register with 30
days. Additionally, a foreign company registered in Israel or a non registered
foreign company that carries on an activity or business in Israel must appoint
a local representative for VAT purposes
within 30 days for commensing its domestic activities, and must notify
the VAT office closest to its place of business.
& Payment :- The dealer will collect output VAT on the
goods, services or assets it sells. The VAT collected will be transferred to
the VAT authorities once a month or once every two months, whichever is
determined to be more appropriate by the authorities based on the annual turnover
projection (once a month if the annual turnover is greater than approximately
NIS 1.5 million). The dealer may offset the output VAT paid in the course of
The annual revenue threshold
to qualify as an ‘exempt dealer’ under the VAT law is NIS 79,482, Such dealers
are exempt from output VAT and receive relief from filling periodic VAT returns
(other than the annual declaration reporting the annual turnover). Exempt
dealers are not entitles to recover their input VAT.