Tax Guide - Israel

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Corporate Income Taxes

Resident companies, defined as those which are incorporated under Israeli law, and those which are incorporated under foreign law but which exercise management and control of their business from Israel, are liable to corporate income tax on their worldwide income.

Other companies are taxed on their income from sources in Israel, subject to the terms of any relevant double tax treaty. The rates of corporate income tax have been announced for several years in advance, as follows:

Capital gains are generally taxed at 25%, but with reliefs for the element of the gain which is attributable to inflation. Capital gains from the disposal of publicly traded securities are taxed at corporate income tax rates.

Losses may be carried forward indefinitely for relief against future profits. There is no provision for losses to be relieved against the profits of earlier years.

In general there is no tax consolidation facility for groups of companies. In exceptional cases permission may be given for companies in common ownership and engaged in similar production activities to file a consolidated return.

Companies are generally required to file tax returns by reference to the calendar year. Companies which are listed on a stock exchange in Israel, or which are a subsidiary of a parent company which is listed on a foreign stock exchange, or which are associated with such companies, may apply for a different reporting year. Tax returns must be filed within five months of the end of the year, unless permission is obtained for an extension to the deadline.

Companies must make advance payments with respect to their tax liability during the course of the year, usually on the basis of a percentage of their turnover. Any balance of tax due is payable with the filing of the tax return.

Personal Taxes

Resident individuals are subject to income tax on their worldwide income.

Other individuals are taxed on their income from sources in Israel, subject to the terms of any relevant double tax treaty.

Income tax is charged at progressive rates, with a maximum rate of 45% applicable to taxable income in excess of ILS454,680.

Capital gains are generally taxed at 20%. Gains from the sale of shares in a company in which the seller owns 10% or more of the shares are taxed at 25%.

There are no inheritance or gift taxes. There is no wealth tax.

Social Security Costs

Employers are required to make social security contributions equivalent to 3.45% of their employees' pay up to ILS4,757 per month and
5.43% of their pay between ILS4,757 and ILS38,415 per month.

Employees' contributions are 3.5% of their pay up to ILS4,757 per month and 12% of their pay between ILS4,757 and ILS38,415 per month.

Withholding Taxes on Payments Abroad

Dividends are subject to a withholding tax of 20%, or 25% if the recipient owns 10% or more of the shares of the paying company. Interest and royalties are subject to a withholding tax of 25%.

For payments made to recipients in countries with which Israel has a double tax treaty the rates of withholding tax may be reduced under the terms of the treaty.

Indirect Taxes

Value added tax (VAT) is levied on the selling price of goods and services and on the value of goods imported into Israel. Businesses must register for VAT if their sales turnover exceeds a prescribed limit. The rate of VAT is 16%. Exports are zero-rated. Some supplies are designated as exempt, including the leasing of residential property. Businesses, other than those making exempt supplies, can generally recover the VAT with which they themselves are charged.

Other Taxes

Payroll taxes

Financial institutions and not-for-profit organisations are subject to a payroll tax of 7.5% on the extent to which their annual salary costs exceed ILS160,000.

Acquisition tax

Purchasers of real estate are subject to an acquisition tax at rates of from 3.5% to 5%.

Tax Incentives for Businesses

Companies owned to the extent of 25% or more by non-residents and which carry out selected government approved activities may qualify for reduced rates of corporate income tax and for reduced rates of dividend withholding tax for periods of up to ten years. The reduced rates of corporate income tax are from 10% to 20% depending on the degree of foreign ownership. The reduced rate of dividend withholding tax is 15%, or less under some criteria.

Companies carrying out selected government approved activities can qualify for exemption from corporate income tax for two, six or ten years, depending on the location, for so long as their profits are not distributed by way of dividend. On distribution the normal tax rates apply.

Accelerated depreciation allowances are given for expenditure on research and development.

Country Tax Guides are designed to provide a summary of the taxes which apply to business and individuals, and are for information purposes only. Whilst every effort has been made to ensure accuracy, information contained in these guides may not be comprehensive and is subject to frequent change. Recipients should not act upon it without seeking professional advice.