Taxation in Israel
Encyclopedia
Taxation in Israel
is divided into several areas, corporate tax
, income tax
, stamp duty
, various municipal taxes, and VAT
. Israel is currently undergoing a system of tax reform, lowering the tax rates for all its citizens. Israel's tax system is based primarily on the British system, as a result of the British Mandate of Palestine. Israel also has a special system of taxation for new immigrants in order to try and encourage Aliyah
.
and returning citizens
are entitled to various benefits, in 2008 as a result of Israel's 60th anniversary more benefits were added to try further to incentivize Aliyah. These exemptions are as follows:
and rental of assets. All income, whether from the realization of assets and investments abroad or from regular income abroad, is tax exempt.
. Returning residents will be exempt from paying taxes on their pension for a period of 10 years.
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.
Israel
The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...
is divided into several areas, corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...
, income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
, stamp duty
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
, various municipal taxes, and VAT
Vat
Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
. Israel is currently undergoing a system of tax reform, lowering the tax rates for all its citizens. Israel's tax system is based primarily on the British system, as a result of the British Mandate of Palestine. Israel also has a special system of taxation for new immigrants in order to try and encourage Aliyah
Aliyah
Aliyah is the immigration of Jews to the Land of Israel . It is a basic tenet of Zionist ideology. The opposite action, emigration from Israel, is referred to as yerida . The return to the Holy Land has been a Jewish aspiration since the Babylonian exile...
.
Income tax
The basic rates of income tax are as follows (according to the Israeli government).| Monthly Income level (US$) | 2005 | 2010 |
|---|---|---|
| 1,650 – 2,475 | 32 | 25 |
| 2,475 – 3,555 | 37 | 30 |
| 3,555 – 4,420 | 37 | 32 |
| 4,420 – 7,655 | 39 | 32 |
| over 7,655 | 49 | 44 |
Corporate tax
The rate of corporate tax is set at 26% for all companies however this is planned to be reduced in 2010 to 25%.VAT
The current rate of VAT in Israel is 16%, this is charged at every stage of the sale process, e.g. Imports are charged when they are sold to the first buyer, then when they are sold to the supermarket then when they are sold to the consumer. It does not however apply to export goods, or goods purchased by foreigners not residing in Israel, and can be reclaimed.National insurance (Social Security)
Current rates of national insurance (in NIS)| 0-3,482 monthly salary | 3,482-34,820 monthly salary | |
|---|---|---|
| Employee’s share | 4.5% | 10.32% |
| Employer’s share | 5.93% | 5.93% |
Stamp duty
The state also charges a tax on legal documents between 0.4% and 2% of the stated value of the item being sold.New immigrants and returning citizens
New immigrantsAliyah
Aliyah is the immigration of Jews to the Land of Israel . It is a basic tenet of Zionist ideology. The opposite action, emigration from Israel, is referred to as yerida . The return to the Holy Land has been a Jewish aspiration since the Babylonian exile...
and returning citizens
Returning citizens
A returning citizen is a term used in Israeli tax law and life. To qualify as a returning citizen you must meet one of the following categories:*Resided overseas for at least 10 years from the date they left Israel...
are entitled to various benefits, in 2008 as a result of Israel's 60th anniversary more benefits were added to try further to incentivize Aliyah. These exemptions are as follows:
Tax Exemptions for Companies Managed by Returning residents or New Immigrants
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.Exemption from Reporting Earnings Whose Source is from Abroad
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
Returning residents and new immigrants will be exempt from taxes for ten years on income generated outside Israel. This covers all income, active or passive, such as interest, dividends, pensions, royaltiesRoyalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
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
New immigrant will be exempt from paying taxes on their pensionPension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
. Returning residents will be exempt from paying taxes on their pension for a period of 10 years.
Tax benefits for new immigrant
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
New Immigrants are entitled to exemption from paying tax on interestInterest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
on foreign currency deposits for 20 years, so long as the source of those deposits is capital they possessed prior to their immigration
Immigration
Immigration is the act of foreigners passing or coming into a country for the purpose of permanent residence...
, and which was deposited in an Israeli banking institution.