| Israel Income tax rates Israel tax rates for employment and freelance income for 2009 are as follows:
10%: on income up to NIS 4,590
15%: on income of NIS 4,591 - 8,160
23%: on income of NIS 8,161 - 12,250
30%: on income of NIS 12,251- 17,600
34%: on income of NIS 17,601 - 37,890
46%: on income above NIS 37,890
Israel income tax rates for other (passive) income for 2009 are as follows:
30%: on income up to NIS 12,250
32%: on income of NIS 12,251 - 17,600
34%: on income of NIS 17,601 - 37,890
46%: on income above NIS 37,890
Income tax is a tax levied on taxable income of individuals and corporations. The tax in Israel is levied according to the provisions of the Income Tax Ordinance and its collection is a responsibility of the Israeli tax authorities.
The tax rates for individuals very from 10% to 46% (46% tax rate is applied starting the year 2009; since the year 2003 the tax rates for individuals is being gradually decreased. The final threshold is 44% to be applied in 2010 and afterwards).
The Income Tax Ordinance regulates the taxation and provides certain allowances for tax payers, such as certain deductions for tax purposes, tax credits and exempts. It is important to ensure that those allowances are fully utilized in the most efficient and optimal way to minimize the tax liability. Therefore many tax payers, while filling their tax returns, seek assistance of tax advisers.
Personal Tax Credits
Israeli residents are entitled to personal tax credits, which are known as credit points. These credit points are deducted from the tax liability (not from income). Each credit point is currently worth NIS 197 per month. A man generally receives 2.25 credit points (which reduces tax by NIS 443 per month) and a woman receives 2.75 credit points (which reduces tax by NIS 541). If a couple both work and opt for separate tax calculations, the wife will receive an extra credit point for each child under 18 years of age and half a credit point for a child born or reaching 18 in the tax year.
New Residents
New immigrants (Olim) receive an extra 3 credit points in the first 24 months after their Aliya, 2 extra credit points in the next 12 months and 1 extra credit point in the next 12 months. New residents and senior returning residents (who return to Israel in 2007 - 2009 after living 5 years abroad) also enjoy a 10-year Israeli tax exemption for non-Israeli source income and capital gains and an exemption for 5 - 20 years regarding interest on "Patach" foreign currency time deposits of three months or more at an Israeli bank.
Charitable Contributions
There is a 35% tax credit for contributions to Israeli charities approved under Section 46 of the Income Tax Ordinance. In 2008, following a recent amendment, this applied to contributions of at least NIS 400 but no more than NIS 4,208,000. US taxpayers should consider claiming a 25% tax credit for Israeli tax purposes and a tax deduction for US tax purposes, for contributions to US charities that are "friends of" Israeli charities, under special rules in the US-Israel tax treaty.
Disabled People
Persons certified as being 100% disabled (or 90% in certain circumstances) for 185-364 days in a tax year are exempt on income of up to NIS 65,400 per year, pro rated by reference to the number of days' disability. If they are disabled 365 days or more and derive employment or freelance income, they are exempt on income of up to NIS 546,000 per year, pro rated by reference to the number of days' disability. Interest on money derived from bodily injury compensation is exempt up to NIS 233,280.
Automobiles for Employees
The use of an automobile provided by an employer is taxable ("Shovi shimush"). The amount taxed depends on the price of the car as new. There are 7 automobile price groups and the monthly taxed benefit for each is currently as follows: Group 1 - NIS 1,700; group 2 - NIS 1,860; group 3 - NIS 2,630; group 4 - NIS 3,200; group 5 - NIS 4,440; group 6 - NIS 5,720; group 7 - NIS 7,290.
Other Tax Limits
There are a number of other monetary tax limits. They mainly relate to different types of retirement and savings plans and life insurance policies, discharged soldiers and certain academic degree holders.
National Insurance (Bituah Leumi)
The current monthly national insurance rates for Israeli residents, including the health levy, are as follows:
Employment income up to NIS 4,757: employer pays 3.45%, employee pays 3.5%
Employment income of NIS 4,758 - 38,415: employer pays 12%, employee pays 5.43%
Freelance income up to NIS 4,757: 9.82%
Freelance income NIS 4,758 - 38,415: 16.23%
Passive income up to NIS 4,757: 9.61%
Freelance income NIS 4,758 - 38,415: 12%
Payment if no income: NIS 147
Other rates apply to early retirees, domestic helpers and certain others.
Israel Corporate taxThe rate of corporate tax in Israel is 25% beginning 2010.
Corporate tax is a tax levied by various factors on profits made by companies. Companies and corporations are considered separate entities from their owners. Therefore, any profits derived by companies are taxed separately from their owners' profits. There are a number of laws and regulations which regularize the rates and permissible deductions of corporate tax in Israel. This article will present a short summary of corporate tax rates in Israel, the laws and regulations which regard Israeli corporate taxes, as well as summarize a number of the main tax deductions and relieves.
Throughout the past years, the Israeli government has decided on implementing a gradual decrease of corporate tax rates in Israel, based on the assumption that corporate tax rates comprise as a main factor in foreign investors decisions for investing in Israel, as opposed to alternative countries. The corporate tax rate in Israel in 2006 was 31%. The rate of corporate tax in Israel in 2009 is 26% and in 2010 rates are expected to drop to 25%.
The three main laws which regulate corporate tax in Israel are: the Income Tax Ordinance, the Law for Encouragement of Capital Investments and the Law for Encouragement of Industry (Taxes). These laws regulate tax rates and determine tax deductions and certain tax incentives. Israeli tax laws determine that Israeli residents are liable to Israeli taxes on their worldwide income, as well as their capital gains. Non-resident companies are liable to Israeli taxes on income derived in Israel. A company which is incorporated in Israel or which is managed in / from Israel is considered an Israeli resident company.
Income tax levied on corporations is called corporate tax. The tax is levied at a uniform rate which is also being gradually decreased since 2003 and shall reach the threshold of 25% in 2010 and afterwards.
Since income taxes (including corporate tax) represent the major source of tax payments collected by the tax authorities in comparison to any other taxes in Israel, the tax authorities invest a great deal of time and efforts in reviewing and auditing the tax returns filled and submitted by tax payers.
In order to encourage local and foreign investors and entrepreneurs to start businesses and invest in Israel, the Israeli government and tax authorities have instituted many tax incentives which reduce the rate of corporate tax in Israel for many local and foreign companies or their taxable income. Here are a three of the main corporate tax incentives instituted in Israel:
Tax rate for foreign companies: The resident companies are taxed on their total income, while the non-resident companies are taxed on incomes from activities in Israel.
Foreign tax relief: Beginning from January 2003, companies in Israel are allowed to deduct foreign taxes paid on foreign profits, under certain conditions.
Grant programs: There are a number of regulations and tax incentives administered by the Israeli investment center and the ministry of Industry, Trade and Labor, in order to encourage research and development projects in Israel. In addition to receiving various grants, approved enterprises may benefit from reduced corporate tax rates of 10%-25% for a period of 7 to 10 years.
Priority zones: Israeli government policy is to provide privileged conditions for companies in the peripheral areas of Israel. Most priority areas are in the Galilee in northern Israel and the Negev, in southern Israel. Benefits for companies in priority A areas include a reduced corporate tax rate, which depends on the company's value, field and whether it is a residential or foreign owned company.
In addition to the tax relives and exemptions written above, there have been many other incentives instituted by the Israeli authorities over the past years, in order to encourage stating businesses and initiatives in Israel.
Israel VAT (Value Added Tax) RatesThe standard rate of VAT in Israel was increased from 15.5% to 16.5% on July 1, 2009
Value added tax or VAT is also known as goods and services tax or GST. VAT in Israel is an indirect tax that is levied as a consumption tax on the value added. It means that the tax levied is taken from a person who is not bearing the total cost of the tax. As against sales tax, VAT in Israel is a neutral tax which means that it remains neutral regarding the number of transaction between consumer and producer. VAT in Israel is levied when a service has been sold or provided to the consumer if the said transaction is commercial in nature. VAT in Israel is standard at 16.5% as of today.
The Israel taxes method does not charge VAT on everything. VAT in Israel has a list of instances where VAT is not levied. Some of the areas where VAT in Israel is not levied cover tourists who are not levied VAT for hotel accommodation and related services. By default all rates on goods and services include the VAT. For tourists VAT in Israel; is refunded for the many services specifically listed. These include all kinds of accommodation, car rentals with/without driver, organized tours, all domestic flights, meals had in hotels and restaurants and on tour. There is a refund procedure that the tourist must adhere to avail refund on VAT in Israel.
Vat in Israel is not levied on sea and air freight to and from, homes rented out as residence only, unprocessed fruits and vegetables to name some. No VAT is levied on a sale where it is not possible to deduct VAT when it was purchased. In Eilat VAT is exempt for all, the Israeli community included, and for goods and services utilized by tourists.
Israel Capital gains tax Capital gains tax is a tax charged on capital gains - the profit realized on the sale of different capital assets, which might include fixed assets, intangibles, securities, precious metals and property. Distinguishing between assets which realization leads to profit taxable as capital gain and assets which realization results are considered to be regular income might be in some cases a tricky one.
Social security and health tax in IsraelAlthough social security payments might be seen as insurance premium, they are usually considered to be a part of taxes in Israel.
In general, every resident of Israel aged 18 and over is obliged under law to be insured by Social Security and to pay the Social Security tax, except for a housewife (a married woman who is not employed outside the household) and for a person who first became an Israeli resident over the age determined by law (the age increases gradually from 60 to 62), subject for certain additional exemptions.
Social security tax is generally paid as a percentage of the taxable income. Where a payer is an employee, social security tax paid by him should be supplemented by a contribution made by an employer. The employer must deduct the employee's share of the social security and health taxes from his/her wage and make his supplementary contributions, at the following rates (as of 1.1.2009):
From the share of the income that is up to 60% of the average wage, 0.4% social security tax and 3.10% health tax are to be deducted. Employers' contribution is 3.45% (social security only).
From the share of the income that is above 60% of the average wage and up to the maximum income liable for the payment of social security tax, 7% social security tax and 5% health tax are to be deducted. Employers' contribution is 5.43% (social security only).
Purchase Real Estate Taxes in IsraelTaxes in Israel are particularly complicated when it comes to real estate. Applicable taxes include purchase tax (rating between 0 to 5%) on each real estate transaction subject to certain tax benefits.
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