The Taxation in Israel comprises capital gains tax, income tax, land appreciation tax, and value-added tax (VAT). The principal law on income taxes in Israel is the Income Tax Ordinance. Furthermore, there are special tax incentives for new immigrants to encourage Aliyah. In July 2011, there were protests about social justice in Israel, and Prime Minister Benjamin Netanyahu shaped the Trajtenberg Committee to hold deliberations and make recommendations to the government’s socio-economic cabinet. In December 2011, Israel’s Supreme unicameral legislature (the Knesset) studied these recommendations and agreed on a series of amendments to Israel’s tax law. Among the adjustments were raising the corporate tax rate from 24% to 25% and perhaps 26% in 2013. Moreover, a new top income bracket of 48% (instead of 45%) would be introduced for people earning more than NIS 489,480 per year. Individuals who make more than NIS 1 million a year would pay a surtax of 2% on their revenue, and taxation of capital gains would not be decreased to 20% but continue at 25% in 2012.
Israeli residents are taxed on their global income concerning individual tax, while non-residents are taxed only on their Israeli income. Income includes business income, employment, and passive income from bank deposits and savings. A person is resident if his “center of life” is in Israel. If a person spent 183 days or more in Israel in the current tax year or if a person spent 30 days or more in Israel in the present tax year and the total days of stay in Israel during the current tax year and the previous two(2) years were 425 days or more. A single filer will file a single valuation, while a married couple will file a joint evaluation but may opt out if the need arises. A year for tax purposes for persons is a calendar year, and they must file their annual tax returns by the April 30 of the following year.
Taxes are charged based on annual income; wages in Israel are usually discussed monthly, so these are included for convenience.
Annual income level (NIS)
Monthly income level (NIS)
2019 tax rate
0 – 75,720
0 – 6,310
75,721 – 108,600
6311 – 9,050
108,601 – 174,360
9051 – 14,530
174,361 – 242,400
14,531 – 20,200
242,401 – 504,360
20,201 – 42,030
504,361 – 649,560
42,031 – 54,130
Tax due from an employee is subtracted at the source by his employer. The company transfers the tax to the Income Tax on the 15th of the month for the previous period. Employers who have a significant number of employees report to the Tax Authorities once a month, while companies with fewer employees submit their returns once every two (2) months. In addition to limited companies, self-employed persons pay an advance to the Income Tax on the 15th of the month. A business that reports once every two (2) months on the 15th of the following month is distinguished from more giant industries that submit a return once a month. Most of the advances for the self-employed/businesses are resolute by the Tax Authorities according to the figures in the yearly return that the business submitted for the previous year. According to the accepted percentage for the sector to which the company belongs, the Tax Authorities fix advances for new companies according to the acceptance rate for the industry to which the business belongs. The prepayment system is frequently based on a portion of the total receipts of the business, regardless of the actual expenses incurred during the month.
About the corporate tax, this rate denotes the undistributed profits of the corporation. In some cases, a reduced tax rate is payable or an exemption granted, mainly to certain industrial companies defined as “approved enterprises.” The corporate income tax is defined as a tax on the earnings of corporations. All OECD countries charge a tax on corporate profits, but the rates and bases vary extensively from state to state. The most harmful tax is the corporate income tax for economic growth, but governments can moderate those troubles with lesser corporate tax rates and substantial capital allowances. At first hand, Capital allowances impact business incentives for new investments. In most countries, businesses are regularly not allowed to deduct the cost of capital investments instantly. In its place, they are required to remove these costs over several years, growing the tax load on new investments. This can be measured by calculating the rate of the present value cost that a business can subtract over the life of an asset. Countries with more substantial capital allowances have tax systems that support business investment, reinforcing economic growth.
Another vital tax in Israel is the Value-added tax (VAT) applied to most goods and services, counting imported goods and services. As of October 1, 2015, the standard was lowered to 17%, from 18%. Before, it was raised to 18% from 17% on June 2, 2013, which it stood at after being increased from 16% on September 1, 2012. Certain items are zero-rated, like the provision of certain services to non-residents and exported goods. For VAT purposes, the cost of imported goods includes the customs duty, purchase tax, and other charges. Multinational businesses that provide services to Israel through the Internet, such as Google and Facebook, must pay the VAT tax rate.
On the other hand, we can find Municipal Property that Tax is calculated per square meter of property and is charged upon the tenant, regardless of whether the tenant owns or rents the property. The Municipal Tax varies significantly between the different municipalities in Israel and within other municipality areas. The Israeli Ministry of Interior sets the minimum and maximum municipal tax rates for the various property classifications, and the municipal authority itself primarily commits the rates. Dissimilar rates are applied for property in public or commercial use and residential property.
Concerning Dividends payable to an Israeli company by another Israeli company resulting from income produced or accrued in Israel are exempt from tax. Dividends payable to Israeli businesses from income produced or accrued, or dividends received, are subject to a 25% tax from out of the country. In contrast, dividends paid to shareholders who own below 10% of the business are subject to a 25% withholding tax, and dividends paid to more important shareholders who own over 10% of the business are subject to a 30% withholding tax. For more clarification in this regard, do not hesitate to approach experienced tax lawyers.
The capital gains tax rate for a business is the average corporate income tax rate (25%). The inflationary factor of the gain is exempt from tax (for capital gains created after 1993). Capital gains tax rate varies depending on the pertinent tax support. Individuals who are not residents of Israel for tax purposes are exempted from capital gains tax of shares operated on the Tel Aviv Stock Exchange. Non-residents are also exempt from tax on gains resulting from the sale of shares allocated to them by an Israeli resident company considering for their capital investment, as long as the Israeli business was classified as an “R&D-intensive Company.”
The Customs Duty in Israel is below the authority of the Israel Tax Authority. Israel is an affiliate of the World Customs Organization and uses Harmonized System for its customs arrangements. It has also signed the GATT treaty stating that the invoice is the basis for calculating the customs. Additional information about customs tariffs and categories can be found in the “Customs Tariff and Purchase Tax” manual published by the Israel Tax Authority.
Returning citizens and new immigrants are eligible for various benefits granted by the Tax Ordinance. These aids 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 has either resided overseas for at least ten (10) years, or lived overseas for five (5) years, returned to Israel during 2007-2009, or was considered foreign residents on January 1, 2007. Unique benefits also exist for returning scientists and entrepreneurs. The law was introduced to encourage many Israelis, who had made yerida (left the state of Israel) return. These tax benefits are accessible to new immigrants who made Aliyah after January 1, 2007, as follows:
In conclusion, on May 31, 2021, Israel and the United Arab Emirates signed a tax treaty, Israel’s Finance Ministry said, describing the move as an incentive to business development between the countries after they normalized relations last year. In October, the UAE finance ministry said that it had reached a preliminary agreement with Israel on avoiding double taxation. The tax convention will go into effect on January 1, 2022, after the ratification by parliament and ministers. The first tax agreement was reached in the wake of Israel’s normalizing relations with the UAE and Bahrain last year. Also, Israel has moved to improve ties with Morocco and Sudan. The treaty is based primarily on the OECD model, Israeli Finance Minister Israel Katz said in a statement, adding that it “provides certainty and favorable environments for business activity and will strengthen economic ties” with the UAE. Under the agreement, tax deductions, dividends, and royalties are capped. Israeli Foreign Minister Gabi Ashkenazi said the treaty would enable the significant promotion of investment and trade to help both country’s economies. Since a normalization deal was signed last September, Israeli and Emirati banks and other companies have signed cooperation deals while also establishing direct flights.