People are often surprised to find that living in Israel is a lot less taxing than it used to be – and a bit less than many other countries. Following is a non-exhaustive summary of the Israeli rates and tax brackets for 2013.
Business tax rates
The regular company tax rate is 25%
The regular dividend tax rate is 30%-32% for 10%-or-more shareholders, 25%-27% for other shareholders, all subject to any applicable tax treaty.
Preferred income derived by preferred industrial and tech enterprises is liable to reduced company tax of 7% in development area A, elsewhere in Israel 12.5%, without time limit. Dividends taxed at 15%.
The VAT standard rate is 17%.Exempt dealers must have annual sales below NIS 77,993.
Home rental income of up to NIS 4,980 per month is exempt for individuals not in the real estate business. Thereafter, several possibilities exist and time limits apply.
Real Estate acquisition tax rates now range up to 7% generally.
Second & third home sales done by May 5, 2013 are exempt from land appreciation tax if the sale price is up to NIS 2.2 million each.
Otherwise home sales are exempt once every 18 months for individuals with no other home in Israel, or once every 4 years if they do.
Personal Income-tax rates
The current monthly income-tax rates for employment and freelance income are as follows:
10%: on income up to NIS 5,280
14%: on income of NIS 5,281-NIS 9,010
21%: on income of NIS 9,011-NIS 14,000
31%: on income of NIS 14,001-NIS 20,000
34%: on income of NIS 20,001-NIS 41,830
48%: on income of NIS 41,830 NIS 67,630
50% on income over NIS 67,630.
In the case of other (passive) income such as rental income of individuals aged under 60, the tax rates below 31% are generally not available.
Nevertheless, flat rates of tax generally apply to dividends, interest and capital gains derived by individuals, subject to any applicable tax treaty:
25%-27% if the recipient holds under 10% of the payor.
30% – 50% if the recipient holds 10% or more of the payor.
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 218 per month.
A man generally receives 2.25 credit points (which reduces tax by NIS 490 per month), and a woman receives 2.75 credit points (which reduces tax by NIS 599). 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. The husband receives extra credit points for children aged up to 4.
New residents and senior returning residents (who lived abroad five to 10 years) generally enjoy a 10-year Israeli tax exemption for non-Israeli source income and capital gains. They also enjoy an exemption for five to 10 years regarding interest on Patach foreign-currency time deposits of three months or more at an Israeli bank.
On Israeli source income, new immigrants receive an extra three credit points in the first 18 months after their immigration, two extra credit points in the next 12 months and one extra credit point in the next 12 months.
Certain “returning residents” also get these extra credit points if they previously lived abroad six years continuously and returned to Israel between May 16, 2010, and September 30, 2012.
There is a 35 percent tax credit for contributions to Israeli charities approved under Section 46 of the Income Tax Ordinance. This applies to contributions of at least NIS 180 but no more than NIS 9,130,000, and no more than 30% of taxable income.
US taxpayers should consider claiming a tax credit for Israeli tax purposes, and a tax deduction for US tax purposes, for contributions of up to 25% of Israeli income to approved Israeli charities and up to 25% of US income to US charities that are “friends of” Israeli charities, under special rules in the US-Israel tax treaty.
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 72,740 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 602,400 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 257,640..
Cars for employees
The use of a car provided by an employer is taxable (Shovi shimush).
The amount taxed depends on the year of purchase and the price of the car as new. For cars purchased before 2010, there are seven car-price groups, and the monthly taxed benefit ranges from NIS 2,680 to NIS 10,350.
For cars purchased in 2010 onward, the taxed benefit based on the price as new for each model; you can look this up at www.shaam.gov.il/mm-usecar (you will need the product code and model code on the vehicle license).
Foreign expatriates in Israel
Israel‘s tax treaties sometimes grant an income tax exemption for employees resident in those countries but working in Israel if they are employed in Israel by a foreign employer for a period not exceeding six to 12 months, and the salary is not borne by a permanent establishment in Israel. However, the exact treaty terms should be checked in each case.
Otherwise, non-residents working in Israel lawfully in their field of expertise for an employer who are paid at least NIS 13,10 per month, may enjoy a deduction for accommodation expenses and a daily living expenses deduction of up to NIS 320 for up to 12 months as ‘‘foreign experts,‘‘ provided they are invited by an Israeli employer that is not an employment agency. After 12 months in Israel, or if the employee is paid less than the above amount, the employee may claim personal credit points.
Israeli Residents Travelling Abroad
Accommodation abroad ranging from $114 to $259 per day is deductible if supported by receipts. Meal allowances (per diems) are deductible up to $73 per day if accommodation is also claimed, or up to $122 per day if no accommodation is claimed. The accommodation limit is 25% higher in certain countries. Children‘s education abroad is also deductible up to $649 per month, so are auto rentals up to $57 per day.
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 (Social Security)
The current monthly National Insurance (Bituach Leumi) rates for Israeli residents, including the health levy, and national insurance (social security), which is also payable at various rates on most types of income up to NIS 42,435 a month (in 2013), are as follows:
Resident employees: 3.5%-12%
Employers of resident employees: 3.45%-6.5%.
Nonresident employees: 0.04%- 0.87%
Employers of nonresident employees: 0.49%-1.69%
Self-employed individuals: 9.82%- 16.23% (52% of the NII amount paid is tax deductible)
Not working: 9.61%-12% (52% of the NII amount paid is tax deductible)
Payment if no income: NIS 161 per month.
No NII liability applies to monthly income exceeding NIS 42,435. There is also no NII liability regarding dividends and capital gains. But the profits of fiscally transparent “family companies” are assessable to national insurance.
Other rates apply to early retirees, domestic helpers and certain others.
Estates, inheritances, gifts
There is no tax in Israel on estate or inheritances. There is also no tax on gifts to Israeli residents. But capital-gains tax is payable at rates of 25%- 50% on:
Gifts to foreign residents except for cash
Sale of assets acquired by way of a gift or inheritance.
But specialist advice may be needed to avoid double taxation in Israel and abroad in relevant cases.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.