Your Taxes: Israeli Tax Rates In 2016
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 2016
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, resulting in a combined tax burden on distributed corporate profits of 45%-50%. This is subject to any tax treaty in the case of foreign investors.
Preferred income derived by preferred industrial and tech enterprises is liable to reduced company tax of 9% in development area A, elsewhere in Israel 16%, without time limit. Dividends from them are taxed at 20%. The resulting combined tax burden on distributed tax break profits is therefore 27.2% – 32.8% subject to any tax treaty in the case of foreign investors.
The VAT standard rate is 17%. Exempt dealers must have annual sales below NIS 99,006
There are special tax breaks under domestic Israel law for: capital gains of foreign resident investors, trust owned vehicles (TOV‘s), approved rental buildings, oil exploration and production, movie productions.
Real estate
Home rental income of up to NIS 5,030 per month is exempt. Thereafter, several possibilities exist and time limits apply. Real estate acquisition tax rates now range up to 10% generally. But if an Israeli resident purchaser has no other home in Israel, the first NIS 1,600,175 is exempt from acquisition tax.
The gain from the sale of an only home in Israel by resident individual is exempt from tax provided its value does not exceed NIS 4.5 million. Otherwise home sales are generally taxed at 25%. A partial exemption applies to the sale of homes bought before 2014 and sold before the end of 2017 by a resident individual. .
Personal Income tax rates
The current monthly income-tax rates for employment and freelance income are as follows:
* 10%: on income up to NIS 5,220
* 14%: on income of NIS 5,221-NIS 8,920
* 21%: on income of NIS 8,921-NIS 13,860
* 31%: on income of NIS 13,861-NIS 29,800
* 34%: on income of NIS 19,801-NIS 41,410
* 48%: on income of NIS 41,411 – NIS 66,960
* 50% on income over NIS 66,960
The current monthly income-tax rates for other (passive) income are as follows:
* 31%: on income up to NIS 19,800
* 34%: on income of NIS 19,801-NIS 41,410
* 48%: on income of NIS 41,411 – NIS 66,960
* 50% on income over NIS 66,960
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 216 per month.
A man generally receives 2.25 credit points (which reduces tax by NIS 486 per month), and a woman receives 2.75 credit points (which reduces tax by NIS 594). 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
New residents and senior returning residents (who lived abroad 10 years) generally enjoy a 10-year Israeli tax exemption for non-Israeli source income and capital gains. This does not apply to work done in Israel. They also enjoy an exemption for five to 20 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.
Charitable donations
There is a 35 percent tax credit for donations to Israeli charities approved under Section 46 of the Income Tax Ordinance. This applies to donations of at least NIS 180 but no more than NIS 9,212,000, 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 donations 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.
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 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 608,400 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 268,000..
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 2,710 to NIS 10,440.
For cars purchased in 2010 onward, the taxed benefit based on the price as new for each model; you can look this up at https://www.gov.il/mm-usecar10/UseCarScreen.aspx (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 13,200 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.
Israeli Residents Travelling Abroad
Accommodation abroad ranging from $117 to $267 per day is deductible if supported by receipts. Meal allowances (per diems) are deductible up to $75 per day if accommodation is also claimed, or up to $125 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 $669 per month, so are auto rentals up to $59 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 43,240 a month (in 2016), are as follows:
* Resident employees: 3.5%-12%
* Employers of resident employees: 3.45%-7.5%.
* Nonresident employees: 0.04%- 0.87%
* Employers of nonresident employees: 0.49%-2.55%
* 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 168 per month.
No National Insurance liability applies to monthly income exceeding NIS 43,240. There is also no National Insurance 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.