Personal tax rates for 2013
Living in Israel is a lot less taxing than it used to be.
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. Here is a non-exhaustive summary of the Israeli rates and tax brackets for 2012.
Tax rates: earned income
The monthly income-tax rates for employment and freelance income are as follows:
10 percent on income up to NIS 5,200
14% on income of NIS 5,201 to NIS 8,880
21% on income of NIS 8,801 to NIS 14,430
30% on income of NIS 14,431 to NIS 21,780
33% on income of NIS 21,781 to NIS 41,830
48% on income above NIS 41,830
Tax rates: investment income and gains
Capital gains: 25%-30% (up to 48% on pre-2003 gains) after inflation adjustment
Land-appreciation gains from Israeli real estate: 25%- 30% (up to 48% on pre- November 7, 2011, gains) after inflation adjustment
� Interest: 15%-48% plus National Insurance Institute (NII) payments (detailed rules apply)
Tax rates: other passive income
The monthly tax rates for other passive income (such as rent, subject to exceptions) are as follows:
30% on income up to NIS 21,780
33% on income of NIS 21,781 to NIS 41,830
45% on income above NIS 41,830
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 215 per month. A man generally receives 2.25 credit points (which reduces tax by NIS 483 per month); a woman receives 2.75 credit points (which reduces tax by NIS 591).
Working fathers will receive extra credit points (personal tax allowance): one point in the year of birth; two points in each of the next two years; one point in the year the child reaches three years old. 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 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.
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.
Certain returning residents also get these extra credit points if they previously lived abroad six years continuously and return to Israel between May 16, 2010, and September 30, 2012.
There is a 35% tax credit for contributions to Israeli charities approved under Section 46 of the Income Tax Ordinance. In 2011, this applied to contributions of at least NIS 420 but no more than NIS 4,351,000. The limits for 2012 are not yet clear.
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.
Persons certified as being 100% disabled (or 90% in certain circumstances) for 185 to 364 days in a tax year are exempt on income of up to NIS 71,280 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 594,000 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 254,040.
Cars and cellphones 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 2,640 to NIS 10,200.
For cars purchased in 2010 onward, the taxed benefit is 2.48% of the price as new for each model. (You can look this up at www.shaam.gov.il/mmusecar; you will need the product code and model code on the vehicle license.)
For employer-provided cellphones, a flat amount of NIS 100 is taxed.
Business trips abroad
In the case of business trips abroad, deductions are allowed for accommodation, subject to a limit ranging from $112 to $255 per night, according to detailed rules. A per diem living allowance is also deductible: $71 per day if accommodation expenses are also claimed based on receipts; $120 otherwise.
These limits are increased by 25% for trips to certain countries: Austria, Australia, Italy, Iceland, Ireland, Angola, Belgium, Germany, Dubai, Denmark, Netherlands, Hong Kong, UK, Taiwan, Greece, Japan, Luxembourg, Norway, Spain, Oman, Finland, France, Qatar, Korea, Cameroon, Canada, Sweden, Switzerland.
Car rental is deductible up to $56 per day. Children’s education expenses are deductible up to $638 per month (sometimes more is granted).
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.
VAT: exempt dealers
An exempt dealer is an unincorporated business with revenues of up to NIS 76,884 in 2012. Above this level, a business must register as an authorized dealer and report VAT regularly. An exempt dealer does not collect VAT from customers and does not claim back VAT on expenses.
The exempt dealer must still register with the Israel Tax Authority and the NII, file an annual VAT return by January 31 and pay income tax and national insurance. Certain professionals must register as authorized dealers regardless of their revenues.
National insurance (Bituah Leumi)
The current monthly NII rates for Israeli residents, including the health levy, are as follows; national insurance (social security) is also payable at various rates on most types of income up to NIS 41,850 a month in 2012 (down from NIS 73,422 in 2011):
Resident employees: rates from 3.5% to 12%
Employers of resident employees: rates from 3.45% to 5.90%
Nonresident employees: rates from 0.04% to 0.87%
Employers of nonresident employees: rates from 0.49% to 0.77%
Self-employed individuals: rates from 9.82%-16.23% (52% of the NII amount paid is tax deductible)
Not working: rates from 9.61% to 12% (52% of the NII amount paid is tax deductible)
Payment if no income: NIS 160
No NII liability applies to monthly income exceeding NIS 41,850. There is also no NII liability regarding dividends and capital gains. However, the profits of fiscally transparent family companies are assessable to national insurance.
Other rates apply to early retirers, 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% to 48% on: gifts to foreign residents except for cash; and 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 advisers 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.