Israel is a lot less taxing than it used to be.
Following is a summary of the Israeli rates and tax brackets for 2019.
The regular company tax rate is 23%.
The regular dividend tax rate is 30%-33% for 10%-or-more shareholders, 25%-28% for other shareholders, resulting in a combined tax burden on distributed corporate profits of 42.25%-48.41%, subject to any tax treaty.
Preferred income derived by preferred industrial and tech enterprises is liable to company tax of 6%-7.5% in development area A, elsewhere in Israel 6%-16%, without time limit. Dividends are taxed at 4 %-20%. The resulting combined tax burden on distributed profits is 9.76% – 32.8% subject to any tax treaty.
The VAT standard rate is 17%. Exempt dealers must have annual revenues below NIS 100,187.
There are tax breaks for capital gains of foreign resident investors, approved rental buildings, oil exploration and production, movie productions.
Home rental income of up to NIS 5,090 per month is exempt. Thereafter, several possibilities exist.
Real estate acquisition tax rates range up to 10% generally. For an Israeli resident purchaser with no other home in Israel, the first NIS 1,664,520 (up to January 15, 2019) may be exempt from acquisition tax.
The gain from the sale of an only home in Israel by resident individual may be exempt from tax provided its value does not exceed NIS 4,455,000 (in 2018).Otherwise home sales are generally taxed at 25%-28%.
The 2019 annual income tax rates for employment and freelance income are as follows:
- 10% on first NIS 75,720;
- 14% on NIS 75,721-NIS 108,600;
- 20% on NIS 108,601-NIS 174,360;
- 31% on NIS 174,361-NIS 242,400;
- 35% on NIS 242,401-NIS 504,360;
- 47% on NIS 540,361 – NIS 649,560
- 50% on income over NIS 649,560
Passive income from securities are generally taxed at rates of 25%-33%. Special rules apply to rental income.
Personal tax credits
Israeli residents are entitled to personal tax credits, which are known as credit points.
Each credit point is currently worth NIS 2,616 per year.
A man generally receives 2.25 credit points (which reduces tax by NIS 5,886 per year), and a woman receives 2.75 credit points (which reduces tax by NIS 7,194). 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 under 6 (in 2018).
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 gains – not work done in Israel. They also enjoy an exemption for 5 – 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.
Foreign expatriates in Israel
Israel’s tax treaties sometimes grant an income tax exemption for employees resident in those countries but working in Israel.
Otherwise, non-residents working in Israel lawfully in their field of expertise for an employer who are paid at least NIS 13,300 per month, may enjoy a deduction for accommodation expenses and a daily living expenses deduction of up to NIS 330 for up to 12 months as “foreign experts,” provided they are invited by an Israeli employer that is not an employment agency. But employers may be subject to a foreign workers’ payroll levy of 0% to 20%
National Insurance (Social Security)
The National Insurance (Bituach Leumi) rates for Israeli residents, are as follows:
- Resident employees: 3.5%-12%;
- Employers of resident employees: 3.45%-7.5%;
- Major shareholder employees: 3.49%-11.79%;
- Employer of major shareholder: 3.41%-7.28%;
- Resident home helps: 2%;
- Employer of home helps: 5.25%;
- Nonresident employees: 0.04%- 0.87%;
- Employers of nonresident employees: 0.49%-2.55%;
- Freelancers: 5.97%- 17.83% (52% of the NII amount paid is tax deductible);
- Passive income: 9.61%-12% (52% of the NII amount paid is tax deductible);
- Payment if no income: NIS 172 per month.
No National Insurance liability applies to monthly income exceeding NIS 43,890. There is generally no National Insurance liability on dividends and capital gains.
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.
As always, consult experienced tax advisors in each country at an early stage in specific cases.