Your Taxes: Is Israel the place to be?
Very high quality of life, tax rates below international norms and a respectable score for ease of doing business. What more could anyone want?
Walls of Jerusalem Photo: BiblePlaces.com
Is Israel the place to be, from the tax and economic point of view? This is a
broad question, and here are a few of the factors that may be
Immigrants and returnees
New residents can enjoy an exemption
from Israeli tax on non-Israeli-source income and gains for 10 years. This also
applies to “senior returning residents” who previously lived abroad for 10 years
(lesser benefits apply if they lived more than six but less than 10 years
abroad). An Israeli resident is basically someone whose center of living is in
Israel. No exemption applies to work done physically in Israel.
situation should still be checked out in every other country
Nevertheless, for those with overseas investments and/or
international business operations, this 10-year Israeli tax holiday can be
highly beneficial if everything is properly structured.
Are Israeli taxes
Israeli taxes are below average according to statistics from the
Organization of Economic Cooperation and Development (OECD). The OECD consists
of 34 of the world’s leading economies, and Israel joined it in
Israel’s tax revenues represented only 32.4 percent of GDP in 2009,
which was better than the OECD average of 33.8%.
And in the case of a
family where one parent earned the average wage and the other earned two-thirds
of the average wage, their combined “tax wedge” was 12.5% of gross wages in
2011. This was better than the OECD average of 20.5%.
As for companies,
total Israeli taxes on profits, employment and other items totaled 31.2% of
profit in 2011, according to the World Bank, which was better than the OECD
average of 42.7%. Some other countries have much higher labor taxes.
you do business easily in Israel?
In a World Bank survey on ease of doing
business, Israel was ranked No. 34 out of 183 countries in June 2011. Singapore
was No. 1, Hong Kong was No. 2, New Zealand was No. 3 and the US was No. 4. The
Israeli ranking reflected a variety of factors, including starting a business,
dealing with construction permits, getting electricity, registering property,
getting credit, protecting investors, trading across borders, enforcing
contracts, resolving insolvency and paying taxes.
As for paying taxes,
Israel was ranked No. 59, having regard to the tax rates, as well as the need to
spend 235 hours on average to make 33 tax payments per year, according to the
Last Pessah, the director of the Israel Tax Authority sent
taxpayers in business a greeting that promised increased efficiency in the
coming year. This is thanks to the requirement to file personal tax returns
online and the need to use an accountant on the online tax service for
professionals, known as Shaam.
What about quality of life?
Is it all
worth it? The United Nations publishes a “well-being” survey, known as the Human
Development Index. In 2011, Israel was ranked No. 17 out of 187 countries
surveyed, which is considered “very high human development.” This is based on a
life expectancy of 81.6 years, 11.9 mean years of schooling and gross national
income per capita of $25,849. Norway was No. 1, with a life expectancy of 81.1
years, 12.6% mean years of schooling and gross national income per capita of
Israel spends 5.9% of gross domestic product on education and
has school enrolment of 91%. This is somewhat better than 3.8% expenditure and
35.5% enrolment in education in Egypt, for example.
Is there a global
That is hard to say. But in recent years anecdotal evidence
suggests that Israeli tech companies have benefitted from venture-capital
investment, partly by Jewish investors from around the world.
can be great, but so can the payback. And Israeli companies have become
increasingly export orientated because the Israeli market is too small for
To sum up
Israel has come a long way. Very high quality of life,
tax rates below international norms and a respectable score for ease of doing
business. What more could anyone want? As always, consult experienced tax
advisers in each country at an early stage in specific
Leon Harris is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.