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
Business tax rates
The regular company tax rate is 25
The regular dividend tax rate is 30%- 32% for 10%-or-more
shareholders and 25%-27% for other shareholders, all subject to any applicable
Preferred income derived by preferred industrial and
technology enterprises is liable to reduced company tax of 7% in development
area A and 12.5% elsewhere in Israel, without time limit.
taxed at 15%.
The VAT standard rate is 17%. Exempt dealers must have
annual sales below NIS 77,993.
Real estate 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
Real-estate-acquisition tax rates now range up to 7%
Second and 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
Otherwise, home sales are exempt once every 18 months for
individuals with no other home in Israel, or once every four years if they
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
In the case of other (passive) income such as rental income of
individuals aged under 60, the tax rates below 31% are generally not
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
Each credit point is currently worth NIS 218 per month.
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 four.
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
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
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% 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
US taxpayers should consider special rules in the US-Israel tax
Cars for employees The use of a car provided by an employer is
taxable (shovi shimush). For cars purchased in 2010 onward, the taxed benefit is
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
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, nonresidents working in Israel
lawfully in their field of expertise for an employer who are paid at least NIS
13,100 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
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
National Insurance Institute
The current National Insurance
Institute (Bituach Leumi) monthly 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
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
Other rates apply to early retirees, domestic helpers and
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
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
Leon Harris is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.