Your Taxes: Personal tax rates for 2011

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.

By LEON HARRIS
April 12, 2011 22:19
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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 2011.

Income-tax rates

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The current monthly income-tax rates for employment and freelance income are as follows:

• 10%: on income up to NIS 5,070

• 14%: on income of NIS 5,071-NIS 8,660

• 23%: on income of NIS 8,661-NIS 14,070

• 30%: on income of NIS 14,071-NIS 21,240

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• 33%: on income of NIS 21,241-NIS 40,230

• 45%: on income above NIS 40,230.

The current monthly income-tax rates for other (passive) income are as follows:

• 30%: on income up to NIS 21,240

• 33%: on income of NIS 21,241-NIS 40,230

• 45%: on income above NIS 40,230.

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 209 per month.

A man generally receives 2.25 credit points (which reduces tax by NIS 470 per month), and a woman receives 2.75 credit points (which reduces tax by NIS 574). 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

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 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.

Charitable contributions

There is a 35 percent tax credit for contributions to Israeli charities approved under Section 46 of the Income Tax Ordinance. In 2010, following a recent amendment, this applied to contributions of at least NIS 310 but no more than NIS 7,636,000. The limits for 2011 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.

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 69,480 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 579,600 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 247,680.

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 2,580 to NIS 9,950.

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/mm-usecar (you will need the product code and model code on the vehicle license).

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 Institute

The current monthly National Insurance Institute (Bituah 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 73,422 a month (in 2011), are as follows:

• Resident employees: 3.5%-12%
• Employers of resident employees: 3.45%-5.90% from April 1, 2011 (before then, 3.85%-5.43%)
• Nonresident employees: 0.04%- 0.87%
• Employers of nonresident employees: 0.49%-0.77%
• 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 154 per month.

No NII liability applies to monthly income exceeding NIS 73,422. There is also no NII liability regarding dividends and capital gains. But 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 20%- 45% 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@hcat.co

Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.

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