Tax expert: VAT and severance pay

September 13, 2009 13:43


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Miriam Vilner is a licenced CPA (Isr.), a member of the Institute for Certified Public Accountants in Israel and a qualified Arbitrator registered with the Ministry of Justice. She holds degrees from London University and the Weizman Institute

Send us your questions >> and please leave your comments on the Q&A below.

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    Q: I have been told by an Israeli agent that there is a VAT of 15.5% when buying a house. In one of your replies you mention the purchase tax is 3-5%. Which is it?

    A: Both I'm afraid. One has no connection with the other. If you are buying a second-hand apartment, try bargaining so that the price includes V.A.T. In fact, you can do the same with a contractor - they are all very hard-pushed for money today.

    Good Luck - and remember, the more you pay for the apartment the more the agent gets. You're in the Middle East - BARGAIN.

    Q: I am set to inherit a decent amount of money from my father someday. My question is this: will this be taxed in Israel? I am a dual citizen but my father is not.

    A: There is no inheritance tax in Israel and no tax on money left by a close relation as defined in the Income tax Ordinances BUT depending on your date of aliya, you are liable for tax on income accrued from the inheritance - interest, dividends , rentals etc. You also are
    obliged to report this income unless the new laws regarding returning residents and new Olim fall in your case. As of now, they only apply to olim and veteran returning residents in 2007-2009.

    Q: In reference to your "Severance pay from bankrupt company" answer, you said that there is no cap on how much is taxed. I understood that there was a cap of 10,500 per year of employment (i.e. employed 3 years, you could take out 31,500 tax free and the rest would be taxed). Please clarify.

    A: Severance pay is exempt from tax according to paragraph 9(7A) of the Income
    tax ordinances, with the following limitations:
    1. Basis for calculation - the last monthly salary paid
    2. One month's salary for each year you worked. This is calculated also for months and days when employment was not for a whole year.
    3. You must have been employed for at least 12 months
    4. Yes there is a limit of 10,220 NIS (2007). If your last salary exceeded this sum, you will only be exempt from tax on a sum of 10,220 NIS per year
    including extra months and days in an incomplete year.
    5. All the above is dependent on receiving the correct forms number 161 and 161A from your employer (if the company no longer exists, then the C.P.A. who serviced the company must supply this. These forms must then be authorised by the tax authorities.
    6. Any severance pay liable for tax can be "spread" over coming years - one year for every 4 years employment.

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