It’s perfectly possible to make money in Israel and keep most of it. According to the OECD, Israeli tax revenues amounted to 32.5% of GDP in 2021, which was better than the OECD average of 34.2%. You are probably doing taxable business in Israel if you conduct business activities in Israel or operate in Israel via an agent who can commit you. Israel’s tax treaties and the OECD Multilateral Instrument refine these criteria for foreign companies.
Business Tax Rates
For 2024, the regular company tax rate is 23%. The regular dividend tax rate is 30%-33% for 10%-or-more shareholders and 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.
The VAT standard rate is 17%.
Int’l Agreements
Israel has income tax treaties with 60 countries and is a party to US FATCA and OECD CRS information-exchange arrangements. Israel has free trade agreements with the US, EU, UK, Canada, Colombia, EFTA, Guatamala, Jordan, Mercosur, Mexico, Panama, South Korea, Turkey, the UAE, and Ukraine.
National Insurance
National insurance rates include:
• Resident employees: 3.5%-12% • Employers of resident employees: 3.55%-7.6%;
• Freelancers: 5.97%- 17.83% (52% is tax deductible);
• Not working: 9.61%-12% (52% is tax deductible) • Monthly payment if there is no income: NIS 203.
Olim
New residents and senior returning residents (who lived abroad for 10 years) are generally exempt from Israeli tax on non-Israeli source income for 10 years. The exemption does not apply to income for work done in Israel.
Olim also enjoy an exemption for 5-20 years regarding interest on foreign-currency time deposits of three months or more at an Israeli bank. On Israeli source income, new immigrants receive extra personal credits, which reduce taxes by NIS 242-726 per month for four and a half years.
Foreign Expatriates
Non-residents working in Israel lawfully in their field of expertise for an employer as “foreign experts,” who are paid at least NIS 14,800 per month, may enjoy deductions for accommodation expenses and daily living expenses of NIS 360 for up to 12 months, provided they are invited by an Israeli employer that is not an employment agency.
Tax Registrations
A business must immediately register for Israeli tax purposes as soon as its activity starts.
Pay Tax As You Go
Every year, a business or investor will receive demands to pay VAT, payroll taxes, income tax, and tax installments on profits (Mikdamot). A business must register for Israeli tax purposes as soon as it becomes active.
Essential Paperwork
There are strict bookkeeping and customer billing rules; approved Israeli software or printed books must be used. A 30% flat expense deduction is possible for freelancers with annual revenue below NIS 120,000.
Employees and Freelancers
Salaries and freelancers pay taxes at rates ranging up to 50%.
Once employees have worked 3-6 months at a firm, they are entitled to mandatory pension and severance funding. The minimum pension fund contribution is 18.5% of gross salary. The employer generally pays 6.5% towards pension funding and 6% towards severance funding. The employee pays 6% towards pension funding.
Real Estate
Home rental income of up to NIS 5,654 per month is exempt for individuals. Thereafter, several possibilities exist, such as regular tax on net income, 10% flat tax, etc. Companies pay tax at regular rates.
Real estate purchase tax rates range up to 10%. For an Israeli resident purchaser with no other home in Israel, the first NIS 1,978,745 may be exempt from purchase tax.
The gain from the sale of an only home in Israel by a resident individual may be exempt from tax, provided its value does not exceed NIS 5,008,000. Otherwise, real estate sales are generally taxed at 25%-50%.
Securities
Passive income derived by individuals from securities is taxed at rates of 25%-33%. Traders and companies pay tax at regular rates.
Estates, Inheritances and Gifts
There is no tax in Israel on estates or inheritances, only on gifts to foreign residents.
leon@hcat.co
The writer is an accountant and tax specialist at Harris Consulting & Tax Ltd.