Doing Business in Israel
Tax Regime in Israel
1. General Tax Regime
Includes of the following basic tax rates:
Value Added Tax at the rate of 17%.
Corporate income tax on profits at the rate of 23%.
Personal monthly income tax of 42,031 NIS (≈11,900$) at the rate of 47%, 54,130 NIS and above (≈15,300$) at the rate of 50%.
The monthly income up to 42,030 NIS (≈11,900$) has an average tax rate of 35%.
Notice, that individuals also have social security payments up to a certain income limit, see section 2 below.
Capital gain:
• Individuals at the rate of 25%.
• Shareholders (at least 10% ownership) – 30%.
• Companies – at the corporate tax rate 23% as of 2018.
• Dividend:
• Companies – Received from Israeli-resident companies – 0%. If the sources of the dividend are from outside of Israel – 25%.
• Companies – Received from a nonresident company – 25%.
• Individuals at the rate of – 25%.
• Individuals Shareholders (at least 10% ownership) – 30%.
Total effective tax rate of 46.1% for shareholders on earnings from their respective companies (Corporate tax and tax on dividend).
2. Social Security and Working Terms
Social security contributions for Israeli residents are payable at rates ranging up to the following:
• Self – employed – 17.83%. The upper income limit is at approx. 43,890 NIS (≈12,400$).
• Employee – 12% (under the same income limit as mentioned above).
• Employer – 7.6%.
Working week in Israel consists of 42 hours. The minimum wage amounts to 5,300 NIS (≈1,500$).
3. Business Legal Structures
A. The most encountered forms are Limited Liability Private Company. The limited liability private company is a company incorporated by one or several persons. Share capital is divided into participation shares of a determined size in accordance with constituent documents. The number of shareholders in a private company shall not exceed fifty.
B. Self – employed are physical persons registered at the tax authorities and are exercising commercial activity without corporation of legal entity.
4. Tax Incentives (Reduced tax Rates)
A. Benefits for new immigrants
Tax benefits for new immigrants are as follows:
Tax exemption on any income generated abroad – 10 years.
Tax exemption on interest from foreign currency bank deposits in Israel (foreign currency held prior becoming a new immigrant) – 20 years.
In addition a new immigrant will be exempt in reporting to the tax authorities on income generated abroad for 10 years.
B. The monthly rental income from an Israeli residential property has a tax exemption up to a limit of 5,090 NIS (≈ 1,440$). Another possibility is to pay 10% tax rate on all the gross income.
C. Companies enjoy reduced tax rates on income derived from an approved enterprise (Subject to criteria compliance and geographical areas).
D. Foreign residents are exempt on capital gains from the sale of Israeli tradable and non tradable securities, as long as the capital gain is neither from the foreign resident’s permanent enterprise nor from relatives.
E. Foreign residents are exempt on interest, rebate and linkage on public Israeli bonds, as long as the income is not from the foreign resident’s permanent establishment. In addition foreign residents are exempt on exchange difference on loans granted.
F. Israel does not have any inheritance tax law, and accordingly anyone who receives assets by inheritance is not subject to tax in Israel.
5. Branch Income
Tax rates on branch profits are the same as on corporate profits. No tax is withheld on transfers of profits to the foreign home office.
6. Foreign Income
An Israel – resident company or individual are liable to tax on their worldwide income.
7. Transfer Prices
Transactions prices between an Israeli and non Israeli resident (company or individual) – if there are “special relations” between the two parties have to be as though it had been made in an open market.
8. Voluntary Disclosure Process
It allows, subject to compliance with conditions, to eliminate criminal liability by declaring to the tax authorities about income and assets in Israel or abroad that were not reported in the past, without getting prosecuted.
