The tax system in Israel

Tax residency in Israel

While non-residents are taxed only on their income from Israeli sources, Israeli tax residents are taxed on their overall income, regardless of the geographical origin of the funds. For tax purposes, an Israeli resident is defined as an individual whose centre of living (defined by such criteria as a permanent home, regular workplace, economic interests, or associative activity) is based in Israel.

Israeli residency is presumed by default for individuals:

• who have lived in Israel for at least 183 days in the tax year or,
• who have lived in Israel for at least 30 days in the current tax year, and for a total of 425 days in the current and the two previous tax years.

Good to know:

Israel has tax agreements with numerous countries worldwide in a bid to prevent double taxation. Find the complete list here.

Income tax in Israel

If you are working in Israel, income tax is levied on revenue from employment and pensions, entrepreneurial income and capital gains from bank deposits and savings.

Most employers withhold tax on salaries, and resident taxpayers whose main income is drawn from employment may not have to file an income tax return provided their revenue does not exceed certain limits. Your employer should be able to provide you more detailed information.

Individual taxpayers who have to should file their tax return by April, 30th following the end of the tax year (which coincides with the civil year).

Income tax in Israel is progressive and, as of 2016, the tax rates on income from employment (including pensions) were as follows:

• 0 ' 74,640 NIS in annual income: 10%
• 74,640 ' 107,040 NIS in annual income: 14%
• 107,040 ' 171,840 NIS in annual income: 20%
• 171,840 ' 238,800 NIS in annual income: 31%
• 238,800 ' 496,920 NIS in annual income: 35%
• 496,920 - 640,000 NIS in annual income: 47%
• over 640,000 NIS in annual income: 50%

The taxation rates for income from any other source were:

• 0 - 237,600 NIS in annual income: 31%
• 237,601 - 496,920 NIS in annual income: 34%
• 496,921 - 803,519 NIS in annual income: 48%
• over 803,520 NIS in annual income: 50%

Income from capital gains, interest and dividends are taxed at a variable rate ranging from 25 to 32%.

Corporate tax in Israel

Similarly to the individual income tax, the Israeli corporate tax draws a line between domestic and foreign firms, the former being liable to taxation on its worldwide income, while the latter is only subject to tax on its Israel-based revenue. As of 2016, the corporate tax in Israel stood at a flat rate of 25%.

Good to know:

Employers and employees alike are bound to contributions to the national security system, which in turn is used for things such as healthcare.

VAT in Israel

The value-added tax (VAT) in Israel is levied on most goods and services. The standard rate was lowered from 18% to 17% in 2015. VAT-exempted items include exported goods and some services provided to non-residents.

Real estate tax

A tax on residential property acquisition was created in 2015. Individuals purchasing a property in Israel are subject to this tax, of which the rate varies according to the value of the property and the owner's status (Israeli citizen or foreign national, single or multiple home owner), from 0 to 10% of the property value. Find more information about the applicable taxes here.

Similarly, an individual who sells a property is subject to a land appreciation tax levied on the related capital gains. Yet, a set of exemptions apply for Israeli residents, and most properties sold in Israel are in fact exempt from this capital gains tax.

Tax relief for newcomers

Thanks to a tax reform enforced in 2007, new and returning residents enjoy a 10-year exemption on foreign business income, foreign salaries and foreign assets purchased before becoming Israeli resident.

Useful link:

Israel Tax Authority