Taxation
The Israeli tax system is based on personal practice. Israeli residents are required to pay tax on income generated anywhere in the world. Foreign residents are required to pay tax on income generated or derived in Israel, subject to source rules and double taxation treaties.
Income Tax
In line with the governments tax reform program income tax for individuals will be reduced as follows (for monthly incomes above $1,650 – rate in %)
|
Monthly Income Level ($) |
2005 |
2010 |
|
1,650 – 2,475 |
32 |
25 |
|
2,475 – 3,555 |
37 |
30 |
|
3,555 – 4,420 |
37 |
32 |
|
4,420 – 7,655 |
39 |
32 |
|
over 7,655 |
49 |
44 |
Remark: The rates will be reduced on a gradual basis: 1%-2% per year.
Corporate Tax
In the case of companies, the domicile of a corporate entity is determined on the basis of whether it is incorporated in Israel, and whether it is controlled and managed from Israel . The taxable income of Israeli companies is subject to a corporate tax of 26%. According to the government reform program, corporate tax will be reduced next year - 2010, to 25%. The Israeli government also offers many tax benefits as investment incentives via the Law for the Encouragement of Capital Investments.
Value Added Tax
Israel also levies a Value Added Tax (VAT), and indirect tax levied on the consumption of goods and services in Israel. VAT is levied at each stage of the sale, including imports, based on the added value at each stage. At each stage, VAT is levied on the buyer and transferred to the Customs and Excise Division of the Ministry of Finance, after deducting the VAT amount paid to suppliers. The current VAT rate in Israel is 16.5%.(to be reduced to 16% on 1.01.2007) However, exported goods and services rendered by a dealer whose principal work is in Israel are not subject to VAT.
Social Security
Other taxes include National Insurance (Social Security), paid by both employers and employees. Rates for 2004 were:
|
|
NIS 0-3,482 monthly salary |
NIS 3,482-34,820 monthly salary |
|
Employee’s share |
4.5% |
10.32% |
|
Employer’s share |
5.93% |
5.93% |
Additional Taxes
There is also a Stamp Tax for legal documents at 0.4%-2% of stated value, customs duties of varying rates, purchase tax on certain goods, and municipal tax.
Tax Treaties
Israel has entered into tax treaties with many countries around the world, including many EU countries, China, the USA and others. Some of the double tax treaties include “tax sparing relief” to ensure that Israeli tax benefits derived from encouragement laws are granted to investors by taking into account full Israel tax when computing the foreign taxes, rather than taking into account the actual, reduced taxes.
|