What is the Tax System in Israel?
What is the tax system like in Israel? The tax system in Israel is levied on a personal basis, unlike before when it was on a territorial basis. Income tax is calculated on a sliding scale: the more you earn, the more you will be taxed. Taxes in Israel are one of the highest in the world at about 25% of average household income.
Types of Taxes for Expats in Israel
The desert country has tax incentives for new Jewish immigrants. This includes income, capital gains, and import tax benefits. There are also reduced tax rates for passive income (i.e., apartment rental and interest).
There are allowance points granted for certain people, which reduce the amount of tax payable. Each point is worth roughly 650 USD (approximately 2,261 ILS):
- Israeli man—2.25 points
- Israeli woman—2.75 points
- minor (under 18)—1 point
- child between the ages of 0–5—4.75 points for the father and 5.25 for a mother
- discharged soldiers—2 or 1 points depending on length of time served
- people who completed Sherut Leumi—2 or 1 points depending on the time served
Other people eligible for these credit points include single-parent families, new immigrants, teenagers, families with disabled children or a disabled partner who cannot work, students paying tuition, residents of border or development towns, people paying child support, etc.
The corporate income tax rate in the country is 23%. Resident companies are subject to taxes on worldwide income. They are considered a resident company if they are a business incorporated in Israel, or are managed and controlled in the Middle Eastern country.
Filing Your Taxes in Israel
The end of the tax year coincides with the end of the calendar year: December. Taxes are due April 30. When an online filing is required, the due date is May 31. You can file either a single assessment or a joint assessment if you are a married couple. The tax return is then processed by the Israel Tax Authority (ITA), and you must pay whatever is due.
If you are owed a tax refund, you must have an Israeli bank account to receive it. It can take up to three months to receive your refund.
Companies usually have five months after the end of the tax year to submit their returns. Extensions may be granted.
Taxpayers are not usually required to file personal tax returns if
- their primary source of income is employment income, and it has been withheld;
- the total income of each spouse does not exceed a certain amount.
Hiring a Tax Professional
When it comes to your taxes, it is recommended you hire either an accountant with experience working with expats or a destination services provider such as InterNations With our Settling-In Services, we can assist you in registering with the ITA.
If you are having trouble finding someone to help you with your taxes, we can arrange the professional services of accountants and financial advisors who speak your language. Contact us today to learn more.
Types of Taxes in Israel
Taxation in Israel includes
- income tax
- capital gains tax
- value-added tax (17%)
- land appreciation tax
- purchase tax
There is no tax on estate or gifts in Israel.
What is the Income Tax in Israel?
Tax on salary in Israel for both residents and non-residents is between 10% to 47%. It is broken down as follows:
Avg Income Tax %Tax Bracket (ILS)Tax Bracket (USD)101–75,7200–21,6541475,721–108,60021,654–31,05720108,601–174,36031,057–49,86331174,361–242,40049,863–69,32035242,401–504,36069,321–144,23447504,361–649,560144,235–187,75850Over 649,560Over 185,758
Income tax is discounted directly off of an employee’s salary by the employer. On the 15th of every month, the company transfers the amount deducted to the ITA for the previous period. If the company is small with just a few employees, the organization is allowed to submit their returns every two months.
Israelis are subject to tax on their worldwide income, while non-residents are only subject to taxes on income earned in Israel. There are no local taxes on income in the country.
Taxes for Self-Employed People in Israel
Self-employed people in Israel are taxed at the same rate as employed workers, as outlined above. They are responsible for paying the ITA an advance on the 15th of every month. The ITA determines the advances owed based on the previous year’s returns.
Self-employed people are required to fill out Form 1301 and submit it to the ITA.
Residence Rules
If you are in Israel for at least 183 days in a year, you are considered a resident for tax purposes, or based on your “center of life” and ties in the country. This could be
- permanent home (even if occupied by someone else temporarily);
- place of residence of you or your family;
- habitual place of business or permanent employment;
- place where assets and investments are situated;
- place of membership in organizations, institutions, and associations.
Expats who come to the work in the country for a limited period on a B/1 visa are not considered residents for tax purposes but are still liable to tax as non-residents.
Double Taxation Treaties
Israel has taxation treaties with more than 50 countries, which means nationals of those countries are not subject to pay double taxes. A list of these countries, along with the details of the agreement and rules, can be found on the Ministry of Finance website.
