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Taxes in Israel

Taxes in Israel affect both the daily life of the individual and future investment planning.

This article briefly describes the major categories of taxes in Israel.

Income tax

Income tax is a tax levied on taxable income of individuals and corporations. The tax in Israel is levied according to the provisions of the Income Tax Ordinance and collection is the responsibility of the Israeli tax authorities.

The tax rates for individuals vary from 10% to 48% (commencing in 2016 an additional 2% taxation is being levied on individual income exceeding 803,520 NIS).

The Income Tax Ordinance regulates taxation and grants specific allowances for taxpayers, such as deductions for tax purposes, tax credits and exemptions. It is important to ensure that those allowances are fully utilized in the most efficient and optimal way to minimize tax liability. Many taxpayers, when filing their tax returns, seek the assistance of tax experts.

Corporate tax

Corporate tax is income tax levied on corporations. The tax is levied at a unified rate of 25% (in 2016).

Since income tax (including corporate tax) represents the major source of tax payments collected by the tax authorities in comparison to any other taxes in Israel, the tax authorities invest a great deal of time and effort in reviewing and auditing tax returns filed and submitted by taxpayers.


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Capital gains tax

Capital gains tax is a charged on the profit realized from the sale of capital assets, which might include fixed assets, intangibles, securities, precious metals and property. Differentiating between assets subject to capital gains tax and assets considered as regular income might, in certain cases, be problematic.

VAT

Another significant component of taxes in Israel is VAT.

Value added tax (VAT) is levied on consumption of goods and services (including import of goods) and is applied to most commercial transactions throughout the supply chain until products or services reach the end consumer. The ultimate VAT payer therefore is a product or service end consumer.

The current VAT rate in Israel is 17%, although certain transactions are exempt from VAT or taxable at 0%.

Social security and health tax

Although social security payments might be seen as insurance premium, they are usually considered to be a component part of taxes in Israel.

In general, every resident of Israel aged 18 and above is legally obliged to be insured by Social Security and to pay Social Security tax, except in the case of a housewife (a married woman who is not employed outside the household) and for a person who first became an Israeli resident over the age determined by law (currently 62), subject to additional exemptions.

Social security tax is generally paid as a percentage of the taxable income. Where the payer is an employee, social security tax should be supplemented by a contribution made by the employer. The employer deducts the employee's share of the social security and health taxes from the employee’s wage, adding a supplementary contribution accordingly, at the following rates (as of 1.1.2016):

The income share up to 60% of the average wage is subject to 0.4% social security tax and 3.10% health tax deductions. The employers' contribution is 3.45% (social security only).

The income share above 60% of the average wage and up to the maximum income liable for the payment of social security tax is subject to 7% social security tax and 5% health tax deductions. The employers' contribution is 7.5% (social security only).

Customs duties

Customs duties are levied on import of goods. The main purpose is to ensure that items imported from abroad are taxed at an appropriate rate to account for taxes lost on sales in Israel. The tax rates depend on particular kind of items imported.

Purchase Real Estate Taxes

Taxes in Israel are particularly complicated when it comes to real estate. Applicable taxes include purchase tax (rating between 0% and 10%) on each real estate transaction subject to certain tax benefits.

Municipal Taxes

Local authorities impose taxes on residential and business properties, which vary depending on the region and type of property involved.

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