Corporate Tax in Israel

Corporate tax in Israel

Corporate tax is a tax levied by various factors on profits made by companies. Companies and corporations are considered separate entities from their owners. Therefore, any profits derived by companies are taxed separately from their owners' profits. There are a number of laws and regulations which regularize the rates and permissible deductions of corporate tax in Israel. This article will present a short summary of corporate tax rates in Israel, the laws and regulations which regard Israeli corporate taxes, as well as summarize a number of the main tax deductions and relieves.

Throughout the past years, the Israeli government has decided on implementing a gradual decrease of corporate tax rates in Israel, based on the assumption that corporate tax rates comprise as a main factor in foreign investors decisions for investing in Israel, as opposed to alternative countries. The corporate tax rate in Israel in 2006 was 31%. The rate of corporate tax in Israel in 2009 is 26% and in 2010 rates are expected to drop to 25%.

The three main laws which regulate corporate tax in Israel are: the Income Tax Ordinance, the Law for Encouragement of Capital Investments and the Law for Encouragement of Industry (Taxes). These laws regulate tax rates and determine tax deductions and certain tax incentives. Israeli tax laws determine that Israeli residents are liable to Israeli taxes on their worldwide income, as well as their capital gains. Non-resident companies are liable to Israeli taxes on income derived in Israel. A company which is incorporated in Israel or which is managed in/from Israel is considered an Israeli resident company.

In order to encourage local and foreign investors and entrepreneurs to start businesses and invest in Israel, the Israeli government and tax authorities have instituted many tax incentives which reduce the rate of corporate tax in Israel for many local and foreign companies or their taxable income. Here are a three of the main corporate tax incentives instituted in Israel:     

Foreign tax relief: Beginning from January 2003, companies in Israel are allowed to deduct foreign taxes paid on foreign profits, under certain conditions.

Grant programs: There are a number of regulations and tax incentives administered by the Israeli investment center and the ministry of Industry, Trade and Labor, in order to encourage research and development projects in Israel. In addition to receiving various grants, approved enterprises may benefit from reduced corporate tax rates of 10%-25% for a period of 7 to 10 years.  

Priority zones: Israeli government policy is to provide privileged conditions for companies in the peripheral areas of Israel. Most priority areas are in the Galilee in northern Israel and the Negev, in southern Israel. Benefits for companies in priority A areas include a reduced corporate tax rate, which depends on the company's value, field and whether it is a residential or foreign owned company.

In addition to the tax relives and exemptions written above, there have been many other incentives instituted by the Israeli authorities over the past years, in order to encourage stating businesses and initiatives in Israel.   

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