Taxes in Israel

Taxes in Israel affect both every individual's daily life and any future investments' planning.

This article briefly describes the major types 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 its collection is a responsibility of the Israeli tax authorities.

The tax rates for individuals very from 10% to 46% (46% tax rate is applied starting the year 2009; since the year 2003 the tax rates for individuals is being gradually decreased. The final threshold is 44% to be applied in 2010 and afterwards). 

The Income Tax Ordinance regulates the taxation and provides certain allowances for tax payers, such as certain deductions for tax purposes, tax credits and exempts. It is important to ensure that those allowances are fully utilized in the most efficient and optimal way to minimize the tax liability. Therefore many tax payers, while filling their tax returns, seek assistance of tax advisers.

Corporate tax

Income tax levied on corporations is called corporate tax. The tax is levied at a uniform rate which is also being gradually decreased since 2003 and shall reach the threshold of 25% in 2010 and afterwards.

Since income taxes (including corporate tax) represent 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 efforts in reviewing and auditing the tax returns filled and submitted by tax payers.

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Capital gains tax

Capital gains tax is a tax charged on capital gains - the profit realized on the sale of different capital assets, which might include fixed assets, intangibles, securities, precious metals and property. Distinguishing between assets which realization leads to profit taxable as capital gain and assets which realization results are considered to be regular income might be in some cases a tricky one.

VAT

Another significant part 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 of commercial transactions throughout any production-selling chain until products or services reach their final consumer. The ultimate VAT payer therefore is a product or a service final consumer.

The current VAT rate in Israel is 15.5%, 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 part of taxes in Israel.

In general, every resident of Israel aged 18 and over is obliged under law to be insured by Social Security and to pay the Social Security tax, except for 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 (the age increases gradually from 60 to 62), subject for certain additional exemptions.

Social security tax is generally paid as a percentage of the taxable income. Where a payer is an employee, social security tax paid by him should be supplemented by a contribution made by an employer. The employer must deduct the employee's share of the social security and health taxes from his/her wage and make his supplementary contributions, at the following rates (as of 1.1.2009):

From the share of the income that is up to 60% of the average wage, 0.4% social security tax and 3.10% health tax are to be deducted. Employers' contribution is 3.45% (social security only).

From the share of the income that is above 60% of the average wage and up to the maximum income liable for the payment of social security tax, 7% social security tax and 5% health tax are to be deducted. Employers' contribution is 5.43% (social security only).

Customs duties

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

Purchase Real Estate Taxes

Taxes in Israel are particularly complicated when it comes to real estate. Applicable taxes include purchase tax (rating between 0 to 5%) 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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