Israel Tax Guide

2012

Jon Hills PKF (UK) LLP Chairman.FOREWORD A country’s tax regime is always a key factor for any business considering moving into new markets. the PKF network of independent member firms. Kevin Reilly. PKF Melbourne for co-ordinating and checking the entries from countries within their regions. As you will appreciate. This handy reference guide provides clients and professional practitioners with comprehensive tax and business information for 100 countries throughout the world. The WWTG continues to expand each year reflecting both the growth of the PKF network and the strength of the tax capability offered by member firms throughout the world. PKF International Tax Committee jon. the production of the WWTG is a huge team effort and I would like to thank all tax experts within PFK member firms who gave up their time to contribute the vital information on their country’s taxes that forms the heart of this publication. I would also like thank Richard Jones. has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994. PKF Witt Mares.hills@uk. I hope that the combination of the WWTG and assistance from your local PKF member firm will provide you with the advice you need to make the right decisions for your international business. and Kaarji Vaughan.com I PKF Worldwide Tax Guide 2012 .pkf. PKF (UK) LLP. administered by PKF International Limited.

and ensuring that such advice specifically relates to their particular circumstances. this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication. entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors. or omission from. Accordingly no person.IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person. nor for any error in. PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). PKF Worldwide Tax Guide 2012 II . Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication.

while also noting imminent changes where necessary. each summary addresses the major taxes applicable to business. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country. In addition to the printed version of the WWTG.pkf. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends. individual country taxation guides are available in PDF format which can be downloaded from the PKF website at www. how taxable income is determined. royalties and other related payments. In compiling this publication. On a country-by-country basis. interest.PREFACE The PKF Worldwide Tax Guide 2012 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of 100 of the world’s most significant trading countries. sundry other related taxation and business issues.com PKF INTERNATIONAL LIMITED APRIL 2012 ©PKF INTERNATIONAL LIMITED ALL RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION III PKF Worldwide Tax Guide 2012 . member firms of the PKF network have based their summaries on information current as of 30 September 2011. and the country’s personal tax regime. we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice.

Europe. PKFI member firms employ around 2. PKF Worldwide Tax Guide 2012 IV . Each region elects representatives to the board of PKF International Limited which administers the network. The network is a member of the Forum of Firms. Asia Pacific. develop initiatives and share knowledge and best practice cross the network. audit. professional standards. While the member firms remain separate and independent.200 partners and more than 21. Please visit www.400 staff.pkf. There are around 300 member firms and correspondents in 440 locations in around 125 countries providing accounting and business advisory services.ABOUT PKF INTERNATIONAL LIMITED PKF International Limited (PKFI) administers the PKF network of legally independent member firms.com for more information. Services provided by member firms include: Assurance & Advisory Corporate Finance Financial Planning Forensic Accounting Hotel Consultancy Insolvency – Corporate & Personal IT Consultancy Management Consultancy Taxation PKF member firms are organised into five geographical regions covering Africa. PKFI is the 10th largest global accountancy network and its member firms have $2. insolvency and business development committees work together to improve quality standards. hotel consultancy. international tax. the Middle East & India (EMEI). an organisation dedicated to consistent and high quality standards of financial reporting and auditing practices worldwide. Latin America.6 billion aggregate fee income (year end June 2011). corporate finance. and North America & the Caribbean.

RELATED PARTY TRANSACTIONS F. PERSONAL TAX I. EXCHANGE CONTROL H. FOREIGN TAX RELIEF D. WITHHOLDING TAX G. TREATY AND NON-TREATY WITHHOLDING TAX RATES V PKF Worldwide Tax Guide 2012 . DETERMINATION OF TAXABLE INCOME CAPITAL ALLOWANCES DEPRECIATION STOCK/INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES C. TAXES PAYABLE FEDERAL TAXES AND LEVIES COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX/VALUE ADDED TAX FRINGE BENEFITS TAX LOCAL TAXES OTHER TAXES B. CORPORATE GROUPS E.STRUCTURE OF COUNTRY DESCRIPTIONS A.

. . . . . 6 am PKF Worldwide Tax Guide 2012 Guernsey . . . . . 7 am Japan . . . . . . . . . . . 7 am Papua New Guinea. . . . . . .1 pm Portugal . . . . . . . . . . . . . . . . . . . . . . . 7 am Bahrain . . . . . . . . .1 pm Argentina . . . 12 noon Guyana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 pm F Fiji . . . . 8 am China . . . .30 pm Indonesia. . . . . . . . . . . . . . . . . . . . . . . . . . .9 pm Jersey . . . . . . . 6 am Morocco . . . . . . . . . . . . . . . . . . . . . . . . . 7 am Winnipeg . . . . . . . . . . . 8 am VI . . . . . . . . . . . . . . . . . . . . . .1 pm Puerto Rico . . . . . .2 pm Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 am Cayman Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 am H Hong Kong . . . . . . . . . . . . . .12 midnight Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. . . . . . . . . . . . . . .1 pm Angola . . . . . . . . . . . . . . . . . . . . . . . .3 pm L Latvia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 am Guatemala . . . . . . . . . . . . . . . . . . . .3 pm Belgium. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 pm Malta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 noon Luxembourg . . . . . . . . . . . . GREENWICH MEAN TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 pm Colombia .1 pm D Denmark . . . . . . . . . . . .Beijing . . . . . . . . . . . . . . . . . . . . .10 pm Sydney . . . . . 5. . . . . . . . . . . . . . . . . . . . . . .2 pm Grenada . . . . . . . . . 6 am Bermuda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 am Chile . .10 pm Peru . . 5 am Vancouver . .8 pm Austria . . . . . . . . 12 noon Isle of Man . . . . . . . . . . . . . . . . THE STANDARD TIME ELSEWHERE IS: A Algeria . . . . . . . . . . .1 pm I India . . . . . 12 noon N Namibia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 pm G Gambia (The) .10 pm Adelaide . . . . . 7 am E Ecuador. . . . . . . . . . . . . . . 7 am Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 pm Kenya . .1 pm New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 pm Cyprus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 pm Norway . . . . . . . . . .2 pm Liberia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 pm Lebanon . . . . . . 7 am British Virgin Islands . . . . . . . . .12 midnight Finland . . . . 8 am C Canada Toronto . . . . .2 pm Italy . . . . .4 pm P Panama. . . . . . . . . .3 pm Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 am Brazil. . .2 pm El Salvador .8 pm Hungary . . . .30 pm Perth . . . . 7 am Croatia . . . . 7 am Philippines . .4 pm Mexico . . . . . . . . . . . . . . . . . . . . . .1 pm B Bahamas . . . . . . . . . . . . . . . 12 noon Israel . . . . . . . . . . . . . . . . . . . . . 9 am Australia Melbourne . . . . . . . . . 6 am Calgary . . . . . . . .1 pm Mauritius . . . . . . . . . . . . . . . . .8 pm Poland. . . . . . . . . .1 pm M Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 am Estonia . . . . . .1 pm Belize . . . . . . . . . . .1 pm Dominican Republic . . . . . 12 noon Georgia . .INTERNATIONAL TIME ZONES AT 12 NOON. . . . . . . . . . . . . . . . . . . . . 12 noon Jordan . . . . . . . . . . . . . . .2 pm Netherlands (The). . . . . . .3 pm Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 pm O Oman .7 pm Ireland. .2 pm K Kazakhstan . . . . . . . . . . .2 pm France. . . . . . . .1 pm J Jamaica . . . . . . . .9 pm Kuwait . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 noon Greece . . . . . . . . . . . . . . . . . .1 pm Ghana . . . . . . . . . . . . . . . . . . .

7 am U Uganda . . . . . .2 pm Turks and Caicos Islands . . . . . . . 8 am R Romania . . . .2 pm Russia Moscow .3 pm St Petersburg. . . . . . . . . . . . . . . . . . . . . . 7 am Washington. . 4 am San Francisco . .4 pm United Kingdom . . . . .2 pm United Arab Emirates . . . . . . . . .3 pm Ukraine . . . . . . . . .8 pm Thailand . . . . . . . . . . . . . . . . . . 9 am V Venezuela . . . . . . . . . . . . . . . . . . . . . .1 pm Switzerland . . . . . . . . . . . . . . . . . . . . . .1 pm T Taiwan . . . . . . . . . . . . 7 am Chicago . . . . . . D. . . . . . . . . . . . . . . . . . . . . . . . . . 8 am Vietnam. . . . 6 am Denver . . . . . . . . . . . . . . . . . . . . . . .2 pm Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 pm South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . 12 noon Turkey . . . 6 am Houston. . . . . . . . . . . . . .7 pm VII PKF Worldwide Tax Guide 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 pm Tunisia . . . . . . . . . . . . . . 4 am Uruguay . . . . . . . . . . . 12 noon Singapore . . . . . . . . . . .C. . . . . . . . . . . . . .7 pm Slovak Republic . . . . . . .1 pm Slovenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 pm Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 am Los Angeles . . .Q Qatar. . . . . . . . . . . . . . . . . . .(GMT) 12 noon United States of America New York City. .3 pm S Sierra Leone . . .

That part of the gain which is inflationary by nature is taxable at the rate of 10% in respect of the inflationary gain which was earned up to 31 December 1993 and at zero rate thereafter. These payments amount to 17. The government decides the maximum rate of increase.43 % of salaries. The export of goods and certain services from Israel are zero-rated. monthly payments must be made within 15 days of the month’s end at the rate of 45%. LAND BETTERMENT TAX Tax on land betterment accrued until 7 November 2001 is set at the marginal rates of up to 46% for individualsand up to 25% for companies. NATIONAL INSURANCE (SOCIAL SECURITY) Employers are required to pay a National Insurance premium as well as payments in respect of health insurance.co. The local councils set their own rates accordingly based on square meters of occupied real estate. The financial year runs from 1 January to 31 December.the monthly ceiling was 8 times the average salary) and relates to both employees and the selfemployed. Of this amount.0%.0% is recoverable from employees. The monthly ceiling up to which salary payments are levied onis five times the average salary (NIS 40. The Corporate tax rate in Israel will be 25%from 2012 onwards (in 2011 -24%). A company must normally submit tax returns within five months of the end of its accounting period (This period may be extended for up to 13 months. Tax on land betterment accrued after 7 November 2001 till 31 December 2011 is set at the ratesof 20% for individuals and 25% for companies. Non-resident companies are liable to Israeli tax on capital gains derived in Israel. such as excessive travel and entertaining costs. which are not allowable for tax purposes. MUNICIPAL RATES Municipal Rates are levied by local authorities. in respect of certain expenses. In addition. BRANCH PROFIT TAX There is no Branch profit tax in Israel i. LOCAL AND OTHER TAXES PURCHASE TAX Purchase tax is payable on the purchase of real estate at rates from 3. A non-resident company is only liable to Israeli tax on income sourced in Israel. such payments are treated as advanced payments. VALUE ADDED TAX (VAT) VAT is charged at a rate of 16% on the supply of goods and services by Israeli business entities. based on the previous year’s tax liability. FRINGE BENEFITS TAX (FBT) There is no separate fringe benefits tax in Israel. Fringe benefits are included in the employee’s gross income and are taxed as salary. The real gain is taxable at the corporate tax rate.5% to 5. Foreign residents have the option of having the real gain calculated by reference to changes in the exchange rate of the foreign currency as related to the Israeli currency. 12. A purchase tax ranging from 0% to 5% is payable if the building is a residential apartment.Dividend income is exempt from the social security payment. Where the company has taxable income.il A. Tax on land betterment accrued after 1 January 2012 is set at PKF Worldwide Tax Guide 2012 1 .) Companies must make monthly advance tax payments of company tax. profits of an Israeli branch of a foreign company can be distributed to the foreign country (after paying Israeli tax on the profit itself) with no withholding tax on the distribution.790) effective from January 1.Israel ISRAEL Currency: Shekel (NIS) Member Firm: City: Ramat-Gan Dial Code To: 972 Dial Code Out: 00 Name: Robert Kordonsky Contact Information: 3 612 3939 robert@ahcpa.e. CAPITAL GAINS TAX Capital gains are divided into two elements. TAXES PAYABLE TAXES AND LEVIES COMPANY TAX ORDINARY INCOME Israeli resident companies are liable to Israeli taxes on their worldwide income and capital gains. 2012(in 2011 . A Company resident in Israel is one that is incorporated in Israel or managed and controlled in Israel.

if certain conditions are met. There is no curtailment of deductible interest by reference to debt/equity ratios. 2 PKF Worldwide Tax Guide 2012 . interest payable to a non-resident is effectively deductible only when payment is effected since a deduction may only be taken if tax has been withheld at source from the interest payment within three months of the end of the company’s accounting period. including both company tax and dividend withholding tax can be set off against taxes payable in Israel in specific cases. taxes paid on foreign income.Israel the rates of 25% for individuals and 25% for companies. Special regulations apply in respect of the matters referred to below. STOCK/INVENTORY Inventory is valued using the FIFO or weighted average methods (LIFO is not a permissible alternative).25%). dividends paid after 1 January 2012 to major shareholders (holdings of 10% and above) are subject to withholding tax of 30% (till 31 December 2011 . Dividends paid to a non-resident shareholder are subject to withholding tax of 25% unless a lower rate is provided for within the framework of a double tax treaty. With effect from 1 January 2003. These rates may be reduced according to the terms of the relevant tax treaty. Dividends paid after 1 January 2012 to Israeli or foreign individuals and foreign companies are subject to withholding tax of 25% (till 31 December 2011 .5 33 – 100 Accelerated depreciation up to 200% can be claimed on equipment used in production activities. However.20%). except where the income out of which the dividend is paid is from a foreign source. Dividends received from an approved enterprise (see below) are subject to 15% company tax.5 – 4 15 – 20 20 – 40 7 – 10 15 6–7 9 – 12 25 – 33 20 15 12. B. These rates are calculated in proportion to the period from the date of acquisition of the asset to the date of disposal. The sale of residential real estate by individuals is exempt from this tax if certain conditions are met. DEPRECIATION Deductions for the depreciation of assets which are used by a company are inflation adjusted and calculated normally on the straight-line basis at the following annual rates: Nature of Asset Buildings of industrial companies and hotels Other buildings Hotel equipment Plant and machinery of an industrial company Other plant and machinery Electronic equipment Furniture and office equipment Furniture and office equipment (restaurants and hotels) Computers and software Trucks and commercial vehicles Cars Patents and know how Research and development expenditure Rate (%) 5 1. However. Dividends received from non-resident companies are fully liable to company tax at the rate of 25%. DIVIDENDS Dividends received by an Israeli company from another Israeli company are exempt from company tax. INTEREST DEDUCTIONS Interest is normally deductible on an accrual basis. ESTATE TAX At present there is no estate tax in Israel. DETERMINATION OF TAXABLE INCOME Taxable income is generally based on income reported in the financial statements subject to adjustments as indicated in the tax law.

PKF Worldwide Tax Guide 2012 3 . carry forward of losses may be denied where there has been a change in the control of the company and one of the purposes of the change is tax avoidance. CFC tax is payable in Israel at the rate of 25% if the following conditions apply: (1) The source of income of the foreign corporation is passive (interest. dividends. Foreign shareholders benefit from a reduced withholding tax of 5% on dividends distributed by the holding company. lower tax rates.tourism industry schemes. the construction of dwellings for rental. The Law for the Encouragement of Capital Investment established a management body to grant benefits for tourist attractions and the creation of a tourist investment board.an Israeli holding company. and exemption from property tax. The Israeli government has signed R&D co-operation agreements with the United States. OTHER INCENTIVES There are various other incentives available such as employment incentives. In 2011 new amendments were published regarding to the Encouragement of Capital Investments Law.2. is exempt from tax on dividends received from foreign subsidiaries.1. Canada. An Israeli shareholder will pay between 25% to 30% withholding tax on dividends distributed. PARTICIPATION EXEMPTION In Israel in most cases there is no participation exemption. Special ‘Free Trade Zones’ have been established with major tax benefits including exemption from VAT. Unutilised losses may be carried forward indefinitely against future income and capital gains which result from the business from any trade or business carried on by the company but not against income or gains from any other source.Israel LOSSES Trading losses may be set off against all categories of income and capital gains in the same accounting period. from capital gain on the sale of such subsidiaries. The “zone map” for 2013 and onwards is yet to be determined). There are also benefits in the field of renewable energy. Zone A (as defined in the “zone map” which is in force until the end of 2012. INCENTIVES In order to encourage both local and foreign investment. 2. Israel grants a number of significant tax incentives which have the effect of eliminating or substantially reducing the tax rate for companies. under specific conditions. 3.) (2) The foreign corporation has paid tax in a ‘low tax territory’ (less than 20%) (3) Israeli residents control more than 50% (in certain circumstances more than 40%) of the shares in the foreign corporation or have the right to influence certain management decisions. An “Industrial Enterprise” that meets the requirements of section 18A of the Law is entitled to a reduced corporate income tax rate. meaning that any industrial company which exports 25% of its total turnover is eligible for the reduced tax rates for as long as it meets the above criteria. Losses may not be carried backwards. generally defined as periphery regions that are distant from the centre of Israel. However. in respect of income generated from 2011 onwards. These incentives are known as incentives for “approved enterprises”.and incentive training programs with the granting of loans for the encouragement of small businesses. FOREIGN SOURCED INCOME For entities controlled by Israeli residents. However there are no benefits guaranteed for the years to come and it could be altered by new legislation. royalties. 1. A government Seed Fund has been established to encourage investment in start-up companies by matching the capital of investors. research and development (R&D) where bi-national funds have been established to promote joint ventures. etc. Losses incurred abroad are allowed as a deduction from Israeli income on certain conditions only. These incentives are included in the Encouragement of Capital Investments Law. and from interest on deposits made in Israel by the subsidiaries. although aminimum of 25% of the company’s total turnover must be generated from exports. According to the amended law the incentives will be given by two geographical zones: 1. The amended law is effective as of 1 January 2011. 1. the European Union and some countries in Asia. international trading company incentives. Generally. The rest of the country. The tax benefits are not time limited. rentals.

CORPORATE GROUPS In general. Grants of up to 90% of costs are available for biotechnology research and up to 85% for technological incubators. consolidated tax returns may be filed for a group of industrial companies meeting certain criteria. This office provides a variety of support programs which have helped to make Israel a major centre of hi-tech entrepreneurship. WITHHOLDING TAX Withholding taxes are deducted from payments of interest. However. 8. Each foreign source is treated as separate for the purpose of the consideration of credits. The R& D Fund offers grants of between 20% and 50% for approved projects. including passive income and all income derived or paid from overseas sources. D. provided it holds directly at least 25% (or at least 50% indirectly) of the shares in the foreign company. G. dividends and royalties made to non-residents.Israel 4. RELATED PARTY TRANSACTIONS The tax assessing officer has powers to impose arm’s length prices on arrangements between related parties. The tax benefits are applicable in relation to the Enterprise’s total turnover. 4 PKF Worldwide Tax Guide 2012 . With effect from 1 January 2003. 5. 9. under the condition of being located in zone A. E. trade and labour is responsible for implementing the government’s policy of encouraging and supporting industrial research and development in Israel. RESEARCH AND DEVELOPMENT INCENTIVES The Office of the Chief Scientist in the ministry of industry. A company defined by the Israeli Investment Centre (“IIC”) as a “Big Company” will be entitled to a grant no larger than NIS 20 million (20% of a NIS 100 million investment plan). Dividends distributed to Israeli and non-Israeliresidents (companies and individuals) would be subjected to a 15% withholding tax or to a reduced tax rate according to the relevant tax treaty’s provisions. The grant is expected to be set at 20% of the company’s investment. is entitled to a grant when filing a comprehensive investment plan. In November 2006. new legislation was introduced relating to ‘transfer pricing’ for multi-national groups with effect from the 2007 tax year. PERSONAL TAX Income tax is payable by Israeli-resident individuals on income derived from all sources. an Israeli company is allowed to deduct the tax paid on foreign company profits and also the withholding tax paid on dividends from taxes payable. A company is able to enjoy both the grants track and the tax benefits track. with an option for an additional 4% of administrative grant. H. FOREIGN TAX RELIEF Foreign tax credits are given to Israeli-resident companies in respect of foreign taxes borne on overseas sourced income and capital gains. See Section I below for treaty and non-treaty rates. If the project is commercially successful. there is no consolidation of profits and losses of a group of Israeli companies for tax purposes. only if located in zone A. subject to Tax Treaty arrangements. which fulfils the legislative intent. the company is under an obligation to repay the grant through royalty payments. These rates will be reduced over the next few years to 6% and 12% respectively. while others will be entitled to a grant no larger than NIS 6 million (20% of a NIS 30 million investment plan). F. There are transitional provisions for companies with plans under the previous law provisions. An Industrial enterprise. There is no system of ‘global’ foreign tax credits. A qualified investment may include investments in human capital and other investments which meet the legislative intent of the amended law. Market value can be determined by a prior ruling from the tax authorities. The reduced corporate income tax rates are 10% for companies in Zone A and 15% for the rest of Israel. EXCHANGE CONTROL There are no exchange controls in Israel and foreign currency can be freely transferred in and out of the country. 6. 7. C.

or foreign professional company Foreign allowances and pensions Capital gain exemption Tax return Benefit for new resident and senior returning resident 10 years exemption 10 years exemption Those companies will be considered as foreign for 10 years 10 years exemption 10 years No need to submit a tax return on the exempt income. CFC. TAX RELIEF FOR NEW AND RETURNING RESIDENTS A major tax reform for new and returning residents has been retroactively in force from January 2007.070 14. SUMMARY OF BENEFITS Details Passive income-exemption from foreign assets purchased before becoming Israeli resident Exemptions from foreign business income and foreign salary Foreign companies that are managed and controlled from Israel. business and social activities.660 8. There has been a change in the definition of “foreign resident”. depending on whether the property is situated in or out of Israel (This does not include commercial rentals). Individuals who leave Israel will only lose their Israeli residency status if they are outside of Israel for at least 183 days each year during two consecutive tax years and their primary residence is outside of Israel for a further two years. For information regarding the tax rates see below.071 – 8. Interest incomeis taxed in the hands of an individual at rates between 15% to individual marginal rate depending on circumstances.240 21. Rental income of residential apartments in the hands of an individual is exempt up to NIS4. Exemptions are provided for low income earners.Israel Non-resident individuals are only liable to income tax on Israeli-sourced income. with a possible extension for a further five years. with no allowance for the deduction of expenses. or at least 10 consecutive years if they return to Israel after 2009.070 5.661 – 14. Approved specialists are liable to a maximum tax rate of 25% on their income for a period of three tax years.who do not intend to establish a place of residence and who have not resided in Israel for periods totalling six months in the tax year. maintenance and other expenses relating to the property) against the rental income.230 Rate (%) 10 14 21 30 33 48 The above rates relate to income from employment. trading or profession. ‘Approved specialists’ are foreign experts whose status is granted by the Investment Centre where no Israeli resident could perform the job or possess the necessary skills to do so. Individuals can choose to pay normal taxes on rental income and then can claim deductions (financial expenses.230 Over 40.241 – 40. PKF Worldwide Tax Guide 2012 5 . The rates of tax on monthly taxable income of individuals as of January 2012 are: Monthly Income (NIS) 0 – 5. Rental income is taxed in the hands of an individual at rates of 10% or 15%.071 – 21. Factors determining residence include situation of family.510 per month. The tax rate on the net income will be the marginal rate of the individual. A senior returning resident is defined as an individual who returns to Israel to reside after being a foreign resident for at least five consecutive years if they return to Israel in the tax years 2007 through 2009. OTHER No tax is payable on income arising outside Israel and received by non-residents who are in the country temporarily.

5 15 10 5/10/15 5/15 25 0/5 (10) 5/10/15 5/15 5/10/15 25 Domestic (5) 5/15 10 10 10/15 15/22.5-12.5 0/15 10 5 5 10 0 5 10 0/10 0/5 10 0 10 10 0/10 10 10 2/5 5 5/10 (6) 5 10 5 5/10 10 15 5/10 10 10 10 0 5 5 0/15 5/7 0[7] 5 10 Non-Treaty Countries: Treaty Countries: Austria Belarus Belgium Brazil Bulgaria Canada China Croatia CzechRepublic Denmark Estonia Ethiopia Finland France Germany Greece Hungary India Ireland Italy Jamaica Japan Korea Latvia Lithuania Luxembourg Mexico Moldova Netherlands Norway Philippines Poland Portugal Romania Russia Singapore Slovak Republic Slovenia South Africa Spain Sweden Switzerland Taiwan 20/25 25 10 15 10/15 7.5-12. TREATY AND NON-TREATY WITHHOLDING TAX RATES Dividends (%) Interest (1) (%) 0/25 15 5/10 (3) 15 15 5/10 15 7/10 5/10 10 25 5 5/10 10 5/10 15 10 0 10 5/10 10 15 10 7.5 5/15 5/10/15 5/10/15 5/10/15 5/10/15 5/10 5/10 5/10/15 25 10/15 5/10 5/10/15 15 10 5/10 5/10 5/10/15 25 10 0 5/10/15 10 6 PKF Worldwide Tax Guide 2012 .Israel I.5/10 5/10 10 5/10 10 5 10/15 25 10 5 10 5/10 10 7 2/5/10 0/5 25 5/10 25 5/10 7/10 Royalties (%) 25 0/10 (2) 5/10 0/10 10/15 (4) 7.

royalties other than film royalties are subject to the lower rate. 10/15 10 5/10/15 15 12. Film and natural resource royalties are not exempt.5 10 10 Royalties (%) 5/15 10 10 0/15 10/15 (8) 5/10[9] 5/15 Many treaties provide for an exemption for certain types of interest. Normally. The lower rate applies to copyright and film royalties. no specific rate is provided under the treaty.g. 6. a local authority or the central bank. The lower rate applies to royalties for industrial or scientific equipment. subject to further conditions. Such exemptions are not considered in this column. The lower rate applies depending on the type of royalties. 2. 10. PKF Worldwide Tax Guide 2012 7 . The higher rate applies to royalties from trademarks. The lower rate applies to copyright royalties (excluding film royalties). 4. Note: A substantial tax reform was approved by the Israeli parliament in December 2011 and part of the final legislation was not completed. The rate applies if (i) the Estonian company owns directly at least 10% of the capital in the Israeli company.Israel Dividends (%) Thailand Turkey Ukraine United Kingdom United States Uzbekistan Vietnam 1. or to a pension fund or other similar institution providing pension schemes in which individuals may participate. interest paid to public bodies and institutions. 3. 7. e. or (ii) dividends are paid to the government of the other state. 9. 8. The information above reflects the expected changes in the final versions of the legislation.5/25 10 10 Interest (1) (%) 10/15 10 5/10 15 10/17. 5. The lower rate applies to interest payable to a bank or a financial institution. The domestic withholding tax applies. however.

com PKF Worldwide Tax Guide 2012 565 .$100 www.pkf.

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