Israel 2012 Tax Highlights

A Lastest News about Personal Tax in Israel

Posted on: 1 Feb 2012

 

General:
Israel's primary laws on income taxes are the Income Tax Ordinance (ITO) and the Income Tax Law - Inflationary Adjustments of 1985 (the Inflation Law). Under the Israeli tax regime, Israeli residents are subject to tax in Israel on their worldwide income, while foreign residents are subject to tax in Israel only on their Israeli-sourced income. Taxable income includes business and trade profits, wages and salaries, as well as passive income, such as dividends, interest, royalties, rentals, real estate profits and capital gains.

Corporate tax:
25% - corporate tax on resident Israeli companies on their worldwide profits and gains regardless of where it arises. However, Israel is a signatory to many double taxation agreements, which grants corporations credit for foreign taxes paid.

A non-resident company is only subject to tax on its Israeli sourced profits.

A foreign corporation managed and controlled by a new immigrant or a veteran returning resident will only be subject to tax on its Israeli sourced profits for a period of 10 years from the date of their aliyah on all foreign sourced income.

Losses incurred by businesses may be carried forward and offset against future taxable profits.


Dividend tax:
0% on dividends distributed between Israeli companies; on condition that this income was produced or accrued in Israel;

25% on all other dividends.

Withholding tax:
Dividends – 20% or 25% when paid to a non-controlling foreign resident shareholder;

Interest – 15%/20%/25%;

Royalties – 25% withheld to non-residents.

All withholding tax rates can be reduced with reference to specific countries double taxation treaties.


Filing and compliance:

Tax year end – 31st December

Consolidated returns – Generally not required for private corporations; however each company must file its own return.

Filings –Companies must file their annual tax returns by 30 May the following tax year, unless their CPA can arrange an extension with the Tax Authorities. Companies are also required to pay provisional tax, which is generally based on a percentage of monthly sales.

Fines and penalties – If provisional taxes are overdue or if the tax return is filed late or if there are overdue taxes payable interest is charges linked to Israeli CPI index.


Individuals tax:
Basis:
Israeli residents are taxes on their worldwide income. Non-residents are taxed on their Israeli sourced income.

Residence test:
An individual is resident in Israel if his “centre of life” is in Israel.
Also, if an individual spent 183 days or more, in Israel during the current tax year or;
If an individual spent 30 days or more, in Israel during the current tax year and; the total days spent in Israel during the current tax year and the preceding two years were 425 days or more, then he is a tax resident in Israel.

Taxable income:
All income from employment or business is taxable, including passive income.
New immigrants and veteran returning resident are entitled to benefit from a 10 year tax exemption on all foreign sourced income and gains and also free from having to report any of this income to the Israeli tax authority from the date of their Aliyah.
New immigrants who have cash savings in foreign currency in an Israeli bank account are free from tax on interest on these deposits for a period of 20 years from date of their Aliyah.

Step Tax Rate Monthly Income Annual Income
10% 0 to 5,200 0  to 62,400
14% 5,201  to 8,880 62,401 to 106,560
21% 8,881  to 14,430 106,561 to 173,160
30% 14,431 to 21,780 173,161 to 261,360
33% 21,781 to 41,830 261,361 to 501,960
48% Each Shekel Added 

Individual tax credit points – NIS215/month.
Apartment rental exemption – Up to NIS4,910/month for residential apartments.
Taxable Fringe Benefits
Company Vehicle:
Vehicle Category Taxable Fringe Benefit
1 2,640
2 2,870
3 3,690
4 4,420
5 6,120
6 7,930
7 10,200

Company Telephone:
NIS100/month

Per Diem Rates – Foreign Travel
Travel expenses deductible under the Income Tax Regulations - 1972 are updated once a year, according to the rate of increase in the CPI of the United States of America. The rate of increase in 2012 amounts to - 3.39%.
Updated expenditure totals are therefore as follows:
Air Tickets (business class)
- Limited to 100% of the cost price of business class ticket

Accommodation expenses (with receipts)
-For the first 7 nights; up to, but not exceeding $255 per night;
-For nights 8 – 90, 100% of the accommodation expenses up to $107 per night;
Amounts exceeding $112 per night – 75% of the cost (ensuring that the answer is more than $112 but less than $191 per night)
-If your stay is longer than 90 nights, you can only claim $112 from day one.
Living expenses (without receipts)
- If you stayed in Hotel accommodation, $71 per night.
- Without hotel accommodation, $120 per night.

Car rental (with receipts)
- $56 per day


Value Added Tax

The standard rate of VAT is 16%. Certain items are zero rated such as exported goods and services.

All company’s must generally register for VAT.

All self-employed individuals (freelancers) who carry on a business must register for VAT. If their income is below NIS76,844 they report to VAT once a year in January the following tax year. If there income exceeds NIS76,844 they have to report to VAT once every two months or; if their income exceeds NIS1,500,000 they have to report on a monthly basis.


Posted: 01 February 2012

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Israel 2012 Tax Highlights   By Dov Weinstein & Co. C.P.A. (Isr)