FOREIGN TAX FOCUS: ISRAEL

It’s always useful to know a bit more about the peculiarities of tax rates in any foreign country you may have business interactions with. This month, we’d like to highlight some of the key points to know about Israeli tax.

Businesses

Regular company tax rates come in at 24%, with the regular dividend tax rate sitting at

30%-33% for 10%-or-more shareholders, 25%-28% for other shareholders, resulting in a combined tax burden on distributed corporate profits of 45%-49.08%, subject to any tax treaty in the case of foreign investors.

Preferred income derived by preferred industrial and tech enterprises is liable to company tax of 7.5 - 9% in development area A, elsewhere in Israel 16%,

without time limit. Dividends are taxed at 4 %-20%. The resulting combined tax burden on distributed profits is 11.2% - 32.8% subject to any tax treaty.

The VAT standard rate is 17%. Exempt dealers must have annual revenues below NIS 98,707.

There are tax breaks for: capital gains of foreign resident investors, trust owned vehicles (TOV‘s), approved rental buildings, oil exploration and production, movie productions.

Real estate:

Home rental income of up to NIS 5,010 per month is exempt. Thereafter, several possibilities exist.

A multi-home tax applies from 2017 to the owners of 2.49 homes or more in Israel at the rate of 1% of a prescribed value but no more than NIS 18,000 per year, subject to various rules and exceptions.

Real estate acquisition tax rates range up to 10% generally. For an Israeli resident purchaser with no other home in Israel, the first NIS 1,623,320 may be exempt from acquisition tax.

The gain from the sale of an only home in Israel by resident individual may be exempt from tax provided its value does not exceed NIS 4,456,000 (in 2016). Otherwise home sales are generally taxed at 25%. A partial exemption applies to the sale of up to two homes bought before 2014 and sold before the end of 2017 by a resident individual.

Individuals:

The 2017 monthly income tax rates for employment and freelance income are as follows:

• 10% on first NIS 6,220;
• 14% on NIS 6,221-NIS 8,920;
• 20% on NIS 8,921-NIS 14,320;
• 31% on NIS 14,321-NIS 19,900;
• 35% on NIS 19,901-NIS 41,410;
• 47% on NIS 41,411 – NIS 53,533
• 50% on income over NIS 53,333

Passive income from securities are generally taxed at rates of 25%-33%. Special rules apply to rental income.

Personal tax credits:

Israeli residents are entitled to personal tax credits, which are known as credit points. Each credit point is currently worth NIS 215 per month.

A man generally receives 2.25 credit points (which reduces tax by NIS 483 per month), and a woman receives 2.75 credit points (which reduces tax by NIS 591). If a couple both work and opt for separate tax calculations, the wife will receive an extra credit point for each child under 18 years of age and half a credit point for a child born or reaching 18 in the tax year. The husband receives extra credit points for children aged up to 4.

New residents:

New residents and senior returning residents (who lived abroad 10 years) generally enjoy a 10-year Israeli tax exemption for non-Israeli source income and capital gains. This does not apply to work done in Israel. They also enjoy an exemption for 5 - 20 years regarding interest on Patach foreign-currency time deposits of three months or more at an Israeli bank.

On Israeli source income, new immigrants receive an extra three credit points in the first 18 months after their immigration, two extra credit points in the next 12 months and one extra credit point in the next 12 months.

Foreign expatriates in Israel:

Israel's tax treaties sometimes grant an income tax exemption for employees resident in those countries but working in Israel.

Otherwise, non-residents working in Israel lawfully in their field of expertise for an employer who are paid at least NIS 13,100 per month, may enjoy a deduction for accommodation expenses and a daily living expenses deduction of up to NIS 320 for up to 12 months as "foreign experts," provided they are invited by an Israeli employer that is not an employment agency. But employers may be subject to a foreign workers' payroll levy of 0% to 20%.

National Insurance (Social Security):

• The National Insurance (Bituach Leumi) rates for Israeli residents, are as follows:
• Resident employees: 3.5%-12%
• Employers of resident employees: 3.45%-7.5%.
• Nonresident employees: 0.04%- 0.87%
• Employers of nonresident employees: 0.49%-2.55%
• Freelancers: 5.97%- 17.83% (52% of the NII amount paid is tax deductible)
• Not working: 9.61%-12% (52% of the NII amount paid is tax deductible)
• Payment if no income: NIS 170 per month.

No National Insurance liability applies to monthly income exceeding NIS 43,240.

There is generally no National Insurance liability on dividends and capital gains.

Estates, inheritances, gifts:

There is no tax in Israel on estate or inheritances. There is also no tax on gifts to Israeli residents. But capital-gains tax is payable at rates of 25%- 50% on:

• Gifts to foreign residents except for cash;
• Sale of assets acquired by way of a gift or inheritance.

As always, consult experienced tax advisors in each country at an early stage in specific cases.

How can YML help?

Talk to our Tax department today to see how YML Group can assist you with your tax needs. Contact us on (02) 8383 4400 or by visiting the Contact Us Page