it is absolutely possible make money in israel And keep most of it. According to the OECD, Israeli tax revenue in 2021 was 32.2% of GDP, better than the OECD average of 34.1%. You are probably carrying on a taxable business in Israel if you conduct business activities in Israel or act through an agent in Israel who can engage you. Israel’s tax treaties and OECD multilateral instruments refine these criteria for foreign companies.
business tax rates
For 2023, regular company tax rate is 23%. The regular dividend tax rate is 30%-33% for shareholders with 10% or more and 25%-28% for other shareholders, resulting in a combined tax burden on distributed corporate profits of 42.25%-48.41%, which subject to tax. Treaty.
Preferred income received by preferred industrial or technical enterprises is liable to a corporate tax of 7.5% in Development Zone A and 16% elsewhere in Israel. Dividends are generally taxed at 20%. The resulting combined tax burden on distributed profits is generally 26%-32.8%, subject to any tax treaties. Lower rates are possible for some large enterprises with annual revenues in excess of NIS 10 billion. R&D grants, typically 50%, are also available.
The VAT standard rate is 17%.
International agreements: Israel has income tax treaties with 60 countries, including the UK.
Israel is a party to the US FATCA and the OECD CRS Information-Exchange Arrangement.
israel has free trade agreements With the US, the European Union, the UK, Canada, Colombia, the European Free Trade Association, Mexico, Panama, South Korea, Turkey, the United Arab Emirates and Ukraine.
National Insurance Institute (Social Security)
NII rates include:
- resident staff: 3.5% -12%;
- employer of resident employees: 3.55% -7.6%;
- freelancer: 5.97% – 17.83% (52% tax deductible);
- Not working: 9.61%-12% (52% is tax deductible);
- Monthly payment if there is no income: NIS 194.
The above is subject to any applicable social security (“aggregate”) treaty.
- Once upon a time: New residents and returning senior residents (having lived abroad for 10 years) are generally exempt from Israeli tax on non-Israeli-source income for 10 years. The exemption does not apply to income for work performed in Israel.
Olim also receives a rebate in respect of interest on patch foreign currency fixed deposits of three months or more with an Israeli bank for a period of five to 20 years. On Israeli-source income, Olim receives an additional personal credit that reduces tax to NIS 235, or NIS 705 per month for four and a half years.
- Foreign expatriates in IsraelIsrael’s tax treaties sometimes provide income tax exemptions for employees living in those countries but working in Israel.
Otherwise, non-residents working in Israel in their field of expertise for an employer as a “foreign specialist” who is paid at least NIS 14,300 per month, housing expenses for up to 12 months and NIS 350 can enjoy a deduction for daily living expenses, provided they are invited by an Israeli employer who is not an employment agency.
- tax registration: A business must be registered for Israeli tax purposes as soon as business activity begins.
- pay tax as you go: Every year, a business or investor will receive a demand to pay installments (mikdamot) of VAT, payroll tax, income tax and tax on profits.
- necessary paperwork: There are strict bookkeeping and customer invoicing rules, and approved Israeli software or printed books must be used.
Employees & Freelancers
Salary and freelancers pay tax at rates up to 50%.
Once employees have worked three to six months in a firm, they are entitled to compulsory pension and severance funds. The minimum pension fund contribution is 18.5% of gross salary. The employer typically pays 6.5% for pension funding and 6% for severance funding. The employee pays 6% towards pension funding. Different pension rules apply to freelancers.
Under approved employee stock ownership plans, employees pay only 25%-28% tax if various conditions are met.
- real estate: Home rental income up to NIS 5,471 per month is exempt for individuals. After this, several possibilities exist – regular tax on net income, 10% flat tax, etc. Companies pay tax at regular rates.
Real estate purchase-tax rates are up to 10%. For an Israeli resident buyer with no other home in Israel, the first NIS 1,919,155 may be exempt from the purchase tax.
The gain from the sale of a sole house in Israel by a resident individual is exempt from tax, provided its value does not exceed NIS 4,846,000. Otherwise, the sale of real estate is generally taxed at 25%-50%.
- security: Passive income derived by individuals from securities is taxed at the rate of 25%-33%. Traders and companies pay tax at regular rates.
- Estates, Inheritance and GiftsThere is no tax on property or inheritance in Israel – only on gifts to foreign residents.
Always consult experienced advisors in each country in the early stages of specific matters.
leon@h2cat.com
The author is an Israeli CPA at Harris Horowitz Consulting & Tax Ltd. in Ramat Gan.