It is entirely possible to make money in Israel and keep most of it. According to the OECD, Israeli tax revenue was 32.2% of GDP. 2021, which was 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, the regular corporate 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, 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 treaty. 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, EFTA, MERCOSUR, Mexico, Panama, South Korea, Turkey, the United Arab Emirates, and Ukraine.
National Insurance (Social Security):
National Insurance rates include: Resident workers: 3.5%-12%; Employers of resident employees: 3.55% -7.6%; Freelancer: 5.97% – 17.83% (52% is 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.
Olim (new immigrants)
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 PATA foreign currency fixed deposits of three months or more in an Israeli bank for periods ranging from five to 20 years.
On Israeli source income, new immigrants receive additional personal credits that reduce taxes by NIS 235-NIS 705 per month for four and a half years.
Foreign expatriates in Israel
Israel’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 “foreign specialists” who are paid at least NIS 14,300 per month, housing expenses for up to 12 months and NIS 350 Can enjoy deduction for daily living expenses of Rs. , provided they have been invited by an Israeli employer who is not an employment agency.
tax registration
A business must register for Israeli tax purposes immediately after commercial 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 profit tax.
necessary paperwork
There are strict bookkeeping and customer invoicing rules – approved Israeli software or printed books must be used.
Employees & Freelancers
Salary and freelancers pay tax at rates up to 50%.
Once Employee Having worked three to six months in a firm, they are entitled to compulsory pension and severance fund. 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 ESOP plans, employees pay only 25%-28% tax subject to fulfillment of various conditions.
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.
buying real estate Rates range 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.
Gains from the sale of a sole house in Israel by a resident individual are exempt from tax if 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 rates of 25%-33%. Traders and companies pay tax at regular rates.
Estates, Inheritance and Gifts
There is no tax on property or inheritance in Israel, only on gifts to foreign residents.
Wishing readers a happy Pesach, the season of our freedom…
Always Get advice from experienced advisors In each country at the initial stage in specific cases.
leon@h2cat.comThe author is an Israeli CPA at Harris Horowitz Consulting & Tax Ltd. in Ramat Gan, Israel.