1. What are the current tax rates in Israel?

The current tax rates in Israel are as follows:

1. Personal Income Tax:
– Up to 5,862 ILS (approximately $1,670 USD) – 10%
– 5,862 ILS – 16,750 ILS ($4,770 USD) – 14%
– 16,750 ILS – 41,730 ILS ($11,870 USD) – 21%
– Over 41,730 ILS ($11,870 USD) – 31%

2. Corporate Income Tax:
– Regular companies: 23%
– Certain industries (e.g. technology and development):15%
– Companies in Eilat (with additional requirements):0% or 8%

3. Value Added Tax (VAT):
Standard rate:17%.

4. Capital Gains Tax:
Sale of stock or shares:25% for individuals; corporate tax is dependent on the company’s regular or lower rate.
Sale of real estate:25% for investors; depends on the individual’s income tax rate for non-investors.

5. Property Tax:
Varies depending on location and property value.

6. Inheritance and Gift Tax:
Up to a value of NIS100 million (approximately $28 million USD), a rate of up to 40% is applied to inheritances and gifts.

7. National Insurance Institute contributions:
Self-employed individuals pay up to approximately NIS18 thousand (approximately $5,100 USD), while employers withheld from their employees’ salaries an amount equal to approximately up to NIS6 thousand (approximately $1,700 USD).

Note: These rates are subject to change and may vary depending on specific circumstances. It is recommended to consult with a tax professional for accurate and up-to-date information.

2. How does Israel determine income tax for individuals and businesses?

Income tax in Israel is determined based on a progressive tax system, which means that the tax rate increases as income rises.

For individuals, the income tax rates for 2021 are as follows:

– 10% for income up to 75,960 NIS
– 14% for income between 75,961 and 108,240 NIS
– 20% for income between 108,241 and 174,840 NIS
– 31% for income between 174,841 and 243,480 NIS
– And a top rate of 50% for income over 243,481 NIS

For businesses, the corporate tax rate is currently at a flat rate of 23%. However, different industries may have lower or higher rates depending on government policies and agreements.

In addition to income tax, both individuals and businesses are also subject to other taxes such as value-added tax (VAT), capital gains tax, and social security contributions.

Employers are responsible for withholding and remitting employees’ income taxes to the Israel Tax Authority on a monthly basis. Self-employed individuals are required to pay estimated quarterly taxes based on their taxable income from the previous year. Final assessments of taxes due are typically done at the end of each calendar year.

3. Are there any tax relief programs or deductions available for taxpayers in Israel?

Yes, there are several tax relief programs and deductions available for taxpayers in Israel. Some of the most common ones include:

1. Personal tax credit: This is a tax credit that can be claimed by every taxpayer, and its value is determined based on the individual’s income level. The higher the income, the lower the credit.

2. Disability tax credit: This is a tax credit given to individuals with disabilities or their caregivers to help them cover some of their disability-related expenses.

3. Charitable donations: Taxpayers can claim deductions for donations made to eligible charitable organizations.

4. Medical expenses: Taxpayers can claim deductions for certain medical expenses not covered by national health insurance.

5. Education expenses: Deductions can be claimed for education-related expenses, such as tuition fees, textbooks, and transportation costs.

6. Mortgage interest deduction: Taxpayers who have taken out a mortgage on their primary residence can claim deductions for the interest paid on that mortgage.

7. Capital gains exemption: Individuals selling their primary residence may be eligible for a capital gains exemption if they meet certain criteria.

It’s important to note that eligibility and the amount of relief/deduction vary depending on an individual’s circumstances and may change from year to year. It’s recommended to consult with a tax advisor or accountant for specific information regarding your situation.

4. What are the major types of taxes collected in Israel, and how much revenue do they generate?

The major types of taxes collected in Israel include income tax, value-added tax (VAT), corporate tax, and capital gains tax.

1) Income Tax: This is a progressive tax based on individuals’ income. It ranges from 10% to 50% for different income levels. In 2020, it generated approximately $55 billion (ILS 192 billion)

2) Value-Added Tax (VAT): A consumption tax applied to most goods and services at a standard rate of 17%. In 2020, it generated approximately $29 billion (ILS 101 billion).

3) Corporate Tax: A flat rate of 23% for all companies operating in Israel. It also applies to foreign companies with a permanent establishment in the country. In 2020, corporate tax revenue was approximately $19 billion (ILS 68 billion).

4) Capital Gains Tax: This is a tax on profits made from the sale of assets such as property, stocks, and bonds. The rate varies depending on the type of asset and the holding period. In 2020, it generated approximately $5.6 billion (ILS 20 billion).

Other smaller sources of taxation in Israel include property taxes, customs duties, and various fees and levies.

Overall, total tax revenue in Israel for 2020 amounted to approximately $111 billion (ILS 389 billion).

5. How does sales tax and value-added tax (VAT) work in Israel?

Sales tax and value-added tax (VAT) are both types of consumption taxes imposed on goods and services in Israel. Here is how they work:

1. Sales Tax:
In Israel, the sales tax is known as the “Ma’am” tax and is levied at a standard rate of 17%. However, certain goods and services may be exempt from this tax or subject to a reduced rate.

2. VAT:
The Value-Added Tax (VAT) in Israel is also levied at the standard rate of 17%. This applies to most goods and services sold within the country, including imports. Unlike sales tax, VAT is calculated on the value added by each seller in the supply chain.

3. Registration:
Businesses that are required to collect VAT must register with the Israeli Tax Authority (ITA). This includes businesses with an annual gross income higher than NIS 99,467 (~$28,000 USD).

4. Collection:
Customers purchasing goods or services subject to VAT or sales tax in Israel will see these taxes included in the final price they pay at checkout.

5. Reporting and Payment:
Businesses are required to report their VAT collections and payments on a monthly basis using an online system provided by the ITA. These reports include information about taxable sales, purchases, input VAT credits, and total VAT due.

6. Imports:
Goods imported into Israel are subject to both VAT (at a standard rate of 17%) and customs duties based on their declared value. Importers must pay these fees to Israeli customs before they can clear their goods for delivery.

It’s worth noting that tourists visiting Israel may be eligible for a VAT refund on purchases made during their stay if they meet specific criteria.

6. Are there any tax treaties in place between Israel and other countries to avoid double taxation for individuals and businesses?

Yes, Israel has tax treaties in place with over 50 countries to avoid double taxation for individuals and businesses. Some of these countries include the United States, Canada, Australia, Germany, France, Japan, and the United Kingdom. These treaties generally aim to prevent individuals or companies from being taxed on the same income by both Israel and the other country. They typically provide rules for determining which country has the primary right to tax specific types of income and may also provide reduced tax rates in certain situations. The specific terms of each treaty vary and should be consulted for more detailed information.

7. What is the process for filing taxes in Israel? Is it mandatory for all citizens/residents to file a tax return?

The process for filing taxes in Israel varies depending on individual circumstances, but generally involves the following steps:

1. Register with the Israeli Tax Authority: All citizens and residents of Israel are required to register with the Israeli Tax Authority (ITA) and obtain a tax identification number.

2. Determine tax residency status: Individuals are classified as residents or non-residents for tax purposes based on their physical presence in Israel and other criteria. It is important to determine your tax residency status before proceeding with filing taxes.

3. Gather all necessary documents: Before filing a tax return, individuals should gather all relevant documents such as income statements, bank statements, and any other documents related to their financial activities throughout the year.

4. Choose a method of filing: There are several options for filing taxes in Israel including through an online portal, by mail, or in person at one of the ITA branches.

5. Fill out and submit tax return: The tax return must be completed accurately and submitted to the ITA by the deadline, which is typically April 30th of the following year.

6. Pay any taxes owed: If you owe taxes after deducting any credits or exemptions, you will need to pay them by the due date.

7. Receive tax assessment: After submitting your tax return, you will receive an assessment notice from the ITA that summarizes your income, deductions, and taxes owed or refunded.

It is generally mandatory for all citizens/residents of Israel to file a tax return if they have earned income during the taxable year. However, there are certain categories of individuals who may not be required to file a tax return if their income falls below a certain threshold. It is important to consult with a professional accountant or contact the ITA for specific guidelines regarding your individual situation.

8. How does payroll or employment taxation work in Israel? Are employers responsible for paying certain taxes on behalf of employees?

In Israel, payroll or employment taxation is a combined effort between employers and employees.

Employees are required to pay income tax on their salaries, which is withheld by their employer through the PAYE (pay-as-you-earn) system. This means that employers deduct a portion of the employee’s salary each month and transfer it to the tax authorities on their behalf.

Employers are also responsible for paying national insurance contributions (social security) on behalf of their employees. These contributions cover health insurance, pension, and other benefits.

In addition, employers must pay various payroll taxes such as a health levy, education fund tax, and solidarity. These taxes are based on a percentage of an employee’s gross salary and are paid directly by the employer to the tax authorities.

Employers may also provide additional benefits to employees such as company cars or housing allowances. These benefits may be subject to additional taxes and social security contributions.

It is important for employers to stay compliant with their payroll and employment tax obligations in order to avoid penalties and legal consequences.

9. Are there any specific tax incentives offered by the government to encourage certain industries or investments in Israel?

Yes, the Israeli government offers various tax incentives to promote certain industries and investments in Israel. These include:

1. Reduced corporate tax rates: Israel has one of the lowest corporate tax rates among developed countries, with a standard rate of 23%. However, for certain industries such as software development, exporting companies, and industrial companies operating in designated geographical areas (development zones), reduced tax rates are available.

2. Capital investment grant: The Israeli government provides a capital investment grant of up to 20% on the cost of new fixed assets for qualifying manufacturing projects or expansions by existing companies.

3. R&D grants and benefits: Israel has a significant R&D sector, and the government offers various incentives to encourage further research and development activities. This includes a cash grant for approved projects, reduced tax rates on income from R&D activities, and accelerated depreciation on fixed assets used for R&D.

4. Technology incubators: The Israeli government offers grants of up to 85% to support early-stage technology startups through designated technology incubator programs.

5. Export-related incentives: Companies engaged in exporting eligible products can benefit from reduced taxes or exemptions, grants for marketing expenses, and assistance with export promotion activities.

6. Immigration benefits: Foreign individuals who relocate to Israel for employment purposes may be eligible for various tax benefits, including reduced income tax rates and exemptions from certain taxes on foreign-sourced income.

7. Special economic zones: The Israeli government has established several special economic zones where businesses can receive various incentives such as reduced taxation rates, subsidies for land acquisition and construction costs, and assistance with infrastructure development.

It is essential to note that these incentives may have specific eligibility criteria and conditions that must be met by businesses or investors looking to avail them.

10. Is there a progressive or flat tax system in place in Israel? How do different income levels affect the amount of taxes paid?

Israel has a progressive tax system in place, where higher income earners are subject to higher tax rates compared to lower income earners.

The income tax rates in Israel range from 10% for individuals earning up to 74,760 NIS (about $21,000 USD) per year, to 47% for those earning over 501,960 NIS (about $140,000 USD) per year. This means that as an individual earns more money, they will be subject to increasingly higher tax rates on portions of their income.

In addition to the progressive income tax rates, there are also various deductions and exemptions available for specific types of income and expenses. These can help reduce the overall amount of taxes paid by individuals at different income levels.

For example, low-income individuals may be eligible for certain deductions or exemptions that can significantly reduce or eliminate their tax liability. On the other hand, high-income earners may have fewer opportunities for deductions and exemptions and therefore will likely pay a higher percentage of their total income in taxes.

Overall, in Israel’s progressive tax system, individuals with higher incomes generally pay a greater proportion of their earnings in taxes compared to those with lower incomes.

11. What is the role of the national tax authority in collecting and enforcing taxes in Israel?

The National Tax Authority (NTA) is the government agency responsible for collecting and enforcing taxes in Israel. Its main role includes:

1. Tax assessment: The NTA assesses and determines the amount of tax owed by individuals and businesses in accordance with Israeli tax laws.

2. Issuing tax returns: The NTA is responsible for sending out tax returns to taxpayers, which contain a summary of their income and deductions.

3. Collecting taxes: The NTA collects taxes on behalf of the government through various methods such as direct debit, bank transfer, or credit card payment.

4. Enforcing tax laws: The NTA has the power to enforce compliance with tax laws through audits and investigations. This includes identifying cases of tax evasion or fraud and taking action against those found to be non-compliant.

5. Providing information and guidance: The NTA provides information and guidance to taxpayers on their rights and obligations under Israeli tax law.

6. Managing tax incentives: The NTA manages tax incentive programs such as investment grants, capital gains exemptions, and research and development benefits.

7. Facilitating international cooperation: The NTA works with other countries’ tax authorities to facilitate international cooperation in enforcing tax laws, preventing double taxation, and exchanging taxpayer information.

8 . Prosecuting non-compliance: In cases of severe non-compliance, the NTA may initiate legal proceedings against individuals or businesses to enforce payment of taxes owed.

Overall, the national tax authority plays a crucial role in ensuring that taxes are collected efficiently and effectively while also promoting compliance with Israeli tax laws.

12. How often do tax laws change in Israel, and how can individuals/businesses stay updated on new regulations?

Tax laws in Israel can change quite frequently, sometimes multiple times a year. New tax regulations are usually announced with the annual budget law that is passed by the government and the Knesset (Israeli parliament).

To stay updated on new tax regulations, individuals and businesses can:

1. Monitor official sources: The Israeli Tax Authority website (https://taxes.gov.il/English/Pages/default.aspx) regularly publishes updates on new tax laws and regulations.

2. Consult with a tax professional: It is advisable to work with a certified public accountant or tax consultant who can provide advice on changes in tax laws and how they may affect your specific situation.

3. Follow news and media outlets: Tax-related news is often covered by major Israeli news outlets such as Haaretz, The Jerusalem Post, and Calcalist.

4. Attend seminars and workshops: The Israeli Tax Authority and various professional organizations often offer workshops or seminars to educate individuals and businesses about changes in tax laws.

5. Subscribe to mailing lists: Many accounting firms and professional organizations offer newsletters or email updates specifically focused on tax developments in Israel.

It is important for individuals and businesses to stay informed about changes in tax laws to ensure compliance and avoid any potential penalties or fines.

13. Are there any special considerations for foreign investors or expatriates living/working in Israel regarding taxation?

Yes, there are some special tax considerations for foreign investors or expatriates living/working in Israel. These include:

1. Tax residency: Individuals who are not Israeli citizens but reside in Israel for at least 183 days in a tax year are considered tax residents and are subject to taxation on their worldwide income.

2. Personal income tax rates: Non-residents are subject to a flat rate of 25% on their Israeli-sourced income, while residents are subject to progressive tax rates ranging from 10% to 50%. Expatriates may also be eligible for certain deductions and exemptions.

3. Double taxation agreements: Israel has signed double taxation agreements with several countries to avoid double taxation of income for individuals and companies.

4. Social security contributions: Non-resident employees working in Israel may be required to pay social security contributions, which can vary depending on the country they come from.

5. Taxation of investment income: Non-residents are generally exempt from capital gains tax on the sale of Israeli securities, such as stocks or bonds. However, non-resident individuals may be subject to tax on rental income from Israeli real estate.

6. Reporting requirements: Foreign investors and expatriates must declare all sources of income earned in or outside of Israel to the Israeli Tax Authority (ITA).

7. Withholding taxes: In some cases, non-residents may be subject to withholding taxes on certain types of income, such as dividends or interest.

It is recommended that foreign investors and expatriates consult with a professional tax advisor to understand their specific tax obligations and take advantage of any available exemptions or deductions.

14. Can taxpayers appeal their tax assessments or challenge any errors made by the national tax authority?

Yes, taxpayers have the right to appeal their tax assessments or challenge any errors made by the national tax authority. This process is usually done through filing an objection or appeal with the relevant tax authority. If the objection or appeal is not successful, taxpayers may also have the option to take their case to court for further review.

15. Are capital gains taxed differently than regular income in Israel? If so, what are the rules and rates applied?

Yes, capital gains are taxed differently than regular income in Israel. The taxation of capital gains is subject to the provisions of the Income Tax Ordinance (ITO), which distinguishes between short-term and long-term capital gains.

Short-term capital gains are taxed as regular income and are subject to the individual’s marginal tax rate, which ranges from 10% to 50% for the tax year 2021.

Long-term capital gains, on the other hand, are taxed at a flat rate of 25% for individuals. However, for real estate sales, the rate is reduced to 15%. To qualify for this lower rate, the asset must have been owned by the individual for at least 12 months before its sale.

Special rates may apply to certain types of assets such as shares and securities traded on the stock exchange or assets held in a provident fund or pension fund.

There is also an exemption available for capital gains derived from the sale of a residential property that serves as the taxpayer’s primary residence. This exemption is only applicable once every four years and up to a certain amount set by law.

It is important to note that non-residents are subject to different tax rates and rules on their capital gains in Israel. Therefore, it is recommended to consult with a tax professional or refer to the official website of the Israel Tax Authority for more information.

16. Does inheritance or gift taxation exist in Israel, and if yes, what are the applicable rates?

Yes, inheritance and gift taxation exists in Israel. Inheritance tax is imposed on the transfer of property or assets through inheritance after the death of the owner. Gift tax is imposed on the transfer of property or assets as a gift during the lifetime of the owner.

The applicable rates for inheritance and gift taxation in Israel depend on several factors, including the value of the property or asset being transferred, the relationship between the donor and recipient, and any exemptions or exclusions that may apply.

Inheritance tax rates range from 0% to 45%, with specific rates based on different categories of beneficiaries. Immediate family members (e.g. spouses, parents, children) are generally subject to lower rates or exemptions compared to non-family members.

Gift tax rates also range from 0% to 45%, with various exemptions and deductions available based on the value and nature of the gift, as well as the relationship between donor and recipient.

It should be noted that there may be additional taxes or fees imposed by local authorities in Israel on inherited or gifted property. It is advisable to consult with a legal or financial professional for specific advice regarding inheritance and gift taxation in Israel.

17. How is property taxed in Israel, both residential and commercial? And are there any exemptions available?

Property tax in Israel is known as Arnona, and it is calculated based on the value of the property. Residential properties are taxed at a rate of 0.38-3.5% of the assessed value, while commercial properties are taxed at a rate of 1.5-11%. The assessed value is determined by the municipality and takes into account factors such as location, size, and amenities.

There are some exemptions available for certain types of properties or owners, such as:

1. Owner-occupied residential properties: Residential properties that are occupied by their owner as their primary residence are exempt from Arnona tax.
2. Senior citizen exemption: Persons over the age of 70 living in a residential property may be eligible for a reduction in Arnona tax.
3. Disabled veteran exemption: Disabled veterans may be eligible for an exemption on up to 80% of their property’s Arnona tax.
4. Houses of worship: Properties used exclusively for religious purposes may be exempt from Arnona tax.
5. Charitable institutions: Non-profit charitable organizations may be eligible for an exemption on their property’s Arnona tax.

It is important to note that exemptions vary depending on the specific municipality and may also have conditions or limitations. It is recommended to consult with the municipality or a legal professional for more information on exemptions in specific cases.

18. Are there any local or municipal taxes in addition to national taxes in Israel? How much do they contribute to overall tax revenue?

There are several local and municipal taxes in addition to national taxes in Israel, including property tax, municipal rates and business taxes.

Property tax, also known as Arnona, is levied by municipalities on all residential and commercial properties and contributes to the funding of local services such as garbage collection, road maintenance and street lighting. The amount of property tax depends on the value of the property.

Municipal rates, also known as Mekadeshei Ir or Ir Biyurim, are paid by residents to their local municipality for various services such as water, sewage, fire protection, etc. The rates vary depending on the specific municipality.

Businesses in Israel are also subject to various local taxes such as license fees and business income tax. These taxes contribute to the funding of local services and infrastructure.

Overall, local and municipal taxes contribute approximately 10% to overall tax revenue in Israel.

19. How do individual states/provinces within Israel handle taxes, and is there a uniform tax code across the entire country?

In Israel, taxes are primarily handled by the national government through the Ministry of Finance. However, individual states/provinces (known as municipalities) also have a certain degree of authority to impose their own taxes.

The main types of taxes in Israel include:

1. Income tax: This is collected by the national government from individuals and businesses based on their income. The tax rate varies depending on the level of income.

2. Value Added Tax (VAT): This is a consumption tax that is imposed on most goods and services in Israel at a standard rate of 17%.

3. Property tax: Property owners in Israel pay a municipal property tax, which is calculated based on the value of their property.

4. Sales tax: Some municipalities also levy a sales tax on certain goods and services, in addition to the VAT.

5. Municipal taxes: Municipalities have authority to impose various local taxes, such as business and entertainment taxes, parking fees, and building permit fees.

Despite these variations in taxes managed by different levels of government, there is a uniform national tax code in Israel that governs all taxes collected by the national government. This includes income tax, VAT, customs duties, and other national-level taxes.

Overall, taxation in Israel is highly centralized with most of the revenue going to the national government. The distribution of funds among municipalities is determined by a formula set by the Ministry of Finance based on various factors such as population size and economic indicators.

20. What are the plans for future tax reforms in Israel, and how will they impact taxpayers?

There are currently several proposed tax reforms in Israel that could potentially impact taxpayers in the future. Here are a few examples:

1. Proposal to decrease corporate tax rates: In October 2020, the Israeli government approved a proposal to gradually lower the corporate tax rate from its current rate of 23% to 17% over the course of four years. This reform is intended to attract more foreign investment and stimulate economic growth.

2. Potential changes to capital gains tax: There have been discussions about changing the capital gains tax rates for individuals and corporations. It is possible that these changes could include an increase in rates or exemptions.

3. Introduction of a digital services tax: In line with global trends, there have been discussions about introducing a new digital services tax on large tech companies operating in Israel.

4. Reforms to income tax brackets: Some politicians and economists have proposed reforms to the individual income tax brackets, which could result in higher taxes for high-income earners and lower taxes for low-income earners.

5. Expansion of VAT on online purchases: There have been talks about expanding the value-added tax (VAT) on online purchases made by Israeli consumers from foreign businesses, as they currently only pay VAT on purchases over 75 euros.

It is important to note that these plans for future tax reforms are still under discussion and may be subject to change before they are formally implemented. It is recommended for individuals and businesses to stay informed about any potential changes and consult with a professional advisor for personalized advice regarding their specific situation.