Income Tax Law in Israel
Residents in Israel are taxed on their worldwide earnings. Non-residents are entitled to income tax on income earned in Israel and capital gains tax on capital gains on properties located in Israel (subject to special non-resident exemptions). Income tax, capital gains tax, value-added tax, and property appreciation tax are all levied in Israel. The Income Tax Ordinance is Israel's prime source of income tax legislation. To promote aliyah, there are also special tax benefits for new immigrants.
What is the applicable domestic legislative framework for the enforcement of Income-tax regulations in Israel?
The Israel Tax Authority (ITA) was created on September 15, 2003, as a result of a government decision to combine the Department of Income Tax and Land Taxation, the Department of Customs and VAT, and the Automated Processing Service in order to "consolidate the administration of tax collection under one key administrator, to be invested with legal authority to enforce the applicable tax laws."
The Income Tax Ordinance is Israel's prime source of income tax legislation. For each tax year, income tax is imposed in accordance with the terms of the Income Tax Ordinance, at the rates prescribed in the ordinance, on income obtained or accrued (income from capital or property) by an Israeli resident in Israel or abroad, and non-residents' income obtained or accrued in Israel from the sources specified in the ordinance, which include industry, occupation, earnings, interest, dividends, securities, patents, and copyright.
In general, which categories are subject to income tax?
Subject to certain exceptions, all forms of remuneration and compensation, whether in cash or in-kind, resulting from/attributable to work services performed in Israel are taxable. Below are some examples of components of an expatriate remuneration plan that will be taxed as income:
- contributions to profit-sharing schemes and some retirement plans.
- the value of low- or no-interest loans issued by the employer, either directly or indirectly.
- domestic assistance provided by the employer.
- stipends for time spent at home.
- the use of a business vehicle.
- In a non-arm's length basis, the employer provides accommodation.
- Allowances for living expenses.
- Capital buying plans for employees and stock option plans for employees.
- contributions of retirement accounts.
- contributions to health-care, dental-care, sickness-care, and disability insurance schemes.
- educational fee for the children.
- reimbursement with unsupported moving costs.
- compensation for taxation.
- allowances for housing.
Are there any places of revenue in Israel that are tax-exempt? If that's the case, please provide a broad description of these terms.
In Israel, there are only a few options for receiving tax-free wages. According to the Israel Tax Ordinance (New version) of 1961 as well as subsequent amendments; Income Tax Regulations (Deductions for specific expenses) 1972; Income Tax Regulation (salary from work rendered outside of Israel) 1982; Income Tax Regulations (Deductions for staying expenses of non-residents) 1979; prospective entrants and returning nationals are eligible for a number of tax deductions.
Are there any special considerations for ex-pats in Israel?
Non-resident expatriates may be eligible for major benefits not applicable to Israeli nationals, according to certain requirements.
Visiting lecturer: According to the Council of Higher Education Law – 1958, a visiting lecturer is a foreign permanent professor or teacher who is paying to instruct or do study at a higher education institution in Israel.
Foreign expert: A foreign expert is a foreign citizen who meets any of the following criteria as of March 2005:
- They were paid more than $13,400 (in 2020) for their work, compounded by the number of months they spent in Israel, and tax was withheld as required by statute.
- They were welcomed from abroad by an Israeli resident who is not employed by a manpower firm or a temporary organization to perform duties for the inviting Israeli resident in the international resident's area of expertise.
- They were working or offer service in their field of expertise during their stay in Israel or the area.
- They have been officially residing in Israel.
If they spent less than a month in Israel, the figure would be determined linearly by dividing it by 30 and multiplying it by the number of days they spent there.
What are the general income tax deductions permitted in Israel?
Personal tax deductions, also known as credit points, are generally issued to Israeli residents and withheld from their income tax liabilities. The amount of credit points a taxpayer is entitled to depend on his or her personal and family conditions, as well as whether the spouse's earnings are measured separately. There are also some credits and exemptions for contributions to recognized pension funds. Certain credit points are available to international residents (only if the foreign resident is a foreign expert).
What are the different types of tax credits available in Israel?
The below are only a few examples of general credits:
- credit for insurance costs and donations to gain funds
- credit for a soldier who has been discharged
- women's credit
- a resident of Israel receives credit
- contribution to a government agency
- a foreign worker's credit (subject to conditions).
- credit point for the juvenile
- a spouse's allowance (in certain cases)
- credit for new immigrants (oleh)
- Children's credit, which varies depending on the child's age
When do you have to file your tax returns? Or when is the deadline for filing your tax return?
In most cases, the deadline is 31.04. YY, but if double-entry bookkeeping is needed, the deadline is 31.05.YY.
When does the fiscal year-end?
What are the conditions that have to be adhered to for filing the tax returns in Israel?
Individual taxpayers who are expected to file a report must do so by the 30th of April after the conclusion of the fiscal year, or by the 31st of May if an online filing is required or submitted based on double-entry bookkeeping, or if an individual is allowed to file the tax return electronically.
For each spouse's work and other income did not meet such thresholds and tax was withheld at source, a resident taxpayer whose primary source of income is employment income is not obliged to file an annual personal income tax return. Employers defer tax on work wages in compliance with tables provided by the Commissioner of Taxes and revised on a regular basis. Foreign employers are not excluded from the need to open and maintain an Israeli payroll withholding tax register for employees working in Israel on a monthly basis. Appointing a state official (or an employee) to help with payroll management and monitoring will fulfil this responsibility.
Unless tax was withheld at the root, a non-resident with income earned or derived in Israel is required to file an annual personal Israeli tax return. Even if an expatriate is not required to file a return, they will need to do so in the years of their arrival and/or departure from Israel to take advantage of the annual (rather than monthly) tax brackets that apply to income received in Israel during those years.
What definition is given to the ‘resident’ of Israel for tax purposes?
The centre of life measure, which takes into account total relations with Israel, is used to determine if a person is an Israeli citizen for tax purposes (including social connection, economic, and family). Furthermore, if a person was present in Israel for at least 183 days in a tax year, or for at least 30 days in a calendar year, and their cumulative presence in Israel during the tax year and the two corresponding years was 425 days or more, it was assumed that their centre of life was located in Israel.
Foreign nationals who come to live in Israel on a B-1 visa for a set amount of time are not considered as residents for tax purposes by the Israeli tax authorities, but they are also subject to taxation as non-residents.
When it comes to the start and end dates of the residency, is there a de minimus number of days rule? For e.g., once their task is completed and they repatriate, a taxpayer cannot return to the host country/jurisdiction for longer than 10 days.
No, there is no de minimus number of days rule.
What if the assignee arrives in the country/jurisdiction before the start of their assignment?
If these days in Israel were working days for a foreign resident, their salary for those days would be added to their gross taxable income.
Are there any compliance conditions that have to be complied with before leaving Israel?
A person is deemed to have violated residency in Israel if they are no longer registered as an Israeli citizen (as described earlier) and has lived outside of Israel for at least 183 days a year for two consecutive tax years, and their centre of life was outside of Israel for the following two years, according to domestic law. If this is the case, the individual is known to have broken residency from the time they first left Israel.
The exit tax for Israeli citizens is a critical problem that needs to be discussed. The exit tax is imposed on the last day of a resident's stay in Israel. The exit tax is imposed on the last day of a resident's stay in Israel. However, the tax bill will be deferred to the day of the asset's final selling, and the tax will be measured based on the asset's valuation on the sale day, as well as the linear growth of assets and stock options while living in Israel.
Is there a reporting provision in the host country/jurisdiction after an assignee leaves the country/jurisdiction and repatriates?
No. The reporting conditions in Israel, on the other hand, are on a yearly basis. As a result, if the assignee returns to their home country/jurisdiction within the tax year, the assignee will be required to file a record with the Israeli tax authorities about income earned while residing in Israel.
Is a wage paid while living in another country taxable in Israel? If so, how can you go about doing it?
Non-resident workers who accept compensation for jobs performed outside of Israel are normally not taxed on their wages. Residents in Israel are taxed on an individual basis. Salary paid by an Israeli citizen working overseas with an Israeli company for more than four months is subject to special tax rates. In this situation, the employee could be eligible for such deductions and exemptions.
Profits earned or derived abroad is excluded for new entrants and returned veterans for ten years.