Last modified: 27/01/2025 12:47

Corporate taxation

	Rate
Corporate income tax rate	23
Branch tax rate	23
Capital gains tax rate for corporations	23

Residence: A company is considered Israeli if it is registered in Israel or if its management and control is exercised from Israel. Under a specific tax treaty, the general rule about tax residency may be altered.

Basis: A tax resident entity is subject to tax on its world-wide income and capital gains. Non-resident companies are taxed on permanent establishment (PE)/branch income and/or on income generated from property (e.g. assets, natural resources, other consessions) located in Israel. Branches are taxed in the same way as subsidiaries, only there is no tax withholding upon distribution of PE profits.

Taxable income: Corporate income tax is imposed on a company’s net profits per Israeli GAAP, including business/trading and passive income and capital gains. Foreign source income is included in taxable income. Business expenses are deductible.

Significant local taxes on income: Land appreciation tax; VAT;

Alternative minimum tax: Israel does not levy AMT

Taxation of dividends: exempt between Israeli companies 25% for persons who holds up to 10% 30% for persons who hold more than 10% (releive may be granted under a specific tax treaty)

Capital gains: the same as corporate tax – 23%

Losses: can be carried forward with no limit (there is no loss carry back).

Foreign tax relief: There is no foreign tax relief

Participation exemption: In order to encourage foreign investment in Israel, participation exemptions from tax on dividend income are granted to Israeli holding companies satisfying the following criteria: • The company is a private company incorporated in and managed from Israel • The company must be holding foreign subsidiaries, located in a contracting state sharing a double tax treaty with Israel or in a foreign country which imposes a minimum 15% tax on business income • The company is primarily a holding company with no business income other than income from services provided to its subsidiaries • Investments in its investee companies comprise at least 75% of the company’s total assets and have a value at least ILS 50 million A reduced withholding tax of 5% also applies to dividends paid by the holding company to its non-resident shareholders.

Holding-company regime: There is no holding company regime

Tax-based incentives: under the Capital Investment Encouragement Act 1959, (last amended on 29 December 2016), enterprises are eligible for tax benefits under the Tax Benefits Programme. Enterprises whose income is (broadly) generated in the course of the industrial activity from any of the activities listed here may be qualified as a preferred enterprise: • Sale of goods manufactured in that enterprise • Income from granting rights to use in, or income from royalties from the use of, its know-how or software, developed in that enterprise or • Income from R&D services provided to a foreign resident (approval is required for this last section) It is further required that such an enterprise meet one of the following commercial targets: • it is involved in the nano-tech or bio-tech industry (subject to approval) • no more than 75% of its income in a given fiscal year from sale of its produce is generated in one territory or • 25% or more of its income in a given fiscal year from sale of its produce is generated in one territory whose population consists of 14 million people or more Enterprises meeting these criteria are eligible for reduced tax rates. Preferred enterprises in priority zone A will be subject to CIT at 7.5%, whilst preferred enterprises outside that zone will be subject to CIT at 16%. Withholding tax on dividends to the enterprise’s shareholders will be 20%.

Group relief/fiscal unity: Only a company and its subsidiary who’s under the Capital Investment Encouragement Act may consolidate their financial statements. Conditions apply. Mergers, acquisitions and asset transfers may be tax exempt. Conditions apply, and several of these transactions are subject to pre-ruling approvals by the tax authorities, and requirement to nominate a Trustee who will guaranty proper tax payments according to the pre-ruling.

Small company/alternative tax regimes: There is no special regime for small companies.

Corporate taxation: compliance

Tax year: January to December

Consolidated returns: No consolidated returns; please see above

Filing and payment: Financial statements and tax returns are filled together, until End of May. Extensions are usually granted to the accounting firms; their clients are covered by the firm’s extension periods.

Penalties: Monthly late filling penalties. Interest at the rate of 4% accumulated on the taxable amount from January 1st until date of payment.

Rulings: Rulings may be obtained from the tax authorities on various tax matters. The tax authorities published pre-drafted rulings regarding several issues which are regularly brought forward to discussion.

Taxation of individuals

	Rate
year income in NIS	Federal Income Tax
0-84120	10%
84121-120720	14%
120721-193800	20%
193801-269280	31%
269281-560280	35%
560281-721560	47%
721561-	50%

Residence: An individual is considered a resident of Israel for tax purposes if his or her ‘centre of vital interests’ is in Israel. Residence can also be determined by physical presence in Israel. An individual will be deemed to be resident for tax purposes if one of two tests are met: • If he or she spends 183 days or more in Israel in any given tax year or • If he or she spends 30 or more days in Israel in the current tax year, and if the aggregated period of the stay in Israel in that tax year and in the two preceding tax years cumulatively amounts to 425 days or more.

Basis: Israeli residents are subject to individual income tax and capital gains tax on a worldwide basis. Non-residents are taxed on income generated in Israel.

Taxable income: • Income from employment (including severance pay) • Income from a business (self-employment) • Income from investments (dividends, interest, royalties) • Rental income • Pension income

Capital gains: Capital gains and appreciation derived from the realization of assets through the increased value of tangible and intangible assets are subject to tax at 25%. Realization of shares by a substantial share-holders are subject to tax at 30%.

Deductions and allowances: Deductions are not available for employees, unless paid by the employer. Personal allowances are granted to taxpayers and their spouses.

Foreign tax relief: Taxes paid to foreign jurisdictions are deductible from the tax owed, on the same income, to the Israeli tax authorities.

Taxation of individuals: compliance

Tax year: January to December

Filing and payment: Self-assessment. Tax on employment income is withheld only by the employer.

Penalties: Monthly late filling penalties. Interest at the rate of 4% accumulated on the taxable amount from January 1st until date of payment.

Rulings: Rulings may be obtained from the tax authorities on various tax matters. For individuals, these conserns, mainly, income benefits from RSU’s and options. The tax authorities published pre-drafted rulings regarding several issues which are regularly brought forward to discussion.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividend	0%	25% / 30%	25% / 30%	25% / 30%
Interest	25%	15% / 25%/ 50%	25%	15% / 25%/ 50%
Royalties	47%	47%	47%	47%

1. Rates may change according to covered tax treaties
2. Tax payers may acquire annual or specific tax withholding exemptions acording to their anticipated actual tax liability 

Branch remittance tax: No branch remittance tax. Branches are subject only to corporate income tax, as subsidiaries.

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Anti-avoidance legislation

Transfer pricing: Israel’s transfer-pricing rules are interprated based on the OECD guidelines and apply to transactions between an Israeli-resident entity and a related non-resident entity. The rules prescribe a hierarchy of transfer-pricing methods; in general, transaction-based methods are preferred over profit-based methods. A company must hold detailed transfer-pricing study to justify the prices it charges to and the prices that are charged by related foreign entities. Companies must attach a statement to their annual tax return confirming that their cross-border transactions with related parties were carried out in arm’s length terms.

Interest restriction: Israel is not bound by the ATAD Directive; There are no tax measures against thin capitalisation in Israel, meaning that the entire funding of a subsidiary may be done by way of intercompany/shareholders loans. Interest deduction is not restricted.

Controlled foreign companies: CFC rules may apply where Israeli shareholders own more than 50% of a foreign company’s ‘means of control’ and wehre the company has accumulated undistributed passive profits that have suffered tax at an overall rate lower than 15%. In such a case, the Israeli controlling member(s) will be treated as if they had received their proportionate share of the foreign company’s retained passive profits as dividend income (deemed dividends)

Hybrid mismatches: No hybrid mismatch rules

Disclosure requirements: CbC reporting for qualifying enterprises. In addition, tax payers must disclose in their tax returns information about aggressive tax planning which are counter to the Israeli tax authorities published positions.

Exit taxes: Any person ceasing to be resident in Israel is subject to an ‘exit tax’, under which the individual is deemed to have disposed of all of his or her assets for their market value, and is liable to tax on any deemed resulting capital gain at the applicable capital gains rates. Payment of this tax may be made upon deemed disposal or be postponed until the asset is actually sold (pending an election by the taxpayer).

General anti-avoidance rule: There is a general anti-abuse rule, under which the ITA may disregard a transaction deemed to be carried out artificially, meaning, that one of its principal objectives was improper avoidance or improper reduction of the tax burden.

Digital services tax and Other significant anti-avoidance legislation: The Israeli tax authorities are gradually interprating the law in accordance with the BEPS Digital Economy principals (with direct and indirect taxes).

Value-added tax/Goods and services tax

Type of tax: Value Added Tax

Standard rate: 18%

Reduced rates: 0% for fruits and vegetables. Exemption for services rendered to foreign receivers (conditions applies).

Registration: Any vendor who’s turnover is greater than NIS 100,000 must register for VAT.

Filing and payment: Monthly filling and payment.

Social security contributions

monthly salary	Employer	Employee
	Rate (%)	Rate (%)
NIS 0-7522	4.51	4.27
NIS 7523-49030	7.6	12.16

Self-employed

NIS 0-7522 -7.7% NIS 7523-50695 – 17.99% 52% out of self employeed payments are deductible.

Other taxes

Capital duty: Not levied.

Immovable property taxes: Taxed as capital gain, and paid within 30 days upon execution of the transaction, as an advance payment towards the annual tax liablity. Taxed at 25% or 23% CIT.

Transfer tax: Not levied.

Stamp duty: Not levied.

Net wealth/worth tax: Not levied.

Inheritance/gift taxes: Not levied. However, constantly brought to discussions in parliament.

Other: An additional tax of 3% is imposed on each type of income if the individual’s total income for the year is over 721,560 NIS. If the individual’s total capital income exceeds the above amount, the tax rate will be 5% on the additional

Tax treaties

Israel has concluded over 50 full double taxation treaties on income and capital gains and has a small number of social security treaties. It is also a signatory to the OECD Multilateral Instrument.