Paying Taxes

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Corporate Income Tax

Resident and Non-resident Companies

Israeli resident companies are subject to tax on worldwide profits and gains, with credit granted for overseas taxes in certain countries. A non-resident company is subject to tax only on Israeli-source profits, which includes, inter alia, income deriving from a permanent Israeli establishment or income accrued and produced in Israel.

Rates

Since January 2020, the corporate income tax in Israel is 23%. It is important to note that certain companies are eligible to lower corporate income tax rates. For example, Special Priority Enterprises and Priority Enterprises benefit from a lower corporate income tax rate ranging from 5% to 16% (depending on their exact location and definition by the Israeli Law for the Encouragement of Capital Investment).

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Tax on Dividends

Companies

Dividends payable to an Israeli company

by another Israeli company resulting from income produced or accrued in Israel are exempt from tax (0%). Dividends payable to Israeli companies from income produced or accrued, or dividends received, from abroad are subject to a 25% tax.

Shareholders

Dividends paid to shareholders who hold under 10% of the company are subject to a 25% withholding tax, and dividends paid to more significant shareholders who hold over 10% of the company are subject to a 30% withholding tax.

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Capital Gains Taxes

Companies

The capital gains tax rate for a company is the standard corporate income tax rate (25%). The inflationary component of the gain is exempt from tax (for capital gains created after 1993).

Individuals

Capital gains tax rate differs dependent on the relevant tax bracket. Individuals who are not residents of Israel for tax purposes are exempt from capital gains tax of shares traded on the Tel Aviv Stock Exchange.

Non-residents are also exempt from tax on gains derived from the sale of shares allocated to them by an Israeli resident company in consideration for their capital investment, as long as the Israeli company was classified as an “R&D-intensive Company”.

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Municipal Tax

Municipal Property Tax is calculated per square meter of property and is levied upon the tenant, regardless of whether the tenant owns or rents the property.

The Municipal Tax varies greatly between the different municipalities in Israel, and within different areas of the same municipality. The Israeli Ministry of Interior sets minimum and maximum municipal tax rates for the different property classifications and the rates are determined mostly by the municipal authority itself. Different rates are applied for property in commercial or public use and residential property.

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Customs Duty

The Customs Duty in Israel is under the authority of the Israel Tax Authority. Israel is a member of the World Customs Organization and uses the HS (Harmonized System) for its customs classifications. It has also signed the GATT agreement stating that the invoice is the base for the customs calculation. Additional information about customs tariffs and classifications can be found in the “Customs Tariff and Purchase Tax” manual published by the Israel Tax Authority.

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VAT

The current VAT rate in Israel is 17%.

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Personal Income Tax

In general, employers are required to deduct income tax at source from salaries paid to employees for work performed in Israel.

The Israeli income tax rate is determined by individual’s personal income level. The income tax brackets increase gradually and span from 10% for monthly income up to 5,270 NIS (approx.1,318 USD) and to 50% for a monthly income above 66,960 NIS (approx.16,740 USD).

Municipal Property Tax is calculated per square meter of property and is levied upon the tenant, regardless of whether the tenant owns or rents the property.

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