Israel tax highlights - 2010 

April 2010 

 

Standard company tax rate:

The standard Israeli corporate tax rate is 25%. This rate applies to the undistributed profits of the company. 

Investment Incentives:

In some cases, a reduced rate of tax is payable or an exemption granted, mainly to industrial companies defined as "approved enterprises". 

Other Incentives and Benefits:

· Accelerated Depreciation.

· Exemptions from Import Taxes (for exported goods).

· Deferred VAT Payments (for exporters).

· Various Export Financing Guarantees and Insurance.

· Employment Incentive Payments.

· R & D grants, financing and tax incentives.  

Dividends:

Dividends paid to a foreign resident are taxed in Israel at a rate of 20% or 25% if the shareholder owns more than 10% of the Israeli company. However, many Israeli tax treaties set a lower withholding tax rate. Dividend between two Israeli companies is tax exempt.  

Interest:

The rate paid on interest earned by a company is 25% (to be reduced gradually to 18% by 2016) and by an individual is 20%. However, many Israeli tax treaties set a lower withholding tax rate. 

Personal income tax rates:

10% - 45%. 

Capital Gains:

Individuals pay tax at a rate of 20% for sale of assets bought after 1.1.2003. Corporations pay the general tax rate of 25%.

The sale of non-traded shares bought after 1.1.2003, is taxed at a rate of 20% for individuals, when the seller holds 10% or more of the shares sold the tax rate is 25%.

The sale of shares traded in the stock market, regardless of the date of purchase, is taxed at the same rates as for non-traded shares, for both individuals and corporations.

Non-residents are exempt from capital gain tax on sale of shares of Israeli companies bought from 1.1.2009 onwards, subject to certain terms.  

Social security tax rates:  

up to 16.23% on monthly income up to NIS 79,750 per month.  

New residents and returning residents:

Tax exemption for 10 years on income and capital gains derived outside Israel by new residents and returning residents (lived abroad 10 years) who arrived after January 1, 2007.  

Value Added Tax (VAT):

From 1.1.2010, the new standard VAT rate in Israel is 16%, compared to the previous 16.5%. The VAT rate is intended to be reduced to 15.5% starting 1.1.2011. 

Some transactions are subject to VAT at the rate of 0%, such as: 

• Exported goods
• Fresh fruit and vegetables
• Hotel services and car rentals to tourists who pay in foreign currency
• Sale of intangible assets to non‐residents
• Transportation of cargo and passengers to and from Israel
• Insurance premiums
• Certain services rendered to non‐residents 

Double Taxation Treaties:

Special tax rates apply under Israel's tax treaties with approximately 50 countries.

Three new tax treaties (Vietnam, Estonia and Taiwan) entered into force on January 2010.