Israeli Sourced Income of Foreign Residents

Dr. Avi Nov, Adv.

November 2010

Israel has a personal tax base system, and therefore income tax may be payable on the income of the Israeli resident derived or accrued in Israel or abroad and on Income of foreign residents derived or accrued in Israel from "Israeli sources".

With respect to foreign persons, taxable income is defined in section 2 of the ITO as income or profits that were derived or generated in Israel from one of the sources enumerated in the Israeli Tax Ordinance.

In other words, with respect to foreign persons, the Israeli Tax Ordinance imposes a tax only on Israeli-sourced income. Section 1 of the Israeli Tax Ordinance defines “income” as the total amount of revenues derived from sources enumerated in the Israeli Tax Ordinance; those include, inter alia, rental and royalties from real property (section 2(6)), as well as rental or gains derived from any property other than real property, i.e., royalties and rental income of tangible and intangible property (section 2(7)).

Section 4A of the Israeli Tax Ordinance lays down the rules for sourcing income. For example, section 4A(a)(7) sources income from intangible property, including royalties, to the payer’s residence. See: Source rules in Israeli Tax Law.

See also:

Article 4 of the Israel U.S. Tax Treaty - Source of Income

Deduction of tax at source from payments to foreign residents

Withholding Tax Rates in Israel's Tax Treaties

Withholding Tax on Royalty: Israel US Tax Treaty


Dr. Avi Nov Law Offices, Israeli & international tax law 

*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion

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