Dr. Avi Nov, Adv.
Israeli tax law is changing regularly. There were various amendments to the Israeli Tax Code, including the reduction of tax rates. The following summarizes Israeli tax rates and other tax information for 2016.
For past years, see: Israel Tax Highlights.
The Israeli Parliament published the Law for the Amendment of the Israeli Tax Ordinance (Amendment 216), on 5 January 2016, which reduced the corporate income tax rate from 26.5% to 25%. The reduction entered into force on 1 January 2016 and the 25% corporate tax rate will apply to income generated from that day onwards.
"Preferred Income" derived by certain industrial and technology enterprises, in accordance with the Law for Encouragement of Capital Investments, is liable to reduced corporate tax 16% in the center of Israel, or 9% in development area A, without any time limit.
See also: Tax breaks for multinational firms
The regular dividend tax rate in Israel is between 30%- 32% for shareholders that hold 10%-or-more in the company that pays dividends, and 25%-27% for other shareholders. These rates are all subject to any applicable tax treaty signed by Israel. However, dividend distributed from a company that has "preferred income", would be taxed at 20% (instead of 25%-32%)
The Israel Tax Authority is negotiating a treaty for prevention of double taxation with Australia.
Withholding tax rates on interest, royalties, or capital gains paid to corporations based on the standard Israeli corporate income tax rate should be reduced to 25% from 1 January 2016.
Value Added Tax
Reduction in the standard value-added tax rate in Israel, from 18% to 17% (came into effect on 1 October 2015).
Personal income tax
In 2016, the tax rates in Israel for employment and freelance income are as follows:
10%: 0 – 63,360 NIS
14%: 63,361 – 108,120 NIS
21%: 108,121 – 168,000 NIS
31%: 168,001 – 240,000 NIS
34%: 240,001 – 501,960 NIS
48%: 501,961 – 811,560 NIS
52%: Over 811,560 NIS
See also: Israeli Tax Reporting Rules
In contrast to the above income tax rates, flat rates of tax generally apply to dividends, interest and capital gains derived by individuals:
· 25%-27% tax if the recipient holds under 10% of the payer;
· 30%-50% tax if the recipient holds 10% or more of the payer.
Israeli rental income (residential only) of up to NIS 5,070 per month is exempt from tax.
The Israel Tax Authority announced that the temporary Voluntary Disclosure Program will remain in effect until June 30, 2016. Israelis with undeclared capital and income may apply to the Israel Tax Authority under the Voluntary Disclosure Program, in order to avoid criminal proceedings.
See: The Extended Voluntary Disclosure Program
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