Israel tax highlights - 2013

tax rate|dividends|tax treaty

Dr. Avi Nov, Adv.

January 2013

The Israeli tax system has been subject to various changes recently. The following summarizes Israeli tax rates and other tax information for 2013. For past years, see: Israel Tax Highlights.

Corporate Tax

The standard corporate tax rate in Israel is 25%. However, "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 12.5% or 7% in development area A, without any time limit.

Dividend Tax
The regular dividend tax rate 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, dividenddistributed from a company that has "preferred income", would be taxed at 15% (instead of 25%)

Value Added Tax

The standard Israeli Value Added Tax (VAT) rate is 17%. Certain dealers may be exempt from Israeli VAT, but should have annual sales below NIS 77,993.

Rental income

Real estate home rental income of up to NIS 4,980 per month is exempt for individuals provided that the income is not considered to be derived from real-estate business.

Personal income tax

In 2003, the monthly tax rates in Israel for employment and freelance income are as follows:

· 10% tax on income up to NIS 5,280

· 14% tax on income of NIS 5,281-NIS 9,010

· 21% tax on income of NIS 9,011-NIS 14,000

· 31% tax on income of NIS 14,001-NIS 20,000

· 34% tax on income of NIS 20,001-NIS 41,830

· 48% tax on income of NIS 41,830-NIS 67,630

· 50% tax on income over NIS 67,630.

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 payor;

· 30%-50% tax if the recipient holds 10% or more of the payor.

Tax credit for charitable contributions
There is a 35% tax credit for contributions to Israeli charities that were approved under Section 46 of the Israeli Income Tax Ordinance. The credit applies to contributions of at least NIS 180 but no more than NIS 9,130,000 and no more than 30% of taxable income.

National Insurance
The current National Insurance monthly rates for Israeli residents, including the health levy, payable at various rates on most types of income up to NIS 42,435 a month, are as follows:

· Resident employees: 3.5%-12%;

· Employers of resident employees: 3.45%-6.5%;

· Nonresident employees: 0.04%-0.87%;

· Employers of nonresident employees: 0.49%-1.69%;

· Self-employed individuals: 9.82%- 16.23% (52% of the amount paid is tax deductible);

· Not working: 9.61%-12% (52% of the amount paid is tax deductible).

· Payment if no income: NIS 161 per month.

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