Individuals are taxed at graduated rates of up to 47%.
The following rates apply to income (the amount of income is stated in the new Israeli shekels – ILS):
If the taxable income of ILS 698 280 is exceeded, an additional 3% tax applies.
A legal entity resident in Israel is imposed with the Israeli corporate tax on its worldwide income, whereas a non-resident legal entity is imposed with the Israeli corporate tax only on income accrued or received in Israel.
In 2023, the corporate tax rate is 23%.
Capital gains from the sale of shares is taxed at the rate of 25% if there is no control (if it is received by a non-controlling shareholder, i.e. a shareholder who owns less than 10% of shares of the Israeli company). Otherwise the rate of 30% applies. Profit from the sale of bonds, commercial securities or credits that are not tied to the Consumer Price Index (CPI) is normally taxed at a 15% rate.
The tax rate on income received from capital gains when selling other assets varies from 20% to the marginal personal income tax rate depending on the kind of the asset and date of its acquisition.
The current VAT rate is 17%.
Export of goods and certain services, and some other transactions are taxed at a zero rate, and some transactions are exempt from tax.
Israel has set extensive requirements regarding withholding tax at source, according to which almost any payment sent abroad results in tax withholding.
For example, dividends are taxed at source at the rate of 15% to 30%, and interest paid to a foreign corporation is taxed at source at the corporate tax rate (currently, 23%). These rates may be reduced in accordance with the applicable double tax agreement.
Moreover, withholding tax may apply to certain payments for services provided to non-residents, especially if the services are provided in Israel.
Real estate tax is normally imposed on owners of commercial and residential real estate. Tax on unoccupied property is usually collected from the owner of the property. Tax is imposed at the municipality level.
Stamp duty is not imposed in Israel.
Land value increment tax applies to income from the sale of Israeli real estate. This tax is also imposed on the sale of interest in a non-traded real estate association (REA) defined as a company or partnership whose main assets consist of Israeli real estate.
When an Israeli tax resident ceases to be an Israeli resident for taxation purposes, the individual’s assets are deemed to have been sold one day before the individual ceases to be an Israeli resident.
Any profit related to a deemed sale of assets may be paid on the day of termination of residency or may be postponed until the date of the actual sale of the assets.
Employers must monthly pay national insurance contributions amounting to one percent of the income of each employee. Employers are responsible for the deduction of employees’ contributions from the salary and their transfer along with their own contributions. The rate of an employer’s contributions for employees resident in Israel is 3,55% where the monthly income is up to ILS 7 122 and 7,6% of the difference between ILS 7 122 and the maximum monthly income of ILS 47 465.
In accordance with the controlled foreign company rules in the Israeli tax law, an Israeli individual may be taxed on their share in undistributed profits of certain non-resident companies controlled by Israeli tax residents where the Israeli shareholder holds a controlling stake (10% of shares or more).
The Income Tax Ordinance (ITO) and the regulations promulgated thereunder contain detailed provisions on transfer pricing, including the arm’s length principle, which apply to any international transaction where there is a special relationship between the parties to the transaction.
The rules are generally based on the international principles of transfer pricing (rules of the Organization for Economic Cooperation and Development / OECD). These rules usually require the taxpayer to confirm the pricing of international transactions with a transfer pricing analysis, intercompany agreements and other documents. In accordance with decrees of the High Court of Israel, the conditions of a transaction between related parties must be set in written contracts.
Israel has entered into 55 double tax agreements (DTAs) with the following jurisdictions:
Azerbaijan, Austria, Great Britain, Belarus, Latvia, Belgium, Poland, Brazil, Bulgaria, Canada, China, Croatia, the Czech Republic, Denmark, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Ireland, Italy, Jamaica, Japan, Korea, Lithuania, Luxembourg, Macedonia, Malta, Mexico, Moldova, the Netherlands, Norway, Panama, the Philippines, Portugal, Russia, Romania, Singapore, Slovakia, Slovenia, the USA, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Ukraine, Uzbekistan, Vietnam.
In addition, Israel has signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and profit Shifting (MLI). The multilateral convention came into force for Israel on 1 January 2019.
There are no foreign exchange controls in Israel.