Thank you to Avraham Deutsch’s office and Yair Givati for authoring this article.
For Israeli tax purposes, an Israeli resident is defined as an individual whose center of living is in Israel taking into account the person’s family, economic and social links.
An important presumption will apply in either the following circumstances:
- The individual is present in Israel at least 183 days in a tax year ending 31 December,
- The individual is present in Israel at least 30 days in the current tax year, and 425 days cumulative in the current and two preceding tax years.
The center of living test is based on the following criteria:
- Location of permanent home
- Place of residence of the individual and his/her family
- Place where the individual regularly works or is employed
- Location of active and material economic interests
- Place where the individual is active in various organizations, associations or institutions
The Israeli tax authorities also published other facts on Circular 1/2011 that fiscal residency is based on the earliest dates as follows:
- At the date stamped on the certificate issued by the Ministry of Aliyah and Integration,
- At the date the individual started living in a permanent home in Israel
- At the date any member of his family started living in a permanent home in Israel.
As a basis for income, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on their Israeli sourced income. Income includes, employment, business income and passive income from bank deposits and savings.
An individual is resident if his “center of life” is in Israel as explained above.
A single filer will file a single assessment, while a married couple will file a joint assessment, but may opt out if the need arises.
A year for tax purposes for individuals is a calendar year who must file their annual tax returns by the 30 April of the following year.
The basic rates of income tax are as follows (according to the Israeli Tax Authority).
|Annual income level (NIS)||2018 tax rate|
|0 – 74,880||10%|
|74,881 – 107,400||14%|
|107,401 – 172,320||20%|
|172,321 – 239,520||31%|
|239,521 – 498,360||35%|
|Other income sources||2018 tax rate|
Pension income is taxed at marginal tax rates unless certain exemptions apply based on each individual type of pension he owns.
A corporation is deemed to be subject to Israeli taxes if its activities are managed and controlled within the State of Israel or established under its laws. A domestic corporation is subject to taxation on its worldwide income. A foreign corporation with an Israeli subsidiary is only taxed on Israel based income.
A year for tax purposes is a calendar year, however businesses may request a different tax year. Businesses must file their annual tax returns within five months after the end of their year.
As of January 2018, the corporate tax rate in Israel is 23%.
Value-added tax – (VAT) in Israel, is applied to most goods and services, including imported goods and services. As of 1 October 2015, the standard was lowered to 17%, from 18%. Certain items are zero rated which includes exported goods and the provision of certain services to non-residents. The value of imported goods for VAT purposes includes the customs duty, purchase tax and other levies.
Electronic filing of VAT is mandatory in Israel.
National Insurance (Social Security)
Current rates of national insurance for employees, including health insurance and Bituach Leumi contributions as of January 2018.
|up to 5,944 monthly salary||5,944-43,370 monthly salary|
Additionally, self-employed individuals pay between 5.97%-17.83%.
Real Estate Taxes:
As of January 2014, the new Land Appreciation Tax was enacted, consequently, the purchase tax rate increased, and foreigners along with Israeli multiple home owners will be obligated to pay the capital gains tax on residential property investment.
Acquisition Tax Reform
Each individual that purchases a property in Israel will be generally subject to acquisition tax. However, this tax is imposed differently based on type of property owners: Israeli citizen single home owner, non-Israeli making Aliyah (within 1 year prior and 7 years post), non-Israeli becoming an Israeli resident (within 2 years) single home owner, Israeli citizen multiple-home owner, and foreign resident property owners.
Estimated Acquisition Tax Bracket
|Purchaser||Property Value (NIS)||As of January 16, 2018|
|Israeli resident single home owner;||0 to 1,664,520
1,664,520 to 1,974,335
1,974,335 to 5,093,535
5,093,535 to 16,978,450
|Israeli citizen, multiple home owner; foreign resident owner|| 0 to 5,095,570
|Non-Israeli making Aliyah||0 to 1,672,385
Land Appreciation Tax Reform
An individual who sells property will be subject to land appreciation tax (equivalent to capital gains tax)
Prior to January 1, 2014, Section 49b(1) stated that anyone could be exempted from the capital gain tax on the selling of residential property as declared by law every four years regardless of how many properties owned or the length of time owned; furthermore, Israeli tax law permitted all single residential property owners an exemption from capital gain tax every eighteen months provided that the owner did not own or inherit more than one apartment four years prior to the sale.
- The exemption of Land appreciation tax is only valid on the first 4,445,000 of the sale price.
- The above exemption is not given to foreign residents owning an Israeli residential property unless he could prove that he does not own a house in his country of residence.
- Single residential owners and Israeli citizens or non Israeli citizens becoming an Israeli resident (within two years) may claim the above exemption every 18 months regardless of previous ownership but the owner had to have owned the property at least 18 months prior to the sale (or post taking possession if buying off the plans).
- The inherited property will not affect the single owner property tax exemption, however, certain exceptions apply to inherited property .
Linear Tax Reduction
From January 1, 2014 to December 31, 2017, a significant linear tax reduction on up to two residential properties was available for sellers. The purpose of the linear calculation is to allow to pay taxes in Israel only on the portion of the capital gain allocated to period of Jan 1, 2014 to December 31, 2017 under the condition that they have used an exemption for at least 4 years prior to December 31, 2013.
Starting from January 1, 2018, the Linear Tax Reduction is available on any residential property, and calculated so taxes will be paid in Israel only on the portion of the capital gain allocated to the period starting on January 1, 2014 until the sale date.
Step Up Basis
When an Israeli resident inherits a property from a foreign resident, the capital gain tax will apply upon sale of the property. However, the Israeli Tax Authorities do not allow a step up basis rule automatically upon sale. By default, the new owner of the property will “step into the shoes” of the original owner and should be tax on the entire capital period during the entire holding period of the original owner and based on the original cost basis. However, The Israeli tax authorities had offered a possibility to apply for a “Step Up Basis” through a special form. The form required a specific list of documents to provide to approve the step up basis.
Alan (Avraham) Deutsch is a CPA, with over 30 years’ experience. Alan and his associates specialize in income tax planning and compliance as well as in investment consulting. Alan has five office locations and can be reached at 02-999-2104, 03-527-3254, 09-746-0623 or 052-274-9999, or you can e-mail him at email@example.com. Please visit his website at www.ardcpa.com for more information.
Yair Givati is a partner in Haim Givati & Co. Law Offices, a boutique law firm with over 45 years of experience. Yair and his associates specialize in Real Estate, Corporate and Tax law, as well as other civil matters.
Yair can be reached at +972-2-9411001, +972-54-7564636, firstname.lastname@example.org, www.givatilaw.co.il