Taxation

Taxes and tax exemptions for Israeli residents

Personal taxes in Israel are fairly straightforward. Employers deduct income tax from employees' salaries, which means that residents do not need to file for taxes. Real estate owners must pay property tax, and new immigrants may receive deductions on some taxes.

Taxation

Employers typically deduct the income tax from their employees' salaries and make a monthly payment to the Tax Authority. Israel does not require residents to file any taxes. However, you can file for a tax refund if your employer made a mistake submitting your taxes.

Everyone who is self-employed pays an advance to the Tax Authority on the 15th of every month (the tax calendar follows the Gregorian calendar, not the Jewish one). Self-employed residents must register with the Tax Authority as soon as they start earning an income.

Who is taxed as a resident in Israel?

The Tax Authority uses two different measurements to determine if you are a resident: centre of life and number of days. By the centre of life measurement, you are considered a resident if your family resides in Israel, your place of employment is in Israel, or you participate in multiple organisations and associations in Israel.

By the number of days measurement, you are considered a resident if you have spent 183 days of the current tax year in Israel. Residency by number of days also counts if you have been in Israel for 30 days in the current tax year in addition to 425 days of the previous two tax years.

Income tax and capital gains tax

The main taxes in Israel are personal income tax and capital gains tax. The personal income tax in Israel is progressive and ranges from 10-45%. (2010). For a reference on how much income tax you pay, see the World-Wide Tax's guide  on Israeli taxes.

You receive income tax deductions for every dependent. Dependants include children and non-working spouses.

Capital gains taxes are paid on income from fixed or intangible assets, such as land. This tax is paid on all capital gains regardless of where the asset is located (e.g. another country). Residents do not pay capital gains taxes on the sale of personal items or state-issued bonds.

Other important taxes for Israeli residents

Residential property owners pay a tax of 2.5% of the value of their property. This tax is 3.5% if the property is undeveloped.

All residents pay a value-added tax (VAT) on the goods and services they purchase, which is similar to a sales tax. The VAT in Israel is about 16%.

There are no estate or gift taxes in Israel.

Double taxation in Israel

Israel has agreements with several countries which prevent double taxation on dividends and interests on royalties earned abroad. Israel also allows reductions on capital gains taxes on assets abroad. This means that residents don't pay taxes twice on assets like land which they hold abroad.

For a list of countries which have this treaty with Israel, visit World-Wide Tax's website . For specific information on how to get these deductions, consult an international tax professional in your home country.

Tax deductions and exemptions

Old age pensions and severance pay are taxed at lower rates than other income. Additionally, the government gives deductions to income earned from renting or selling an apartment. Salaries of disabled individuals are exempt from taxation in Israel.

Immigrants do not pay taxes on foreign assets such as stocks or foreign land sold within seven years of immigrating. This exemption also includes salaries and passive income earned outside of Israel.

The government levies no new taxes on pension payments received by immigrants. This means that you pay Israel the same amount of tax on your pension as you did in your former country. Immigrants are only eligible for this deduction if they received pension payments before coming to Israel.

Employers typically deduct the income tax from their employees' salaries and make a monthly payment to the Tax Authority. Israel does not require residents to file any taxes. However, you can file for a tax refund if your employer made a mistake submitting your taxes.

Everyone who is self-employed pays an advance to the Tax Authority on the 15th of every month (the tax calendar follows the Gregorian calendar, not the Jewish one). Self-employed residents must register with the Tax Authority as soon as they start earning an income.

Who is taxed as a resident in Israel?

The Tax Authority uses two different measurements to determine if you are a resident: centre of life and number of days. By the centre of life measurement, you are considered a resident if your family resides in Israel, your place of employment is in Israel, or you participate in multiple organisations and associations in Israel.

By the number of days measurement, you are considered a resident if you have spent 183 days of the current tax year in Israel. Residency by number of days also counts if you have been in Israel for 30 days in the current tax year in addition to 425 days of the previous two tax years.

Income tax and capital gains tax

The main taxes in Israel are personal income tax and capital gains tax. The personal income tax in Israel is progressive and ranges from 10-45%. (2010). For a reference on how much income tax you pay, see the World-Wide Tax's guide  on Israeli taxes.

You receive income tax deductions for every dependent. Dependants include children and non-working spouses.

Capital gains taxes are paid on income from fixed or intangible assets, such as land. This tax is paid on all capital gains regardless of where the asset is located (e.g. another country). Residents do not pay capital gains taxes on the sale of personal items or state-issued bonds.

Other important taxes for Israeli residents

Residential property owners pay a tax of 2.5% of the value of their property. This tax is 3.5% if the property is undeveloped.

All residents pay a value-added tax (VAT) on the goods and services they purchase, which is similar to a sales tax. The VAT in Israel is about 16%.

There are no estate or gift taxes in Israel.

Double taxation in Israel

Israel has agreements with several countries which prevent double taxation on dividends and interests on royalties earned abroad. Israel also allows reductions on capital gains taxes on assets abroad. This means that residents don't pay taxes twice on assets like land which they hold abroad.

For a list of countries which have this treaty with Israel, visit World-Wide Tax's website . For specific information on how to get these deductions, consult an international tax professional in your home country.

Tax deductions and exemptions

Old age pensions and severance pay are taxed at lower rates than other income. Additionally, the government gives deductions to income earned from renting or selling an apartment. Salaries of disabled individuals are exempt from taxation in Israel.

Immigrants do not pay taxes on foreign assets such as stocks or foreign land sold within seven years of immigrating. This exemption also includes salaries and passive income earned outside of Israel.

The government levies no new taxes on pension payments received by immigrants. This means that you pay Israel the same amount of tax on your pension as you did in your former country. Immigrants are only eligible for this deduction if they received pension payments before coming to Israel.

Further reading

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