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Israel - Taxation

Israeli citizens have to pay income tax on all income earned, whether it is within Israel itself or abroad. Rates vary between 10 and 45% on personal taxation depending upon the level of income and the type.

Israel has a system of allowance points which grant the individual a certain amount of tax free income. Men have a starting point of 2.25 points, women have 2.75 points and each point is roughly the equivalent of $600 USD. Then extra points are added if there are dependent children in the family, although this is added to a woman’s tax allowance. The points are deducted from the tax when it has been calculated, rather than from total income.

New immigrants (who are considered to be Israeli residents) are entitled to an extra 3 points in their first three years in the country, 2 points for their fourth year and 1 for their fifth. In their sixth year they are only entitled to the same points allowance as other residents. New residents are also entitled to a tax break of ten years on income from non-Israeli sources.

Those who earn less than 57,240 Israeli Shekels pay tax at 10%; the next rate is 14% for those who earn u to 101,640 Shekels, which then gradually increases up to 45% for those who earn more than 472,081 Shekels.

Non-residents are taxed at different rates for income earned in Israel, such as dividends paid on shares, royalties and interest, although income earned from employment in the country is taxed at the standard applicable rate.

Those who are working for an employer will find that their tax payments are deducted at source. These payments are made by the employer on the 15th of each month for the previous month. This is the responsibility of the employer. Companies that employ large numbers of people must do this each month, while smaller companies can do this every two months.

Those who are self employed must also make an income tax payment on the 15th of each month. The amount to be paid is calculated by the tax office on the accounts filed in the previous year. As with employers, this can be done every two months if the self employed person is running a small business.

Inheritance tax is payable at the standard income tax rate and should be declared on the income tax return. There is a capital gains tax which is variable, depending upon the source of the income. Personal effects are exempt from capital gains.

The Income Tax Ordinance is the office which deals with income tax returns. From this department individuals can obtain details of items for which deductions are permitted. They can also provide information on any tax credits that may be applicable. As it is important to ensure that you have all the allowances that you are entitled to, so many people who have to file an individual tax return choose to seek professional advice.

Those who make contributions to charity will find that there is a 35% tax credit available. There is both a minimum and maximum amount which is adjusted regularly. There is a US-Israel tax treaty which allows US citizens to claim for contributions made in both countries to charities that have a good relationship with both countries.

People who are considered to be between 90 and 100% disabled for more than half the tax year do not have to pay tax on an income of up to 65,400 shekels, although this is calculated on a pro-rata basis so it only applies to the time spent disabled. They can also receive tax-free any interest gained on income from compensation.

Employees who drive a company car will find that they can be taxed on this. This is calculated on the value of the car when it was new and there are seven categories of prices, with taxes payable ranging from 700 shekels per month to 7,290 shekels. This is deducted at source by the employer.

Tax returns and payments must be filed at the times requested otherwise there are penalties in the form of fines. Persistent lateness could also be considered to be tax evasion and could lead to prosecution.

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