Israel Tax Summary for 2012
February 14, 2012 By Dr. Avi Nov, Law Offices
Israeli tax law system, tax rates, and update of new changes following Israel Tax Reform: Trajtenberg Proposals.
Residence of a Company
A corporation is considered an Israeli resident for tax purposes in one of these conditions:
1. The corporation was incorporated under Israeli law; or
2. The corporation is managed and controlled from Israel.
Standard Company Tax Rate
Following Israel Tax Reform: Trajtenberg Proposals, the standard Israeli corporate tax rate is now 25% (raised from 24%). This rate applies to the undistributed profits of the company.
Investment Incentives
In some cases, a reduced rate of tax is payable or an exemption granted, mainly to industrial companies. For more details, see: Israel's 2011 Investment Incentives for industrial companies. Other Incentives and Benefits:
• Accelerated Depreciation.
• Exemptions from Import Taxes (for exported goods).
• Deferred VAT Payments (for exporters).
• Various Export Financing Guarantees and Insurance.
• Employment Incentive Payments.
• R & D grants, financing and tax incentives.
Dividends
Following Israel Tax Reform: Trajtenberg Proposals, dividends paid to a foreign resident are taxed in Israel at a rate of 25% or 30% if the shareholder owns more than 10% of the Israeli company. However, many Israeli tax treaties set a lower withholding tax rate. Dividend between two Israeli companies is tax exempt.
Interest
The rate paid on interest earned by a company is 25%. However, many Israeli tax treaties set a lower withholding tax rate.
Capital Gains
The same tax rates as applied to dividends.
Non-residents are exempt from capital gain tax on sale of shares of Israeli companies bought from 1.1.2009 onwards, subject to certain terms.
Residence of an Individual
The main test that is used to determine residency of an individual is the "center of life" test. A number of auxiliary qualitative criteria are applied,to demonstrate the family, economic and social relations representing the individual’s “center of life”. Including, inter- alia, the following:
1. The location of permanent home (even if he does not reside therein).
2. The location of actual home of himself and members of his family, i.e. actual place of residence.
3. The location of fixed or permanent business or work.
4. The location of active material economic interests.
5. The location of activity in organizations, associations or institutions.
For more details, see: Israeli Residence for tax purposes.
New Residents and Returning Residents
Tax exemption for 10 years on income and capital gains derived outside Israel by new residents and returning residents (lived abroad 10 years) who arrived after January 1, 2007.
Value Added Tax (VAT)
From 1.1.2010, the new standard VAT rate in Israel is 16%. Some transactions are subject to VAT at the rate of 0%, such as:
• Exported goods;
• Fresh fruit and vegetables;
• Hotel services and car rentals to tourists who pay in foreign currency;
• Sale of intangible assets to non‐residents;
• Transportation of cargo and passengers to and from Israel;
• Insurance premiums;
• Certain services rendered to non‐residents.
Transfer Pricing
According to Section 85A of the Israeli Tax Ordinance where there is a special relationship between the parties to an international transaction, as a result of which the price of the transaction results in a smaller profit than would have been realized if the transaction price had been set on arm’s length terms, the transaction must be reported and taxed on the basis of its fair market value. For more details, see: Israeli Transfer Pricing Regime.
Participation Exemption
Corporations that are classified as Israeli Holding Companies are entitled to a tax exemption status. For more details, see: Israel Holding Company – Participation Exemption.
Israel's Double Taxation Treaties
Special tax rates apply under Israel's tax treaties with approximately 50 countries.
A treaty for the avoidance of double taxation has been signed between Israel and Malta, and a treaty for the avoidance of double taxation has been initialed between Israel and Panama. These treaties will enter into force on completion of ratification proceedings in the two countries.
ABOUT THE AUTHOR: Dr. Avi Nov, Adv.
Dr. Avi Nov, Adv., is an expert in Israeli Tax & international tax law. Dr. Avi Nov Adv., specializes in Israeli and international taxation, and is involved in planning tax efficient structures for his Israeli and foreign clients. Dr. Nov advises on transactions and international ventures, as well as the establishment of low tax holding structures; the taxation of Israeli holding companies and the taxation of approved enterprises, withholding taxes for foreign residents; overseas investments; transfer pricing; change of residency and other matters. Another major focus relates to individuals and includes: international taxation; taxation of trusts; tax benefits for new immigrants and returning residents.
Copyright Dr. Avi Nov, Law Offices
More information about Dr. Avi Nov, Law Offices
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
A corporation is considered an Israeli resident for tax purposes in one of these conditions:
1. The corporation was incorporated under Israeli law; or
2. The corporation is managed and controlled from Israel.
Standard Company Tax Rate
Following Israel Tax Reform: Trajtenberg Proposals, the standard Israeli corporate tax rate is now 25% (raised from 24%). This rate applies to the undistributed profits of the company.
Investment Incentives
In some cases, a reduced rate of tax is payable or an exemption granted, mainly to industrial companies. For more details, see: Israel's 2011 Investment Incentives for industrial companies. Other Incentives and Benefits:
• Accelerated Depreciation.
• Exemptions from Import Taxes (for exported goods).
• Deferred VAT Payments (for exporters).
• Various Export Financing Guarantees and Insurance.
• Employment Incentive Payments.
• R & D grants, financing and tax incentives.
Dividends
Following Israel Tax Reform: Trajtenberg Proposals, dividends paid to a foreign resident are taxed in Israel at a rate of 25% or 30% if the shareholder owns more than 10% of the Israeli company. However, many Israeli tax treaties set a lower withholding tax rate. Dividend between two Israeli companies is tax exempt.
Interest
The rate paid on interest earned by a company is 25%. However, many Israeli tax treaties set a lower withholding tax rate.
Capital Gains
The same tax rates as applied to dividends.
Non-residents are exempt from capital gain tax on sale of shares of Israeli companies bought from 1.1.2009 onwards, subject to certain terms.
Residence of an Individual
The main test that is used to determine residency of an individual is the "center of life" test. A number of auxiliary qualitative criteria are applied,to demonstrate the family, economic and social relations representing the individual’s “center of life”. Including, inter- alia, the following:
1. The location of permanent home (even if he does not reside therein).
2. The location of actual home of himself and members of his family, i.e. actual place of residence.
3. The location of fixed or permanent business or work.
4. The location of active material economic interests.
5. The location of activity in organizations, associations or institutions.
For more details, see: Israeli Residence for tax purposes.
New Residents and Returning Residents
Tax exemption for 10 years on income and capital gains derived outside Israel by new residents and returning residents (lived abroad 10 years) who arrived after January 1, 2007.
Value Added Tax (VAT)
From 1.1.2010, the new standard VAT rate in Israel is 16%. Some transactions are subject to VAT at the rate of 0%, such as:
• Exported goods;
• Fresh fruit and vegetables;
• Hotel services and car rentals to tourists who pay in foreign currency;
• Sale of intangible assets to non‐residents;
• Transportation of cargo and passengers to and from Israel;
• Insurance premiums;
• Certain services rendered to non‐residents.
Transfer Pricing
According to Section 85A of the Israeli Tax Ordinance where there is a special relationship between the parties to an international transaction, as a result of which the price of the transaction results in a smaller profit than would have been realized if the transaction price had been set on arm’s length terms, the transaction must be reported and taxed on the basis of its fair market value. For more details, see: Israeli Transfer Pricing Regime.
Participation Exemption
Corporations that are classified as Israeli Holding Companies are entitled to a tax exemption status. For more details, see: Israel Holding Company – Participation Exemption.
Israel's Double Taxation Treaties
Special tax rates apply under Israel's tax treaties with approximately 50 countries.
A treaty for the avoidance of double taxation has been signed between Israel and Malta, and a treaty for the avoidance of double taxation has been initialed between Israel and Panama. These treaties will enter into force on completion of ratification proceedings in the two countries.
ABOUT THE AUTHOR: Dr. Avi Nov, Adv.
Dr. Avi Nov, Adv., is an expert in Israeli Tax & international tax law. Dr. Avi Nov Adv., specializes in Israeli and international taxation, and is involved in planning tax efficient structures for his Israeli and foreign clients. Dr. Nov advises on transactions and international ventures, as well as the establishment of low tax holding structures; the taxation of Israeli holding companies and the taxation of approved enterprises, withholding taxes for foreign residents; overseas investments; transfer pricing; change of residency and other matters. Another major focus relates to individuals and includes: international taxation; taxation of trusts; tax benefits for new immigrants and returning residents.
Copyright Dr. Avi Nov, Law Offices
More information about Dr. Avi Nov, Law Offices
View all articles published by Dr. Avi Nov, Law Offices
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
