Personal Income Taxes in Israel
There are several important classes of income that are tax-exempt.
Income of a Disabled Person - 100%The income of a person with a 100% disability or that of a person with a 90% degree of blindness is exempt from tax to an annual limit of approximately NIS 501,600. This figure is true of an individual's earned income (salary, business). Passive income or unearned income (rent, interest and the like) is exempt up to approximately NIS 60,000 per annum.
AllowancesThe following allowances are exempt from tax:
1) An allowance for war injury or for a injury suffered as a result of enemy action.
2) Disability allowances and old-age pension that are paid by the National Insurance Institute.
3) Allowances from countries outside Israel that are payable in Israel.
Rent from a Residential ApartmentIn order to encourage the rental of empty flats while maintaining rents at a reasonably low, in tax year 2005 an exemption is allowed on an apartment rented for residential purposes up to a limit of NIS 5,595 a month. In 2006 the exemption per month will be NIS 3,770.
Profit on the Sale of an ApartmentThe profit from the sale of an apartment, subject to certain conditions, is, in most cases, tax-exempt. There are two principles of law that apply to most cases of a tax-exempt sale of a residential apartment:
1)The sale is of a single residential apartment, that is that you have no other apartment.
2)If you own more than one residential apartment, you must make sure that at least 4 years have passed between one sale and another.
Prizes, Inheritances and GiftsPrizes, such as a win in a lottery, inheritances and gifts that are received other than as a result of a business relationship, are tax-exempt in Israel. (Prizes & lottery, only up to 70,000 IS per year are tax exampt).
Severance PayAn employed person in Israel is entitled to severance pay at the rate of one monthly salary for each year that he has worked. The limit of the monthly sum that is exempt from tax is NIS 9,310. (From 1.1.2003-10,090) If the gross salary, which represents the basis for severance pay is higher than this, the difference will be taxable. For example: A salaried employee is fired after 10 years at work.
His last monthly salary was NIS 15,000.
Severance pay due - 15,000 x 10 years = 150,000
Tax-exempt limit - 9,310 x 10 = 93,100
Taxable difference 56,900