The tax system in Israel
Israel's tax laws took a major change from 1.1.2003.
According to Israel's tax reform tax is levied on personal basis,
instead of the previous territorial basis, Israelis pay tax on all
sources of income, in Israel and abroad.
In 2005 Israel's corporate income tax rate is 34%.
Individual income tax rates in 2005 are 10%-49%.
There are reduced tax rates for passive income abroad, e.g. rental
and interest.
Taxation of Current Income (Personal Income Tax)
Personal Income Tax (for both the employed and self-employed) is a
progressive tax starting at 10% and increasing to a maximum of 49% (at present,
on a gross monthly income of about USD 4,500. Allowance points are granted on
the tax due which reduces the tax payable (an allowance point is worth
approximately$500 a year). The main allowance points are given in the following
table:
|
Subject |
No. of Allowance Points |
|
Israeli resident |
2.25 |
|
Non-working wife |
1 |
|
Child under the age of 18 (allowance to the mother) |
1 |
Israel Income Tax for an Individual (2004)
|
Tax % |
Income (IS) |
|
10% |
1-37,800 |
|
17% |
37,801-49,560 |
|
27% |
49,561-132,480 |
|
43% |
132,481-236,520 |
|
45% |
236,521-409,680 |
|
49% |
409,681 and over |
Timing the Payment of Tax
Tax due from an employee is deducted at source by his employer. The employer
transfers the tax to the Income Tax on the 15th of the month for the
preceding period. Employers who have a large number of employees report to
the Tax Authorities once a month, while employers with a lesser number of
employees submit their returns once every two months (thus, for example, a
small employer will submit a return for January and February on March 15).
Self employed persons as well as limited companies, pay an advance to the
Income Tax on the 15th of the month. Here, too, businesses that report once
every two months on the 15th of the following month are differentiated from
larger businesses that submit a return once a month. Most of the advances
for the self-employed/companies are determined by the Tax Authorities
according to the figures in the annual return that the business submitted
for the previous year. Advances for new businesses are fixed by the Tax
Authorities according to the accepted percentage for the sector to which the
business belongs. The system of prepayment of taxes is usually based on a
percentage of the total receipts of the business, regardless of the actual
expenses that were incurred during the month.
Israel Corporate Tax
Corporate tax, including income tax and corporate tax is fixed at the rate
of 34% in 200 5 (previous rate-35%).
This rate refers to the undistributed profits of the corporation.
In certain cases, a reduced rate of tax is payable or an exemption granted,
as will be specified below.
Registering a Corporation in Israel
There is no restriction placed on an overseas resident who wants to set up a
corporation in Israel. No minimum capital has to be proven for an overseas
resident to obtain approval to set up a corporation or to open a bank
account in Israel. Setting up a corporation in Israel through a lawyer takes
2 - 3 days and includes the following stages:
1. Preparing the Memorandum and Articles of Association.
2. Registration with the Companies Registrar
3. Adopting a resolution on the Directors of the Company/Authorized
Signatories.
4. Opening a bank account for the corporation
5. Opening a file with the VAT Authorities
6. Printing tax invoices/receipts
7. Opening 2 files with the Income Tax
a. A Corporation file.
b. An Employers File (for the corporation employees)
Stages 1 - 3 are carried out by an attorney.
Stages 4 - 7 are carried out by a CPA.
The total average/initial cost of the lawyers and accountants fees and the
fees to the Companies Registrar amount to US$ 1,000 - 1,200.
Bookkeeping Fees
The monthly payment to a CPA for bookkeeping is influenced directly by the
extent of the work and quantity of documents. Nevertheless, the average
monthly fee for small corporations is $300 - $600 a month, for medium
corporations: $1,000 - $3,000 a month and for preparing an annual balance
sheet, $1,300 - $3,000.
Amortization/Fixed Assets
Amortization on fixed assets may be deducted from taxable income. The rates
of amortization allowable in Israel are as follows:
|
THE ASSET |
AMORTIZATION |
|
Top grade stone buildings |
4% |
|
Top grade reinforced concrete buildings |
4% |
|
Second grade buildings with a less strong structure |
4% |
|
Sundry furniture |
6% |
|
Furniture for coffee bars, restaurants, etc. |
12% |
|
Sundry equipment |
7% |
|
Air-conditioners |
10% |
|
Machinery and equipment for a building |
20% |
|
Vehicles |
15% |
|
Trucks, pick-up trucks weighing over 3 tons |
20% |
|
Taxis, hire cars |
20% |
|
Driving school vehicles |
20% |
|
Personal computers purchased in 97 |
33% |
|
Other computers purchased in 97 |
25% |
|
Personal computers purchased in 96 |
25% |
Personal computers purchased before 96
and other computers purchased before 97 |
20% |
|
Professional literature |
15% |
Comment: The above rates are the basic
rates. There are additional benefits for equipment
operated on (2 and 3) shifts in industrial companies
or hotels. |
