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Miss Sahara Kaplan, will attend to you
(in English) at Phone No. +972 3 546 88 88
In case of emergency, call Gabriel Hanner
at his
cellular: +972 50 552 33 33
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PART THREE: CALCULATION OF INCOME
FOR TAX PURPOSES
CHAPTER ONE: EXEMPTIONS
Article One: Statutory Exemptions
Exempt income
9. The following are exempt of tax:
The President
(1) Payments, services and benefits paid or given by the State Treasury to
the President or to a former President or to his survivors, in respect of
his performance of the functions of President, except for salary and
pension;
Local authority, benefit fund and public institution
(2) (a) the income of a local authority, of Mif'al Hapayis and of a public 21
institution, to the extent that it was not derived from a business
carried on by it or from dividend, interest or linkage differentials
paid by a body of persons under its control that engages in
business, as well as the income of a benefit fund, if it was not
obtained from any business in which the benefit fund engages or
from any income paid by a body of persons that engages in a
business and which is under the control of the benefit fund or in
which the benefit fund has a substantive holding; however, the
Minister of Finance may, by Order for a period and on conditions
which he shall set, exempt of tax the income obtained from the
said sources by a local authority, by Mif'al Hapayis or by a public
institution that is a free loan fund, if he is satisfied that doing so is
in the public interest;
(b) in this paragraph –
"benefit fund" – other than an insurance fund;
"income", in respect of a retirement age benefit fund – including
appreciation from the sale of a real estate right or of a real estate
association right;
"tax", in respect of a retirement age benefit fund – including tax
under sections 6 or 7 of the Real Estate Taxation Law;
"retirement age benefit fund" – a pension benefit fund, a savings
benefit fund of a severance pay benefit fund;
"public institution" – a body of at least seven persons most of
whom are not related to each other, or an endowment, most of the
trustees of which are not related to each other, which exists and
functions for a public purpose, its property and income being only
used for the public purpose, and which submits annual reports on
its assets, income and expenses to the Assessing Officer's
satisfaction according to regulations made for this purpose by the
Minister of Finance; for this purpose –
"relative" – within its meaning in section 76(d);
"public purpose" – a purpose concerned with religion, culture,
education, science, health, social welfare or sport and any other
purpose approved by the Minister of Finance as a public purpose;
"means of control" in a body of persons – any of the following:
(1) the right to appoint a Director;
(2) the right to vote;
(3) the right to profits;
(4) the right to the balance of the body's assets upon liquidation,
after its debts have been paid;
"control" – the ability to direct the activity of a body of persons,
alone or together with others, directly or indirectly; without
derogating from the generality of the aforesaid, the ability to
prevent the adoption of business decisions by a body of persons
shall be deemed control thereof, except for the ability to prevent
adoption of substantive business decisions by the body of
persons; for this purpose: "substantive business decisions" –
decisions about the issue of means of control in the body of
persons, or the sale, liquidation or substantive change of most of
the business of that body of persons; without derogating from the
generality of the aforesaid, it will be deemed that such ability exists
in a local authority, in Mifal Hapayis, in a benefit fund or in a public
institution when one of the following holds true:
(1) the local authority, Mifal Hapayis or the public institution has 22
the power to appoint – directly or indirectly – a Director of
that body or has a right – direct or indirect – to at least 25%
of the voting power in it or to the balance of its assets upon
its liquidation after its debts have been paid, or to most of its
profits;
(2) repealed
(3) several bodies from among the following – a local authority,
Mifal Hapayis, a public institution or a benefit fund – hold or
have the right to hold, jointly or severally, directly or
indirectly, more than 50% of the means of control in a body
of persons;
"substantive holding" –
(1) in a single benefit fund – holding or having the right to hold,
directly or indirectly, more than 10% of one or more of the
means of control in a body of persons;
(2) in several benefit funds, which are directly or indirectly
managed or held by one person – holding or having the right
to hold, directly or indirectly, jointly or severally, more than
20% of one or more of the means of control in the body of
persons; and if they are managed or held as aforesaid by a
bank – more than 10%; for this purpose several benefit
funds shall be deemed to be managed by one person also if
their investments are directly or indirectly managed by him,
and several benefit funds shall be deemed to be held by one
person, if he is able to direct the activity of the benefit funds;
without derogating from the provisions of this paragraph, a
said ability is deemed to exist also if that person directly or
indirectly has at least 50% of one or more of the means of
control of each of the benefit funds;
"bank" – within its meaning in the Banking (Licensing) Law 5741-
1981, and several banks shall be deemed to be one bank if one
has the ability to direct the activity of the other directly or indirectly,
or if one person has the ability to direct their activity as aforesaid,
all if they do not have separate systems for the management of
benefit funds, as prescribed under section 26 of the Control of
Benefit Funds Law
(c) (1) The Minister of Finance may, with approval by the Knesset
Finance Committee, prescribe provisions on the calculation
of the amount of indirect control and of indirect substantive
holdings of benefit funds in a body of persons.
(2) The Minister of Finance may prescribe that holding one or
more means of control in a body of persons by several
aforesaid bodies, in amounts that bring them to control that
body of persons or to have a substantive holding in it shall
not constitute control or substantive holding, as the case
may be, if it was for a period which in the aggregate did not
exceed three months during the tax year or a shorter period
prescribed by the Minister, at the end of which the amount of
the holding dropped to an amount that does not constitute
control or a substantive holding, as the case may be, all in
accordance with the rules made by him.
Professional Organization
(2a) (a) The income of a professional organization, including income from 23
membership dues, on condition that it was not obtained from any
business in which it engages or from any income of a body of
persons under its control, which engages in business, including
dividend, interest or linkage differentials;
(b) (1) notwithstanding the provisions of subsection (a), the balance
of income of a professional organization that exceeds 50%
of its expenses shall not be exempt of tax;
(2) an amount of expenditure in excess of the amount of income
in a certain tax year shall be treated like an amount of
expenditure incurred in the following tax year, it having been
adjusted at the rate of index increase during the said
following tax year;
(3) for this purpose:
"balance of income" – income exempt under subparagraph
(a), after the expenses incurred in generating that income
were deducted from it;
"expenses" – deductible expenses other than depreciation,
and expenses for acquisition of a depreciable asset used for
the organization's purposes or to create a said asset;
"depreciable asset" – as defined in section 88, including a
real estate right, within its meaning in the Land Appreciation
Tax Law;
(c) in this paragraph, "professional organization" – a body of
persons approved by the Director, for which all the following hold
true:
(1) it has at least 70 members, or its members include the State
and at least ten members; if the number of members in the
body of persons includes a professional organization, then
the number of that professional organization's members
shall be taken into account;
(2) its entire purpose is the advancement of joint professional
interests, professional training or the public representation of
members of a certain occupation or of persons engaged in a
certain branch or sector of the economy, all its assets and
income serving the advancement of those purposes;
(3) its activity is not aimed at the enhancement of the income of
certain of its members;
(4) it submits an annual report on its assets, income and
expenditure to the Assessing Officer's satisfaction,
according to regulations made by the Minister of Finance;
Cooperative society
(3) the income of a cooperative society, which does business only with its
members, or whose business with non-members is inconsiderable in
extent or of an incidental nature, if it was proven to the Assessing
Officer's satisfaction that the society's business is the supply of goods,
equipment and services for domestic or private use only, and not for the
purposes of the business or vocation of that member or person;
Diplomats and consuls
(4) sums payable to diplomatic representatives and consular officers in the
regular service of a foreign state for their offices or for services rendered
by them in their official capacities, to the extent that that foreign state
reciprocates with such exemptions for the State of Israel; 24
Blindness and 100% disability
(5) (a) the income from the personal exertion of a blind person or of an
invalid, whose invalidity has been established at 100%, or at no
less than 90% due to invalidity in different parts of the body, the
said percentage being the result of a special computation of
disability in different parts of the body, without which invalidity
would have been established at no less than 100%; as specified
below:
(1) if the said invalidity was determined for a period of 365 days
or longer – income up to the amount of NS 522,000 (in
2008; in 2007: NS 507,600; in 2006: NS 510,000; in 2005:
NS 496,800 – Tr.);
(2) if the said invalidity was determined for a period of between
185 and 364 days – income up to the amount of NS 62,640
(in 2008;(in 2007: NS 60,960; in 2006: NS 61,080; in 2005:
NS 59,520 – Tr.);
for this purpose:
(a) if the invalid's degree of invalidity was determined
under one of the following Laws, then the said
determination shall apply:
(1) the Invalids (Benefits and Rehabilitation) Law
[Consolidated Version] 5719-1959;
(2) the Invalids of the War Against the Nazis Law
5714-1954;
(3) the Invalids from Nazi Persecutions Law 5717-
1957;
(4) the Benefits for Victims of Hostile Actions Law
5730-1970;
(5) repealed
(6) Part Three, Chapter Six "B" and Chapter Nine
"B" of the National Insurance Law [Consolidated
Version] 5728-1968;
(7) the Compensation for Ringworm Sufferers Law
5754-1994;
the Minister of Finance may, with approval by the
Knesset Finance Committee, add to the said Laws;
(b) if the invalid's percentage of invalidity was not
determined as aforesaid, then it shall be determined
under regulations, which the Minister of Finance shall
make with approval by the Knesset Finance
Committee;
(b) if the income from personal exertion of an aforesaid invalid or blind
person was lower than NS 62,640 (in 2008; in 2007: NS 60,960; in
2006: NS 61,080; in 2005: NS 59,520 – Tr.) (or if he had no said
income, then his income other than from personal exertion shall
also be exempt of tax, up to a total sum of NS 62,640; however, if
he had income from interest paid on money deposited in a deposit,
a savings program or a benefit fund, which stemmed from
compensation or insurance payments received by the individual
because of bodily injury – up to a total amount of NS 223,200 (in
2008; in 2007: 217,080; in 2006: 217,680; in 2005: NS 118,680 –
Tr.) or a greater amount prescribed by the Minister of Finance with
approval by the Knesset Finance Committee. 25
(c) (1) in respect of a blind person or an invalid, for whom invalidity
was determined as said in subparagraph (a)(1) in respect of
part of the tax year, the provisions of this subparagraph shall
apply to part of his income in the tax year, the proportion of
which to all his income in the tax year is as is the proportion
of the number of days in the tax year, for which his invalidity
was determined, to 365 (in this subparagraph: the invalidity
period ratio), and the amounts stated in subparagraphs
(a)(1) and (b) shall be read as amounts, the ratio of which to
the stated amounts is as is the invalidity period ratio;
(2) in respect of a blind person or an invalid, for whom invalidity
was determined as said in subparagraph (a)(2), the
provisions of this subparagraph shall apply to part of his
income during the tax year, the proportion of which to all his
income in the tax year is as is the invalidity period ratio, but if
the invalidity period determined for him is in two tax years,
the total amount of exemption in the two tax years shall not
exceed the amount stated in subparagraph (a)(2).
Pensions for war invalids
(6) pensions payable in respect of war injuries, border injuries or enemy
inflicted injuries, and pensions paid by the State Treasury to dependents
of soldiers who died in consequence of belligerent acts; for this purpose:
"war injuries" – illness, aggravation of illness or injury which occurred to
an individual during the period of his service in consequence of military
service, within its meaning in the Invalids (Pensions and Rehabilitation)
Law [Consolidated Version] 5719-1959, or in consequence of war
service within its meaning in the Invalids (War Against the Nazis) Law
5714-1954, or under circumstances that entitle him to a benefit under the
Invalids (Nazi Persecution) Law 5717-1957;
"enemy inflicted injury" – within its meaning in the Victims of Hostile
Action (Pensions) Law 5730-1970;
Vehicle maintenance for leg invalids
(6a) amounts that a person with leg invalidity lawfully receives for the
maintenance of his vehicle;
Pensions for Palestine Government employees
(6b) pensions paid by the State, in respect of employment by the Palestine
Government;
National Insurance invalidity and old age pensions
(6c) invalidity pensions paid under Article Five of Chapter Three, Chapter Six
"B" and Chapter Nine "B" of the National Insurance Law, old age and
survivors' pensions paid under Chapter Two, and dependents' pensions
paid under Chapter Three of the said Law;
Benefits for prisoners of Zion
(6d) social benefits or compensation paid to Prisoners of Zion or to relatives
of prisoners of Zion and Jewish martyrs, by virtue of Law;
Invalidity pensions from foreign states
(6e) invalidity pensions paid by a foreign state by virtue of its Laws;
26
Survivors' pensions
(6f) survivors' pensions paid under Law or collective agreement, to which
paragraphs (6) and (6c) do not apply, in an amount that does not exceed
the entitling pension within its meaning in section 9A, but if exemption is
also due under sections 9A or 9B, then the larger of the two exemptions
shall apply;
Righteous gentiles
(6g) benefits paid under the Benefits for Righteous Gentiles Law 5755-1995;
Orphan's compensation
(6h) benefits for an orphan, payable under the Benefits (Child Orphaned in
Consequence of Violence in the Family) Law 5755-1995;
Consolidated compensation
(7) any capital sum received as inclusive compensation for death or injury;
Grant in consequence of retirement or death
(7a) (a) (1) a capital grant received in consequence of retirement, up to
an amount equal to one month's salary for each year of
employment, according to the last salary; if the amount of
the grant exceeds the aforesaid amount, then the Director
may exempt all or part of the excess, taking into
consideration the period of service, the amount of salary, the
terms of employment and the circumstances of the
retirement;
(2) in no case shall the amount exempt under this subparagraph
exceed NS 10,500 (in 2008; in 2007: NS 10,220; in 2006:
NS10,250; in 2005: NS 9,980 – Tr.) for each year of
employment and a proportional part of that amount for a
fraction of a year's employment;
(3) for purposes of this subparagraph, "retirement" includes the
change in the status of an employee of a cooperative society
from hired employee to member;
(4) (a) if, when he retires from employment by his employer,
an employee has to his credit in a compensation fund
an amount intended for a retirement grant, or if he
received a retirement grant, and if he notified the
Director at the time of his retirement that he opts for
the application of the provisions of this item, then the
sums he left in the compensation benefit fund or
deposited in that fund immediately upon his retirement
shall not be deemed to have been received by him if,
within one year of his retirement, he begins work with
another employer, who makes retirement
compensation payments on his behalf to that same
fund;
(b) if the conditions of subitem (a) have been met and the
employee subsequently retires from employment by
the other employer (hereafter: the last employer)
without having met the conditions of subitem (a), then
the provisions of items (1) through (3) shall apply to
him, subject to the following provisions:
(1) the periods of employment with the different 27
employers that involved consecutive
retirements, as said in subitem (a), shall be
combined, and he shall be deemed to have
worked for the last employer for all the said
years of employment;
(2) the amounts to his credit with the compensation
benefit fund at the time of his retirement from
the last employer, derived from retirement
grants said in subitem (a), including linkage,
interest differentials and other profits on them
(hereafter in this item: profits on the grant), shall
be deemed part of the retirement grant from the
last employer;
(b1) if the provisions of subitem (a) were met and the
employee died, then the provisions of subparagraph
(b) shall apply, subject to the provisions (1) and (2) of
subitem (b) and mutatis mutandis as the case may be;
(c) if an employee received, at the time of retirement said
in subitem (a), part of the retirement grant accrued to
his credit, then he shall be liable to tax on the amount
received;
(d) if an employee opted for the application of the
provisions of this item, then he may retract that
decision within two years, and if he does so, the profits
on the grant shall be deemed part of the grant; as for
the exemption – his last salary shall be the salary paid
to him when he retired, increased in proportion to the
increase of the consumer price index in the period
between his retirement and the retraction of his
decision, and the ceiling of the exemption shall be as it
was when he retracted the decision, but the period of
employment after retirement from his last employer
shall not be taken into consideration; subject to that,
any amount which he withdrew from a compensation
benefit fund before his retirement from employment
with his last employer, and which derived from the
retirement grant said in subitem (a), and the profits
thereon, shall be liable to tax;
(5) notwithstanding the provisions of section 164, if a person
pays a retirement grant which is exempt under item (4), then
he shall be exempt of the obligation to withhold tax at the
source, on condition that he received approval therefor from
the Director or from a person authorized by him;
(b) (1) a capital grant received in consequence of death, up to an
amount equal to the salary of two months' employment for
each year of employment, according to the last salary; if the
amount of the grant exceeds the said amount, then the
Director may exempt all or part of the excess, taking into
consideration the period of service, the amount of salary, the
terms of employment and the circumstances of the death;
(2) the amount exempt under this paragraph shall in no case
exceed NS 21,010 (in 2008; in 2007: 20,440; in 2006: NS
20,500; in 2005: NS 19,970 – Tr.) for each year of
employment and a proportional part of this amount for a 28
fraction of a year's employment;
(c) if the Director concludes that the salary was increased
unreasonably shortly before the date of retirement in order to
increase the amount of exempt grant, then he may set the amount
of exempt grant without taking the increase into account;
(d) if the last salary was for part time employment, then, in respect of
the years in which the employee was employed full time, the last
salary which would have been paid for full time employment shall
be taken into account;
(e) a decision by the Director under subparagraphs (a) to (c) may be
appealed in accordance with sections 153 to 158;
(f) if an employer paid a grant in consequence of retirement or death,
he shall add prescribed particulars about the grant to the return,
which he submits under section 166 for the month in which the
grant was paid;
(g) subject to the provisions of subparagraph (a)(4)(a), a capital grant
in consequence of retirement, as well as a capital grant in
consequence of death, shall be deemed to have been received,
even if it remains deposited in a benefit fund; this provision shall
not apply to sums in a pension benefit fund to the credit of a retired
employee if, when he retired, he notified the Director that he
wishes to leave them there for purposes of the payment of a
pension; if he so notified, he may subsequently revoke the
notification by notice to the Director; if he so revoked, the whole
amount, including interest, linkage differentials and other profits on
it shall, subject to paragraph (17), be deemed a retirement grant
and the following provisions shall apply to it:
(1) if he did not receive a grant when he retired, he shall be
entitled to exemption under subparagraph (a), and the
ceiling of the exemption shall be as it was when he revoked
his decision;
(2) if he received a grant when he retired, the ceiling of the
exemption shall be reduced at a rate equal to the amount of
grant for each year of employment, divided by the exemption
ceiling, as it was when he retired;
Foreign ship owner
(8) the profits of a ship owner who is not an Israel resident, subject to the
provisions of section 70;
Concessionaire
(9) income derived by a person from a concession granted him by the State,
to the extent that it was tax exempt under the terms of the concession;
however, nothing in this section shall be construed to exempt of tax any
dividends, interest, linkage differentials, bonuses, salaries or wages
received by any person, wholly or in part, out of income exempted as
aforesaid;
Interest to a foreign state
(10) interest payable to a foreign state, or to a person recognized by the
Minister of Finance, with approval by the Knesset Finance Committee,
as acting in the name or on behalf of that state;
(11) and (12) – repealed 29
Linkage differentials on bank deposits or savings programs
(13) linkage differentials received by an individual in respect of an asset, on
condition that all the following apply:
(1) the linkage differentials are not partial linkage differentials; for this
purpose: "partial linkage differentials" – as prescribed by the
Minister of Finance with approval by the Knesset Finance
Committee;
(2) the individual did not claim the deduction of interest or linkage
differentials in respect of the asset;
(3) the linkage differentials are not income under section 2(1) and are
not and do not have to be entered in his account books;
the provisions of this paragraph shall not apply to an asset that is an
account in a benefit fund;
Linkage in respect of expropriation
(13a) linkage differentials paid in respect of the expropriation of an asset
that
is not stock in trade, as defined in section 85;
(13b), (14) and (14a) – repealed
Exchange rate differentials in a company controlled by foreign
residents
(14b) exchange rate differentials on a company's foreign currency deposit,
derived from payments by foreign residents on account of the acquisition
of shares in that company, in so far as the money in that deposit has not
yet been used, on condition that most of the share capital of the
company, a majority of the voting rights and most of the rights to profits
are in the hands of foreign residents;
Exchange rate differentials on loans
(15) exchange rate differentials on a loan made by a foreign resident, except
for a loan he gave from his permanent enterprise in Israel;
Insurance against change in exchange rate
(15a) amounts received by a foreign resident under a policy to insure a loan
against changes in the shekel exchange rate in relation to the principal
of a loan he made in a lawfully held foreign currency or in shekalim
derived from the lawful conversion of foreign currency, and which under
its conditions is repayable in shekalim without linkage differentials, but
the exempt amount shall not exceed the amount of the differential
resulting from the exchange rate change;
Exemption for a foreign resident who gets no double taxation relief
(15b) (a) in this paragraph –
"security" – a share or debenture issued by a company for a
period of at least twelve years and traded on an Exchange, within
its meaning in section 88;
"foreign currency" – including Israel currency obtained by the
lawful conversion of foreign currency and Israel currency obtained
by the redemption of State of Israel bonds that were floated
abroad;
(b) (1) income from dividend or interest received by a foreign
resident on a security which he acquired with foreign 30
currency and on which he gets no double taxation relief in
his country of residence, or on which, under an agreement
for the prevention of double taxation on income, he is
deemed to have paid – in his country of residence – the tax
which he would pay, if not for the provisions of this
paragraph;
(2) the exemption shall be granted from the day on which the
security is first included in the list of securities traded on an
Exchange;
(c) a foreign resident who with foreign currency acquired participation
units in a non-restricted fund under the Joint Investment Trusts
Law 5721-1961, shall be entitled to the exemption under
subparagraph (b) in respect of that part of his income from his
fund units, as bears to the total of that income the same proportion
as the securities acquired by the fund, which would entitle a
foreign resident to exemption as aforesaid if he acquired them,
bear to the aggregate of securities within the meaning of the said
Law on the day on which the accounts of the fund are drawn up
under section 20 of the said Law;
(d) notwithstanding the provisions of this paragraph, the Minister of
Finance may prescribe, with approval by the Knesset Finance
Committee by notice published in Reshumot, either generally or in
respect of a particular category of companies, that aforesaid
exemption from tax on income shall not be granted, if the
proportion between the company's paid up share capital and the
aggregate of loans received by it is not to his satisfaction;
Interest on debenture acquired by foreign resident
(15c) interest on a debenture issued by virtue of a Law that exempts its owner
from interest, if he is a foreign resident and if it is paid to a person who
was a foreign resident when he acquired the debenture;
Interest, discount and linkage differentials on debentures traded on the
Exchange by foreign residents
(15d) Interest, discount and linkage differentials paid to a foreign resident on
debentures traded on the Exchange in Israel, which were issued by an
Israel resident body corporate (in this paragraph: issuer body corporate),
provided the income is not in the foreign resident's permanent enterprise
in Israel; in this paragraph, "foreign resident" – a person who is a foreign
resident on the day the interest, discount and linkage differentials, as the
case may be, is received, unless he is one of the following:
(1) a substantive shareholder, as defined in section 88, in the issuer
body corporate;
(2) a relative, as defined in paragraph (3) of the definition of "relative"
in section 88, of the issuer body of persons;
(3) a person who is employed in the issuer body of persons, provides
services to it, sells products to it, or has other special relations with
it, unless he proved to the Assessing Officer's satisfaction that the
interest or the discount, as the case may be, was set in good faith
without being affected by the existence of the said relations
between the foreign resident and the issuer body of persons;
(16) repealed
31
Withdrawal of employer's payments from training fund
(16a) (a) amounts withdrawn by an employee from his account in a training
fund, including linkage differentials as well as interest and other
profits that stem from a benefited deposit – if six years have
passed since the first payment to that account, and for an
employee who has reached the retirement age – if three years
have passed since the first payment to that account; and in
respect of amounts used by the employee for his training – if three
years have passed since the time of the first payment to that
account; if the employee died, then the persons entitled to receive
the said amounts may withdraw them from the training fund
exempt of tax;
(b) the exemption under this paragraph is conditional on the account
being closed to additional payments, once the employee withdraws
any amount from his account; when an account has been closed
in this manner, the provisions of subparagraph (a) shall apply to
the withdrawal of the balance in the account; however, if an
amount no larger than one third of the amount at the account
holder's disposal at the time of the withdrawal was withdrawn for
training in Israel, and no other withdrawal was made within the 12
months preceding the said withdrawal, then it shall not be deemed
a withdrawal for the present purpose;
(c) for purposes of this paragraph,
"date of the first payment" – the earlier of these:
(1) the end of the month in which the first payment was paid;
(2) the end of the month in respect of which the first payment
was paid, but no earlier than the beginning of the tax year in
which it was paid;
"benefited deposit" – each of the following:
(1) an amount that the employer paid, up to the amount or up
the rate which under section 3(e) was not considered work
income when it was paid to the fund;
(2) an amount paid by the employee that is one of the following:
(a) an amount that is not more than one third of the
amount paid by the employer at the rate prescribed in
section 3(e) in respect of the employee's determining
pay, as defined in the said section;
(b) an amount that does not exceed 2.5% of the
employee's determining pay;
(c) a payment in a different amount, prescribed for the
employee's payments in accordance with a collective
agreement approved under the Collective Agreements
Law 5717-1957 before June 12, 2002;
(3) an amount paid to a training fund for kibbutz members, as
defined in section 58A, up to the amount of NS 15,720 per
year (in 2008; in 2007: 15,240; in 2006: NS 15,360; in 2005:
NS 14,880 – Tr.)
(d) the Minister of Finance may, in regulations, make rules about
closing accounts to additional payments and about conditions
under which an employee's different accounts in one or more
training funds shall be deemed a single account for purposes of
this paragraph;
(e) repealed
32
Withdrawal from a training fund for the selfemployed
(16b)(a) amounts withdrawn by an individual from his account in a training
fund for the selfemployed, as defined in section 17(5a), including
linkage differentials as well as interest and other profits that stem
from a benefited deposit – if six years have passed since the first
payment to that account, and for an individual who has reached
the retirement age – if three years have passed since the first
payment to that account; and in respect of amounts used by the
individual for his training – if three years have passed since the
first payment to that account; if the individual died, then the
persons entitled to receive the said amounts may withdraw them
from the training fund exempt of tax; the Director may prescribe
rules on the entitlement to withdraw amounts exempt of tax for
training purposes; for this matter, "benefited deposit" – NS
15,720 per year (in 2008; in 2007: NS 15,240; in 2006: NS 15,360;
in 2005: NS 14,880 – Tr.);
(b) the provisions of paragraphs (16a)(b) to (d) shall apply to
withdrawals of amounts under this paragraph, mutatis mutandis.
Employee's money from a benefit fund
(17) money received by an employee – other than money he received under
insurance against loss of working capacity, as defined in section 3(a) –
up to the amount of the employer's payments to a savings benefit fund
and not chargeable with tax under section 87, but in respect of payments
made in and after tax year 1964, only money up to the amount of the
employer's payments is exempt within the limits of amounts based on
rates prescribed under section 22 of the Control of Benefit Funds Law,
as well as amounts taxed under section 3(e3);
Linkage differentials from a savings benefit fund
(18) linkage differentials not chargeable with tax under sections 3(d) or
section 87, received by an individual from a savings benefit fund, which
stem from payments the individual and his employer deposited in the
benefit fund;
Interest and profits at age of entitlement
(18a) (a) interest and profits that stem from the ceiling of the benefited
deposit, which are not liable to tax under sections 3(d) or section
87 and were received by an individual from a savings benefit fund
when he reached the age of entitlement, if the savings period in
the benefit fund was not less than 15 years since the date of the
first payment to the benefit fund, and if the first payment date after
he had reached the age of entitlement was five years after that
date, or upon his death;
in this paragraph –
"date of the first payment" – as defined in paragraph (16a)(c);
"ceiling of benefited deposit" – a deposit to a savings benefit
fund that does not exceed the amount of NS 19,200 in the tax year
(in 2006 and 2007; in 2005: NS `19,440 – Tr.)
(a1) for the purposes of this paragraph, the age of entitlement of an
individual shall be the age of entitlement prescribed for him
according to the month of his birth, as specified below:
for men for women 33
month of birth age of entitlement month of birth age of entitlement
until December 1944 60 yrs until December 1944 60 yrs
Jan. - April 1945 60 yrs 8 mos. Jan. - April 1945 60 yrs 8 mos.
May - Dec. 1945 61 yrs May - Dec. 1945 61 yrs
Jan. - Aug. 1946 61 yrs 4 mos. Jan. - Aug. 1946 61 yrs 4 mos.
Sept. 1946 - April 1947 61 yrs 8 mos. Sept. 1946 - April 1947 61 yrs 8 mos.
May - Dec. 1947 62 yrs May 1947 - Dec. 1949 62 yrs
Jan. - Aug. 1948 62 yrs 4 mos. Jan. - Aug. 1950 62 yrs 4 mos.
Sept. 1948 - April 1949 62 yrs 8 mos. Sept. 1950 - April 1951 62 yrs 8 mos.
May - Dec. 1949 63 yrs May - Dec. 1951 63 yrs
Jan. - Aug. 1950 63 yrs 4 mos. Jan. - Aug. 1952 63 yrs 4 mos.
Sept. 1950 - April 1951 63 yrs 8 mos. Sept. 1952 - April 1953 63 yrs 8 mos.
May - Dec. 1951 64 yrs May 1953 and after 64 yrs
Jan. - Aug. 1952 64 yrs 4 mos.
Sept. 1952 - April 1953 64 yrs 8 mos.
May - Dec. 1953 65 yrs
Jan. - Aug. 1954 65 yrs 4 mos.
Sept. 1954 - April 1955 65 yrs 8 mos.
May - Dec. 1955 66 yrs
Jan. - Aug. 1956 66 yrs 4 mos.
Sept. 1956 - April 1957 66 yrs 8 mos.
May 1957 and after 67 yrs
(a2) Notwithstanding the provisions of subparagraph (a1), if – under the
provisions of Chapter 4 of the Retirement Age Law 5764-2004 –
the Minister changed Part Two of the Schedule of the said Law in
respect of women born in January 1950 and thereafter, then the
retirement age set for a woman in Part Two of that Schedule shall
be her age of entitlement for the purposes of this paragraph.
(b) The Minister of Finance may prescribe, with approval by the
Knesset Finance Committee and on conditions he shall set, a
savings period shorter than that specified in subparagraph (a);
Life insurance
(19) an amount received under a life insurance policy, except –
(1) an amount received by a person from insurance of the life of
another who is not his relative, within its meaning in section 88, if
the premium for his insurance was not recognized as an expense
of the insurer;
(2) an amount not exempt under paragraph (7a) or (17) or on which
tax must be paid under sections 3(d) or 87;
in this paragraph, "amount received under a life insurance policy" –
an amount received upon the death of the insured only on the death risk
element included in the life insurance policy, exclusive of the amount
received or derived from the savings component;
Employers rebates and gifts to their employees and the value of
organized transport
(20) the value of an employee's travel from his home to the place of
employment and back by collective transport, organized and financed by
the employer, if the Director or a person empowered by him finds that
the collective transport of employees to the place of employment is 34
necessary, because of the working conditions and the location of the
work place, and that the said transport is in accordance with conditions
prescribed by him;
Wage delay compensation
(21) (a) an amount received by an employee as wage delay compensation
under the Wage Protection Law 5718-1958, within the limits of
linkage differentials and interest on the amount of delayed wage;
(b) notwithstanding the provisions of subparagraph (a), if a person's
chargeable income in any one of the 24 months that preceded
receipt of the compensation exceeded the ceiling for that month,
then the tax element in the exempt compensation shall be paid as
tax;
(c) in this paragraph –
"tax element" – the compensation paid for that part of the wage
which would have been paid as tax, had the wage been paid on
time;
"ceiling" – the amount of NS 6,960 (in 2008; NS 6,720 in 2006
and 2007; in 2005: NS 6,600 – Tr.), adjusted as if it were an
income ceiling, as defined in section 120A;
Alimony
(22) alimony received by an individual from the person to whom he was
married or from the person to whom he is married but from whom he is
separated, and a maintenance allowance received by an individual for
his children from the other parent, or a payment received by an individual
for himself or for his children from the National Insurance Institute under
the Maintenance (Assurance of Payment) Law 5732-1972;
Amounts under living legacy agreements
(23) (a) part of a pension received by a person under an agreement for the
bequest of a living legacy to the Keren Kayemet le-Israel, the
Keren Hayessod – United Israel Appeal, or any other institution
designated by the Minister of Finance, as follows:
(1) if the person who bequeathed the living legacy had not
reached age 50 at the time of the bequest – 50%;
(2) if the donor had reached age 50, but had not reached age
60 at the time of the bequest – 60%;
(3) if the donor had reached age 60, but had not reached age
70 at the time of the bequest – 75%;
(4) if the donor had reached age 70, but had not reached age
80 at the time of the bequest – 80%;
(5) if the donor had reached age 80 at the time of the bequest –
90%;
(b) the exemption under sub-paragraph (a) is in lieu of an exemption
under section 9B, and the person who bequeathed the living
legacy shall not be entitled to credit or deduction under any statute
for that living legacy;
Linkage differentials and interest on excess tax payments
(24) interest and linkage differentials received by an assessee in
consideration of excess tax payments, interest and linkage differentials
received by a dealer under section 105 of the Value Added Tax Law 35
5736-1975, and interest and linkage differentials received by an
assessee by virtue of section 103A of the Land Appreciation Tax Law;
this provision shall not apply to an assessee, for whom interest and
linkage differentials constitute income under section 2(1);
Rental income received by elderly person
(25) rental income received by an elderly person who lives in an old age
home, for the dwelling unit in which he lived before he entered the old
age home – up to half of the annual amount paid during the tax year for
his stay in the old age home;
for this purpose: "old age home" – a permanent place of residence for
at least 30 individuals aged more than 65, which was given a license
under the Homes (Supervision) Law 5725-1965;
Contribution to a candidate in primary elections
(26) a contribution to a candidate in primary elections, which is permitted
under Chapter Two of the Political Parties Law 5752-1992.
Discharged Soldiers Law
(27) money received by a fund or by a discharged soldier under the
Absorption of Discharged Soldiers Law 5754-1994;
Gambling, lotteries or prizes
(28) gains or profit, as said in section 2A, the value of which is less than the
amount set by the Minister of Finance with approval by the Knesset
Finance Committee, all on the conditions and with the adjustments
prescribed by him.
Exemption on pension payable by employer or benefit fund and on pension
payable under insurance against loss of working capacity
9A. (a) For the purposes of this section –
"pension" – a pension payable by an employer or payable by a benefit
fund, and also a pension payable under insurance against loss of
working capacity, as defined in paragraph (3a) of the definition of
"income from personal exertion" in section 1;
"recognized pension" – part of a pension paid by a pension benefit
fund that is managed by an insurance company, or paid by another
pension benefit fund that was set up after January 1, 1995, and which
stems from exempt payments; for this purpose, "exempt payments" –
(1) amounts charged with tax as said in section 3(e3);
(2) amounts that the recipient of the pension deposited and on which
he was not entitled to a deduction said in section 47;
"entitling pension" – that part of a pension or of the total of all pensions
received by a person which does not exceed NS 7,200 (in 2008; in 2007:
NS 7,000; in 2006: NS 7,020; in 2005: NS 6,840 – Tr.); if part of a
pension was capitalized, then that pension shall be taken into account
for the present purpose, which would have been paid if not for the
capitalization;
"retirement age" – as defined in section 1, but for the purposes of this
section a person is also deemed to have reached retirement age if –
(1) repealed
(2) he retired early because of a stable invalidity of a degree of 75% or
more, determined under one of the Laws specified in section
9(5)(a) or under regulations made by virtue of section 9(5)(b); 36
"exempt grant" – that part of a retirement grant or half of that part of a
death grant in respect of which tax exemption was granted under section
9(7a) and which was received after March 31, 1973, exclusive of a grant
in addition to a pension paid –
(1) under section 18 of the Israel Defense Forces (Permanent
Service) (Benefits) Law 5714-1954;
(2) to a police man or prisons service member under section 22 of the
State Service (Benefits) Law [Consolidated Version] 5730-1970,
subject to section 77 of the said Law;
(3) to a security services employee, as the Prime Minister shall
prescribe;
(b) the recognized pension or 35% of the entitling pension, whichever is
larger, received by any of the following shall be exempt of tax:
(1) a person who reached retirement age;
(2) repealed
(3) survivors;
however, if the pension is paid by an employer, otherwise than under a
Law or collective agreement, then the exempt amount shall not exceed
NS 101 per month in 2008 (in 2006 and 2007: NS 98; in 2005: NS 96 –
Tr.) in respect of each year of employment.
(b1) the recognized pension, received by an individual who has reached age
60 and who is not entitled to a benefit under subsection (b), is exempt of
tax.
(c) (1) If, after payment of the pension began or within fifteen years
before payment of the pension began, a person also received
grants for the years in respect of which the pension is paid, and if
the total of exempt grants, divided by the number of years of
employment in respect of which they were received, together with
the amount of the monthly entitling pension (hereafter: the total
amount) exceeds NS 7,200 per month (in 2008; in 2007: NS
7,000; in 2006: NS 7,020; in 2005: NS 6,840 – Tr.) (hereafter: the
total amount), then the monthly exempt amount of the pension
shall be reduced by an amount equal to the entitling pension
multiplied by the difference between the total amount and NS
7,000 (hereafter: the difference), divided by the total amount; this
provision shall not apply if the recipient of the pension elected to
pay tax on that part of the exempt grants which is equal to the
difference multiplied by the number of years of employment in
respect of which the grants were paid.
(2) The following shall be taken into account for purposes of
computing the total amount:
(a) if the grant was received after payment of the pension began
or within five years before it began – the whole amount;
(b) if the grant was received between the sixth and the fifteenth
year before receipt of the pension began – the amount said
in subparagraph (a), less 10% for each year from the said
sixth year to the year when the grant was received, up to the
fifteenth year.
(d) If an assessee elects to pay tax on part of the grant, as provided in
subsection (c), then that part shall be apportioned equally over a period
of up to six tax years, ending with the year in which the grant was
received, but the Director may, on the assessee's application, permit
apportionment over a different period on conditions he may prescribe,
which may include an advance payment. 37
(e) (1) An amount received by way of capitalization of an exempt pension
is exempt of tax, on condition that this amount is not greater than
the amount that would have been received from capitalization of
35% of the entitling pension;
(2) if tax exemption under paragraph (1) was granted for part of a
capitalized pension, then from the monthly pension exempt under
subsection (b) shall be subtracted – in the tax years in respect of
which that part of the pension was capitalized – an amount equal
to the capitalized exempt monthly pension, multiplied by the ratio
between the amount stated in the definition of "entitling pension" in
the tax year in which the pension is being paid and the amount
that was stated in that definition in the tax year in which the
capitalization was carried out.
Exemption of other pensions
9B. 35% of the income under section 2(5), received by a person upon reaching
retirement age within its meaning in section 9A(a), or received by survivors,
and which is not a pension within its meaning in section 9A(a), is exempt of
tax; an amount received in consequence of the capitalization of a pension
exempt under this section is exempt of tax.
Allowance for pension of an oleh a first time Israel resident and for a veteran
returning resident
9C. Notwithstanding the provisions of sections 9A, 9B and 121, as the case may
be, and subject to the provisions of section 14(a) the amount of tax on a
pension from abroad for his work abroad, received by an individual who
became an Israel resident for the first time or by a veteran returning resident,
as said in section 14(a), shall not exceed the amount of tax which he would
have paid on that pension in the state in which the pension is being paid, had
he remained a resident of that state.
Exemption of certain rental income
9D. (a) 35% of the benefited rental income received by an entitled individual is
exempt of tax, if all the following apply:
(1) the individual or his spouse have no pension income to which the
provisions of sections 9A or 9B apply, or interest income to which
the provisions of sections 125D or 125E apply;
(2) the rent is not paid by a relative, as defined in section 105K, and
not by a body of persons of which the individual is a controlling
member.
(b) An exemption under subsection (a) shall be granted only to one of the
spouses.
(c) In this section –
"controlling member" – as defined in section 32(9);
"benefited rental income" – income from rent chargeable under section
2(6) or (7), received by an individual for the rental of a property that had
been his own, was used by him directly in the production of income from
personal exertion from a business or occupation in Israel, up to the
income ceiling multiplied by the rate of entitlement;
"entitled individual" – any one of the following:
(1) an individual who has reached the retirement age;
(2) an individual, if he or his spouse has reached the retirement age;
all if he is an Israel resident and had reached age 55 by the determining 38
date, as defined in section 88;
"rate of entitlement" – a rate of 2% for each tax year in which the
property was used by the individual directly for the production of income
from personal exertion from a business or occupation in Israel, but not
more than 70%;
"income ceiling" – the amount stated in the definition of "entitling
pension" in section 9A, multiplied by twelve.
Article Two: Authority to Exempt
Tax reduction on productivity bonus and shift work pay
10. (a) In this section –
"tax benefit" – tax credit, deduction from income or tax rates lower than
those prescribed in section 121;
"productivity bonus" – a bonus, benefit or premium, which is work
income paid under a work contract approved for the purposes of this
section as prescribed by regulations, which is in additionl to the
customary salary or wage prescribed by the work contract, for
productivity in excess of ordinary productivity as determined by
measured norms approved by the Israel Institute of Productivity or by
some other body designated by the Minister of Finance on the Institute's
recommendation;
"second and third shift" – as defined by the Minister of Finance in
regulations, after consultation with the Minister of Labor and Social
Welfare.
(b) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe by regulations tax benefits in respect of income
from second and third shift work or from grants paid for productivity in
industrial enterprises most of whose activity in the tax year is productive
activity, within its meaning in the Encouragement of Industry (Taxes)
Law 5729-1969, which the Minister of Finance specified after
consultation with the Minister of Industry and Trade, and for this purpose
he may specify certain enterprises or branches of industry.
(c) A person entitled to a total income of more than NS 109,200 (in 2008; in
2007: NS 106,320 – Tr.) (hereafter: ceiling) from the employer who pays
him income as said in subsection (b), is not entitled to the benefit under
this section in respect of the part of the income that exceeds the ceiling,
and for this purpose the income to which subsection (b) applies shall be
deemed the highest of his income brackets; the ceiling amount shall be
adjusted, as if it were an income ceiling, as defined in section 120A.
(d) The regulations said in subsection (b) may prescribe –
(1) that the tax benefit apply to all the income as said in them or to
part of it;
(2) tax benefits at different rates or in different amounts for different
branches of industry, for different professions or for different
categories of assessees;
(3) rules and regulations for application of the tax benefits;
(4) categories of employees to whose income the tax benefits shall
not apply.
Tax benefits in settlements
11. (a) In this section – 39
"soldier" – a soldier who serves under an undertaking for permanent
service in the Israel Defense Forces, a policeman, including a policeman
in the Border Guard in the Israel Police, a prison guard and also an
employee of the General Security Service or of the Institute for
Intelligence and Special Assignments, on condition that they serve in
combat units;
"special pay" – the total salary that includes the level A activity bonus,
paid during at least three consecutive months;
"level A activity bonus" – a salary supplement paid to soldiers because
of activity in a combat unit in a development area, which under the
statute that applies to the soldier is defined as a level A activity bonus
and was approved by the Director for this purpose;
"development area" – each of the following:
(1) the area of Judea, Samaria and the Gaza Strip;
(2) any place north of latitude line 270;
(3) any place south of latitude line 070, including the Dead Sea area;
"resident" of a certain settlement – an individual, the center of whose life
is in that settlement;
(b) (1) if a person was a resident of one of the settlements specified in
Part One of Schedule One during the entire tax year, then in that
tax year he is entitled to a tax credit at the rate of 13% of his
chargeable income from personal exertion, up to the amount of NS
205,800 (in 2008; in 2007: 199,560; in 2006: NS 200,160; in 2005:
NS 194,880 – Tr.);
(2) if a person was a resident of Kiryat Shmonah during the entire tax
year, then in that tax year he is entitled to a tax credit at the rate of
25% of his chargeable income from personal exertion, up to the
amount of NS 205,080 (in 2008; in 2007: NS 199,560; in 2006: NS
200,160; in 2005: NS 194,880 – Tr.);
(3) if a person was a resident of a settlement specified below during
the entire tax year, then in that tax year he is entitled to a tax credit
at the rates specified below of his chargeable income from
personal exertion, up to the amount of NS 136,680 (in 2008; in
2007: NS 132,9607; in 2006: NS 133,320; in 2005: NS129,840 –
Tr.);
(a) Mitzpe Ramon – 25%;
(b) Dimona and Yeroham – 20%;
(c) Ofakim, Aroar, Tel Sheva, Ramat Hanegev Regional Council
– 16%;
(d) Ben Ami, Gonen, Yehiam, Yessod Hamaaleh, Kfar Vradim,
Lehavot Habashan, Netiv Hashayara, Netivot, Evron, Acco,
Shavei Zion, Sderot and Sheikh Danun – 13%;
(e) a settlement specified in Part Two of Schedule One – 13%.
(4) Notwithstanding the provisions of paragraphs (1) to (3), if – in the
course of the tax year – a person became a resident of any of the
settlements specified in those paragraphs or ceased to reside
there, then he is entitled to the tax credit said in those paragraphs
in proportion to the period of his residence in the settlement, on
condition that he resided in the settlement at least twelve
consecutive months.
(5) The amount of credit under this section shall not exceed the
amount of tax to which the assessee is liable in respect of the
income, on which the credit is granted.
(6) The amount stated in paragraphs (1) to (3) shall be adjusted under 40
the provisions of section 120B, and the provisions that apply to
income ceilings shall apply to it for this matter.
(c) A soldier, to whom special pay is paid, is entitled to a tax credit of 5% of
his special pay, up to the amount of income stated in the opening
passage of subsection (b)(3), but if he is entitled to the said credit and
also to a credit under the provisions of subsection (b), then he shall
choose one of the credits.
(d) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe an additional deduction in respect of assets of an
enterprise located in a new settlement area or in a development area, as
he shall prescribe and on the conditions he shall prescribe.
11A and 11B – Repealed
Limit on reductions or benefits
11C. A tax reduction or benefit under sections 11, 11A or 11B shall not be
granted
in respect of income said in Part Five "C" or in respect of income said in
section 125C, if the tax rate applicable to it is not greater than 15%.
12 and 13 – Repealed
Dividend from preferred income
13A. (a) The Minister of Finance may, with approval by the Knesset Finance
Committee, direct by Order that dividends paid by certain categories of
companies out of preferred income specified in the Order shall be
treated like preferred income; in this section, "preferred income" –
income from interest or dividend in respect of which a tax concession or
tax exemption is granted under any enactment.
(b) Dividends paid by a company said in subsection (a) in a particular tax
year shall be taken to include preferred income at a rate equal to the
ratio of the company's preferred income to its total income in the year, in
which accrued the income out of which the dividend is distributed.
First time Israel residents and returning residents
14. (a) An individual who became an Israel resident for the first time and a
veteran returning resident shall – during ten years after the date on
which they became residents as aforesaid – be exempt of tax on their
income from all the sources enumerated in sections 2, 2A and 3 that
were produced or accrued abroad or that are derived from assets
abroad, unless they made a different request in respect of all or part of
the income; in this section:
"asset" – except for assets that reached the individual completely exempt of
tax under section 97(a)(5), beginning with January 1, 2007;
"veteran returning resident" – an individual who returned and became an
Israel resident after he stayed abroad during at least ten consecutive
years.
(b) (1) Notwithstanding the provisions of paragraph (a) of the definition of
"Israel resident" or "resident", an individual who became an Israel
resident for the first time or a veteran returning resident shall not
be deemed an Israel resident during one year after the date on
which he came or returned to Israel, as the case may be (in this
subsection: adjustment year), provided that – within ninety days
after he arrived in Israel as aforesaid – he gave notice on a form 41
prescribed by the Director that he chose to have this subsection
applied.
(2) Notwithstanding the provisions of paragraph (1), if an individual
gave notice that he opted for the adjustment year as said in that
paragraph, the adjustment year shall be included for purposes of
the periods specified below:
(a) the period of exemption said in subsection (a);
(b) the period said in paragraph (b)(2) of the definition of "Israel
resident" or "resident";
(c) the period said in paragraph (2) of the definition of "foreign
occupational company" and in the definition of ""income of
the Israel resident shareholders" in section 5(5)(e);
(d) the period said in the definition of "Israel resident" in section
75B(a)(15);
(e) the period said in section 75P1(a1) and (c)(2)(a);
(f) the period said in section 97(b)(1);
(g) the period said in section 134B;
(h) the period said in section 135(1)(b).
(c) A returning resident shall be exempt of tax during five years from the
date on which he became an Israel resident in respect of income
produced or accrued abroad or that stems from assets abroad, such as
are not income from business, as specified below, unless he made a
different request in respect of all or part pf the income:
(1) income from pension, royalties, rent, interest and dividends, that
stems from assets abroad, which the returning resident acquired
during the period of his stay abroad after he ceased being an
Israel resident;
(2) income from interest and dividends that stem from assets abroad,
which are benefited securities;
in this subsection:
"benefited securities" – securities traded on an Exchange that
the returning resident acquired during the period of his stay abroad
after he ceased being an Israel resident and that are kept in an
account with a banking institution, and also securities traded on an
Exchange, which the returning resident acquired out of income
that is interest or dividends derived from benefited securities or out
of income that is a capital gain from the sale of benefited securities
and which was deposited in the same account;
"Exchange" – a securities exchange abroad, which was approved
by whoever is entitled to approve it under the statutes of the state
where it operates, and also an organized market abroad;
"account with a banking institution" – an account with a
banking institution in which no deposits were made after the
returning resident became an Israel resident, except for the
deposit of income that is interest or dividends derived from
benefited securities or income that is a capital gain from the sale
of benefited securities;
"returning resident" – an individual who again became an Israel
resident after he was a foreign resident during at least six
consecutive years.
(c1) If an individual became an Israel resident and is a controlling member 42
and a Director of an approved enterprise, within its meaning in the
Encouragement of Capital Investments Law, then in tax years 2003 to
2006 he shall be exempt of tax on his income from interest, dividends
and rent that do not constitute income from business and stem from
assets abroad, which he owned before he became an Israel resident, or
from other assets that replaced them and remained his property after he
became an Israel resident, and also on profits from the sale of those
assets, unless he requested otherwise in respect of all or part of the
income. (NOTE: Under the provisions of Amendment No. 132 this
subsection (c1) is in effect for tax years 2003 to 2006 – r.
(d) (1) The Minister of Finance may, with approval by the Knesset
Finance Committee, make regulations according to which full or
partial tax exemption will be granted to an individual specified
below on his income that originates abroad, during a period set by
the Minister of Finance and on conditions and with adjustments
prescribed by him, on condition that most of his business activity is
abroad:
(a) an individual who for the first time became an Israel resident
and before he became a said resident he made investments
in Israel;
(b) an individual who ceased being an Israel resident,
permanently stayed abroad during the determining period,
and again became an Israel resident and made investments
in Israel when he was not an Israel resident; for this
purpose: the "determining period" –
(1) for a person who ceased being an Israel resident
before he had reached age 18 – at least ten
consecutive years;
(2) for a person who ceased being an Israel resident after
he had reached age 18 – at least twenty consecutive
years.
(2) The Minister of Finance may, with approval by the Knesset
Finance Committee, prescribe that regulations made under
paragraph (1) also apply to an individual said in subparagraphs (a)
or (b) of the said paragraph, if he made the investments in Israel
within one year after the regulations under this paragraph went into
effect, on condition that he became a resident as said in those
subparagraphs between January 1, 2002, and the day on which
regulations under this paragraph go into effect, and the Minister of
Finance may set conditions for granting tax exemptions in addition
to the conditions set in regulations under paragraph (1).
Income of company whose business is controlled from abroad
14A. If a company's business and management are controlled from abroad, and if
it
receives in Israel income derived or accrued abroad, then the Minister of
Finance may, on its application, direct that it shall pay tax at a rate of not
more
than 15% on that income and in special cases he may even exempt it of tax.
Authority to exempt
14B. The Minister of Finance may, with approval by the Knesset Finance
Committee, grant tax relief in respect of income of a social nature or in
respect
of compensation, which an Israel resident individual receives, if it is paid to
him
by a foreign State or by its welfare authority, and he may also exempt the
aforesaid of income tax, all as he shall prescribe. 43
State Loan
15. The Minister of Finance may, with approval by the Knesset Finance
Committee, direct that the interest and linkage differentials payable on a loan
secured by State revenue be exempt of tax, either generally or in respect of
interest and linkage differentials payable to foreign residents; he also may,
with
the said approval, direct that the interest paid on a loan, the repayment of
which is guaranteed by a foreign state or by a person recognized by the
Minister of Finance as acting in the name of and for a foreign state, or
interest
on a loan received by the Jewish Agency for Israel, be exempt of tax.
Authority to exempt interest and linkage differentials on deposits, savings
programs and debentures
15A. The Minister of Finance may, with approval by the Knesset Finance
Committee, exempt of tax, in whole or in part, linkage differentials or interest
in
the amount of the linkage differentials, that is payable on categories of
deposits, categories of savings programs and categories of debenture to
categories of assessees, in accordance with conditions which he set in the
said approval.
Calculation of real interest
15B. The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe a method for calculating the part of the interest that
exceeds the rate of the index increase, on conditions and with adjustments he
prescribed, and he may prescribe as aforesaid in respect of the categories of
assets or categories of assessees, all according to the period during which an
asset was held or according to some other criterion.
Exemption of certain interest
16. The Minister of Finance may direct, by an Order published in Reshumot –
(1) that income from interest payable on bonds issued to a foreign resident
not engaged in any business or vocation in Israel be exempt of tax on
the amount in excess of the 25% interest deducted under section 161(a)
of the Ordinance, and that all or part of the linkage differentials payable
on aforesaid bonds be exempt of tax;
(2) that a tax exemption or a tax reduction be granted on income from
interest payable by the State or payable, with approval by the Controller
of Foreign Exchange, by a banking institution, within its meaning in the
Bank of Israel Law 5714-1954, on foreign currency deposits held by it;
(3) that income from interest payable on debentures issued by an Israel
borrower to the International Bank for Rehabilitation and Development
be tax exempt, also when it is received by a foreign resident, to whom
the debentures were transferred;
(4) that interest paid by an Israel resident body of persons on a foreign
currency loan received from a foreign resident who does not conduct
business or a vocation in Israel – the loan being used for one of the
purposes specified in section 1 of the Encouragement of Capital
Investments Law 5719-1959 – be wholly or partly exempt of tax.
Authority to refund tax to foreign resident
16A. The Minister of Finance may direct that all or part of tax be refunded to a
person who is not an Israel resident, if the amount of tax he paid in Israel
exceeds the amount which – because of that payment – he is allowed to
deduct in his country of permanent residence as a credit against the tax due in
44
that country on the income he earned in or derived from Israel, also if he was
not allowed to deduct the amount or it was not given him as a credit in the
country of his residence, because of provisions in that country for the set-off
of
losses.
Certain linkage differentials
16B. The Minister of Finance may, with approval by the Knesset Finance
Committee, exempt of tax part or all of linkage differentials added to the
amount of a debt or claim in designated categories of debts or claims; for this
purpose: "linkage differentials" – including interest in a total amount that
does
not exceed the amount that would have had to be added in accordance with
the consumer price index increase, as said in section 159A(a), had the debt or
claim been linked to the index during the corresponding period.
Income from sale of water
16C The Minister of Finance may, by Order with approval by the Knesset Finance
Committee and on conditions set in the Order, exempt of tax income from the
sale of water by a person whose entire business is the supply of water.
16D and 16E. Repealed
CHAPTER TWO: DEDUCTIONS AND SET-OFFS
Article One: Deduction of Expenses
Permitted deductions
17. In ascertaining the chargeable income of any person, all disbursements and
expenses that person incurred during the tax year wholly and exclusively in the
production of his income shall be deducted – unless the deduction is limited or
disallowed under section 31 – including –
Interest and linkage differentials
(1) (a) sums payable as interest or linkage differentials on money he
borrowed, if the Assessing Officer is satisfied that they are payable
on capital used in obtaining the income;
(b) if an assessee claims the deduction of interest or linkage
differentials under subparagraph (a) in a year in which he received
interest or linkage differentials exempt of tax under section 9(24),
then he shall not be allowed to deduct an amount equal to the
amount of the said exempt interest and linkage differentials,
except for the larger of the following two amounts:
(1) an amount received in consideration of excess tax paid by
him because the Assessing Officer demanded its payment,
or because it was deducted from him at the source;
(2) an amount received by him in consideration of that part of
the excess tax payment which does not exceed 15% of the
tax due from him according to his self assessment.
Rent
(2) rent a tenant paid on land or buildings occupied by him for the purpose
of acquiring income;
Repairs 45
(3) amounts expended for the repair of premises, plant and machinery used
in acquiring the income, and also for the renewal, repair or alteration of
work implements, utensils or objects used as aforesaid;
Bad debts
(4) bad debts incurred in a business or vocation, proved to the satisfaction
of the Assessing Officer to have become bad during the tax year, as well
as doubtful debts to the extent that they are estimated, to the Assessing
Officer's satisfaction, to have become bad during the tax year, even if
such bad or doubtful debts were due and payable before the beginning
of the tax year; however, sums collected during the tax year on account
of amounts previously written off or deducted in respect of bad and
doubtful debts shall, for purposes of this Ordinance, be treated as
receipts of the business or of the vocation in that year;
Employer's payments to a benefit fund
(5) sums an employer paid – on conditions and at rates prescribed under
section 22 of the Control of Benefit Funds Law – as regular annual
contributions to a benefit fund, as well as sums at the said rates and
conditions, but mutatis mutandis as the case may be, paid by an
employer to the State, to a local authority or to some other body
designated by the Minister of Finance for this purpose, in order to protect
his employee's pension rights and any amount or part thereof paid by an
employer – with the Director's approval – to a said benefit fund or to any
said institutions or body, otherwise than as a regular annual contribution;
Payments to a training fund for selfemployed persons
(5a) amounts paid by an individual to a training fund for the selfemployed,
after they were reduced by an amount equal to 2.5% of his determining
income; said amounts shall not exceed 4.5% of his determining income;
for this purpose:
"determining income" – the individual's chargeable income from
business or vocation, before the deduction under this paragraph, up to
an amount of NS 218,000 (in 2007; in 2006: NS219,000; in 2005:
NS213,000 – Tr.) per year;
"training fund for selfemployed persons" – a training fund that is
designated for individuals who have income from a business or
occupation.
Damage by natural agencies
(6) expenditures on measures for the prevention of soil erosion, against
floods and against other natural disasters that will be designated;
Air raids
(7) expenditures on air raid precautions;
Depreciation
(8) deductions for depreciation, as specified in Article Two;
Bonuses of a cooperative society
(9) amounts which a cooperative society returned to its members as an
annual bonus in proportion to the business it conducted with each
member, on condition that –
(a) no deduction shall be allowed in an amount that exceeds that part 46
of the taxable income before payment of the bonus, the ratio of
which to the total taxable income is the same as that of the sum of
its business with its members to the total of its business
transactions;
(b) the bonus was given to members within nine months after the end
of the accountancy year to which it relates, or at a later date set by
the Director;
(c) the bonuses shall be deemed to have been received by the
members at the end of the accountancy year to which they relate;
(10) repealed
Expenses connected with the payment of tax
(11) (a) expenses in connection with the preparation of returns and the
handling of tax matters in all assessment or appeal proceedings;
however, if a Court or a books acceptability committee determined
that an appeal or objection was vexatious and that there was no
reasonable justification for submitting it, then legal expenses
incidental thereto shall not be deductible; if legal expenses were
awarded to the assessee, then the amount of expenses awarded
shall be deducted from the amount of expenses claimed by him;
(b) expenses said in this paragraph shall not be deductible in
connection with income from a business or vocation in respect of
which no account books were kept, or if the return is not based on
account books;
Rent paid by individual who moved temporarily
(12) rent paid by an individual for a dwelling which he rented in Israel and to
which he moved temporarily because of his work or vocation, during five
years after the day on which he moved to the said dwelling; that rent
shall be deductible from rent he receives in respect of his permanent
dwelling during the same period;
Lodging expenses and rent in development area
(13) (a) amounts paid by an assessee for lodgings or for the rental of a
dwelling in an area designated a development area under section
11, where the assessee is permanently employed, but where he
does not live with his family with whom he would live, if he did not
work there;
(b) the Minister of Finance may prescribe the ceiling amount
deductible under subparagraph (a) and the period of the
deduction;
Other deductions
(14) other deductions to be prescribed by regulations under this Ordinance.
Restrictions on the deduction of certain expenses
18. (a) A retirement grant, leave pay, convalescence pay, holiday pay, sick pay
and other similar expenses are deductible under section 17 only in the
tax year in which they were paid to the person entitled to them or to a
benefit fund, but aforesaid payments made to a benefit fund in respect of
the last month of the tax year are deemed to have been made during the
tax year if they were made within one month after the end of the tax year.
(b) Work income, management fees, linkage differentials or interest, or 47
other payments paid by a company controlled by not more than five
persons, within its meaning in section 76, to one of its members who is a
controlling member, within its meaning in section 32(9), shall be
deductible under section 17 in a given tax year if they were paid to him
during that tax year or if he included them in the return of his income in
that tax year and if tax on them was deducted under regulations for
deduction from wages no later than three months after the end of the tax
year or of the special assessment period, as the case may be, and if it
was transferred to the Assessing Officer within seven days after the
deduction, together with linkage differentials and interest from the end of
the tax year or special assessment period until the date of the deduction.
(b1) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe that the provisions of subsection (b) not apply to
categories of payments that constitute tax exempt income for a
controlling member, and he may make a said determination conditional.
(c) If a person's income includes income for which a special tax rate has
been set or which is exempt of tax (hereafter: preferred income), then
the expenses incurred by that person in order to acquire the preferred
income shall be deductible under section 17 only against that income; if
the aforesaid expenses cannot be ascertained, then a proportional part
of the expenses incurred in producing the total income shall be deducted
from the preferred income, in the ratio of the preferred income to the
total income, but the Minister of Finance may prescribe a different
apportionment of the expenses if he sees fit to do so under the
circumstances.
(d) (1) In this section –
"work unit" –
(1) a building, construction of which takes longer than one year,
including its components the execution of which takes as
aforesaid and including work said in paragraph (2) that
constitutes a part thereof, and if it is a capital asset – as long
as its use for the production of income has not begun in the
first half of the tax year or of the special assessment period,
irrespective of whether income from it constitutes income
under section 2(1) or as a capital gain or land appreciation;
(2) excavation work, sewage work, highway and road paving
and earth works – execution of which takes longer than one
year;
"interest expenses" – interest and linkage differentials deductible
under section 17, as well as interest and linkage differentials on
capital used for the construction or acquisition of a capital asset,
less income from interest and linkage differentials on loans
extended to a financial institution, to the State, to a local authority,
to a Government company, to a Government subsidiary or to any
other person designated by the Minister of Finance;
"other income" – income that is not from one of these:
(1) the sale of a work unit;
(2) the sale of land;
(3) interest and linkage differentials on loans extended to a
financial institution, to the State, to a local authority, to a
Government company, to a Government subsidiary or to any
other person designated by the Minister of Finance;
(4) (a) during the period in which the Taxation under
Inflationary Conditions Law is in effect – the sale of a 48
capital asset other than unprotected negotiable
securities, within their meaning in the said Law;
(b) during the period in which the Inflationary Adjustments
Law is in effect – the sale of the asset, as defined in
section 104;
(c) in the period after the effect of the Inflationary
Adjustments Law – the sale of an asset, as defined in
section 104;
however, in respect of income from securities said in
this paragraph only the amount of their change in value or
profit from them, as the case may be, shall be taken into
account as other income;
"financial institution" –
(1) a company or cooperative society that engages in the
acceptance of monetary deposits in current accounts, in
order to pay out of them on demand by check;
(2) a company that lawfully uses the word "bank" as part of its
name, except for a company the name of which mentions
the name of a company or cooperative society to which
paragraph (1) applies;
"management expenses and overhead" – any expense that is
not an interest expense, and which the assessee does not
customarily charge directly against a work unit, land or other
income.
(2) If an assessee, whose business is the construction of work units,
had in the process of execution in any given tax year work units or
land that constitute stock in trade, then his management expenses
and overhead and interest expenses in that tax year shall be
charged to each of the aforesaid work units or land, as follows:
(a) a proportional part of the management expenses and
overhead shall be charged to each work unit, in the ratio of
the assessee's expenses in that tax year for the execution of
that work unit to the total of expenses in that tax year for the
execution of all work units, plus the amount of his other
income in that tax year;
(b) (1) a proportional part of interest expenses shall be
charged to each work unit or land, in the proportion
between the assessee's total cumulative expenses
until the end of the tax year for the execution of that
work unit or the acquisition of that land and the
assessee's total cumulative expenses until the end of
the tax year for the execution of all work units and the
acquisition of all the land, plus the amount of his other
income in that tax year; for this purpose: "expenses
for the execution of a work unit and the
acquisition of land" includes expenses to be charged
against a work unit and against land under this section
until the end of the preceding tax year;
(2) the balance of interest expenses not charged as said
in paragraph (1) shall be deductible, so that part
thereof, in the proportion of the preferred income
within its meaning in section 18(c) to the total of other
income, shall be related to the said preferred income.
(e) The income of a foreign resident, from which tax must be deducted 49
under sections 164 or 170, shall be deductible under section 17 in the
tax year to which it relates only if it was paid in that tax year or if the tax
on it was deducted not later than three months after the end of the tax
year or of the special assessment period, and was transmitted to the
Assessing Officer within seven days after the deduction, together with
linkage differentials and interest from the end of the tax year or special
assessment period until the date of the deduction.
19. Repealed
Power to prescribe rules about certain deductions
20. (a) The Minister of Finance may, with approval by the Knesset Finance
Committee, make rules on the deduction of amounts specified below, in
whole or in part, its period during and its annual rate:
(1) amounts paid by the owner of a building, rented in whole or in part
under protected rental, in order to vacate a protected tenant, or as
participation in the construction of a sidewalk or road next to the
building, or of drainage connected to the building and for similar
purposes;
(2) amounts paid by a lessee of real estate in respect of the lease or
for investment in the leased real estate or in connection therewith;
(3) amounts expended by an assessee for replanting;
(4) other capital expenses.
(b) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe rules –
(1) on granting additional depreciation in respect of a building let
wholly or in part under protected rental, its rate and the period
during which it is to be granted;
(2) on depreciating the undepreciated balance of a wholly or partly
uprooted plantation, if its owner planted another plantation before
or after the uprooting, and on how to deal with depreciation in the
determination of the original cost for purposes of depreciation and
of capital gain on the new plantation.
Deductions for scientific research
20A. (a) (1) In determining the chargeable income of a person who incurred
expenses – including capital expenses – for scientific research in
the fields of manufacture, agriculture, transportation or energy,
approved for this purpose by a person authorized by the Minister in
charge of the Ministry within whose field of activity the research
falls, he shall be allowed to deduct them from his total income in
the tax year during which they were incurred, on condition that one
of the following holds true:
(a) the research is carried out by the owner of an enterprise in
one of the said branches, or on his behalf, for the
development or advancement of his enterprise;
(b) the expenses are those of the person who conducts the
research, who is not the owner of an enterprise in the said
fields, or they constitute participation in the financing of
research carried out by another person, in return for a right
to results of the research, which is reasonable in proportion
to the participation in research costs, and all that on
condition that the State participates in financing the research
by way of a grant; for this purpose: "grant", includes a loan 50
of a type designated by the Minister of Finance with approval
by the Knesset Finance Committee; however, expenses that
constitute such participation shall be deducted as follows: in
the tax year in which the expenses were paid out – a
proportional part, in the ratio between the number of months
from the month after the month in which they were paid until
the end of the year, divided by 12, and the remainder in the
following tax year; for purposes of calculating the said
proportional part, an undertaking to pay expenses in 12
equal monthly installments shall be deemed an expense
paid in their entirety when the first installment is paid;
(1a) if a person participates in the financing of research carried out by
another, as said in paragraph (1)(b), then he may set off the tax
saved against tax deducted at the source from work income or
against advance payments due from him under section 175 of the
Ordinance, beginning with the month after the month in which he
paid the expenses; if, in respect of any tax year, a balance remains
to be set off, its set off will be allowed when the return for that year
is delivered; for this purpose: "the tax saved" – the amount of tax
from the payment of which the assessee was exempted by virtue
of the deduction under paragraph (1), but for purposes of setting
off only against advance payments the saved tax shall be
calculated at the 55% tax rate for an assessee who is an
individual, and at the average tax rate for the preceding tax year
for an assessee who is a body of persons;
(1b) for purposes of section 190A, a set off against deduction at the
source or against advance payments under paragraph (1a) shall
be treated like a sum deducted at the source, as said in section
177;
(1c) if a person, who carries out research approved by whoever is
authorized to give approval as said in paragraph (1), raises from
investors in research and development amounts which, together
with the amounts he himself invests in the said research, exceed
the amounts spent to conduct that research, then the excess
amount shall be deemed chargeable income for him on which the
applicable tax rate is 100% without any right whatsoever to
exemption, deduction or set off, and the date of its payment, for
purposes of computing interest and linkage differentials under
section 159A of the Ordinance, is the date on which the excess
amount was created; the Minister of Finance shall prescribe, with
approval by the Knesset Finance Committee, ways of calculating
the excess amount and of determining the day on which it was
created;
(2) capital expenditures for scientific research, incurred by a person
for the advancement or development of his enterprise, to which the
provisions of subsection (1) do not apply, may be deducted in
three equal annual installments, beginning with the tax year during
which they were incurred;
(3) the amount of a grant said in paragraph (1)(b), given by the State
to finance scientific research, shall be subtracted from the amount
of expenses, deduction of which is allowed under this subsection.
(b) Any amount of expenditure invested in an asset, in respect of which
depreciation is allowed under section 21, shall not be deductible under
subsection (a). 51
Overall ceiling on deductions for research and development
20A1.(a) The amount deductible in consideration of participation in the
financing
of research and development carried out by another person, under
section 20A(a) and under any other statute, shall not exceed 40% of the
assessee's chargeable income in the tax year in which the expenses
were paid.
(b) The provisions of subsection (a) shall not apply to amounts of
participation by an industrial holding company in a company under its
control; for this purpose:
"industrial holding company" – a company at least 80% of whose
assets during the entire tax year, exclusive of assets derived from funds
received from an issue on an Exchange abroad until one year after the
date of the issue, are invested in the share capital of industrial
companies, or in loans for at least three years extended to industrial
companies;
"industrial company" – within its meaning in the Encouragement of
Industry (Taxes) Law 5729-1969;
"control" – within its meaning in section 25.
Deduction because of research and development – addition to base for
advance payments
20A2 The amount of tax, from the payment of which the assessee was exempted
because of participation in the financing of research and development
conducted by another, under section 20A(a) and under any other statute, shall
be added to the amount of tax that constitutes the base for the determination
of advance payments under section 175.
20A3. Repealed
Deduction for maintenance of foreign resident
20B. In determining the chargeable income of an individual Israel resident who
pays
for the maintenance of a foreign resident in accordance with the judgment of a
competent judicial authority abroad, handed down while the payor also was a
foreign resident, he shall be allowed to deduct that part of the maintenance
paid which exceeds an amount set by the Minister of Finance with approval by
the Knesset Finance Committee, and which does not exceed a maximum
amount set as aforesaid.
Article Two: Deduction of Depreciation
Depreciation of assets
21. (a) A deduction shall be allowed for the depreciation of buildings,
machinery, installations, furniture or other assets that are owned by the
assessee and used for the purpose of producing his income, including
live and other agricultural stock and plantations; the amount of deduction
shall be calculated according to percentages – set with approval by the
Knesset Finance Committee for each case or each category of cases –
of the original cost to the assessee, exclusive of the cost of land on
which a building was erected or a plantation planted, all as the case may
be, on condition that the prescribed particulars have been duly
produced; for purposes of this section, a lease of real estate for a period 52
of 49 years or more shall be treated like ownership thereof; a person
who, although he has disposed of an asset, is liable to tax on it under
sections 83 or 84, and a person who has transferred an asset, but
reserved to himself the right to enjoy its proceeds, shall also be deemed
its owner, and the depreciation allowed him shall be the depreciation
which would have been allowed him but for the said disposition or
transfer.
(b) If a grant is received because of the acquisition of an asset, in respect of
which depreciation is deductible under subsection (a), or if a debt that
stems from a loan for the acquisition of an aforesaid asset is remitted or
written off within five years after the year in which it was received, or if
value added tax was paid on the acquisition of an asset and the
assessee deducted the tax as input tax in accordance with the Value
Added Tax Law 5736-1975, then the original cost of the asset, both for
this purpose and for the purposes of section 88, shall be its aforesaid
cost, less the amount of the grant, the debt or input tax, as the case may
be; this provision shall not apply to an amount charged with tax under
section 3(b)(2).
(c) If a person incurred expenses, in order to comply with instructions issued
to him for the installation of special arrangements for invalids in a public
building, under section 158C of the Planning and Building Law 5725-
1965, then he shall be allowed to deduct depreciation on those
expenses at the rate of 16.5% per year; this provision shall not apply to a
person who incurred the said expenses on a building, construction of
which was finished after March 31, 1981.
(d) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe that, if a dwelling was rented out for residential use
in a certain tax year, and if its owner is not entitled to benefits for it under
Chapter Seven "A" of the Encouragement of Capital Investments Law
5719-1959, then the deduction of depreciation shall be allowed as
calculated as a percentage of the value of the dwelling, and he may –
with the said approval – make rules for calculating the value of the
dwelling.
Carrying depreciation forward from one year to another
22. If all or any part of depreciation cannot be deducted in a particular tax
year
because the source in respect of which depreciation is claimed did not yield
any income in that year or yielded less income than the amount deductible as
aforesaid, then the amount not deducted shall be deemed a loss for the
purposes of section 28; this provision shall not apply if the source in respect
of
which depreciation is claimed is not a business or vocation, and in that case
the amount not deducted shall be deemed a loss permitted to be set off in the
succeeding years against the same source only.
Restriction on depreciation deductions
23. The total of depreciation deductions deductible under the Ordinance, plus
the
total of wear and tear, calculated at the prescribed rates, during the period
before the date on which depreciation was allowed under this Ordinance, shall
not exceed the original cost of the assets to the assessee, as said in section
21, without the cost of the land on which a building is built or on which a
plantation is planted, as the case may be; however, for the purpose of the
original cost of citrus plantations, depreciation deductions and wear and tear
during the period before 1950 shall not be taken into account.
53
Depreciation upon transfer of an asset without transfer of control
24. (a) If a depreciable asset was transferred from one person to another, and
if
the Director found and decided that control of the transferred object
remained with the person who held it before the determining date, then
the amount of depreciation which the transferee is entitled to deduct
under sections 21 to 23 shall be the amount which the transferor would
have been entitled to deduct, if not for the transfer; and if the transfer
took place before April 1, 1946, and the transferee deducted
depreciation under sections 21 to 23 in an amount that exceeds the
amount which he would have been entitled to deduct under the
provisions of this section, then the excess shall not be deemed to have
been deducted unlawfully, but it shall be taken into account in calculating
the total depreciation permitted under section 23.
(a1) If a depreciable asset was sold and the seller acquired it again, then the
amount of depreciation which the seller is entitled to deduct under
sections 21 to 23 after the reacquisition shall be the amount to which he
would have been entitled, had he not sold it.
(b) The provisions of subsection (a) shall apply to a transfer of assets by two
or more persons to another person, as they apply to such a transfer by
one person to another, if the Director finds and decides that all of the
control of the object transferred remained with the persons, each of
whom had held a part of the transferred object before the determining
date.
(c) The provisions of this section shall not apply to a transfer charged with
capital gains tax under Part Five, or if the capital gain was set off against
a loss, on condition that an amount equal to the inflationary amount,
within its meaning in section 88, on which tax was paid at the rate of
10%, shall be subtracted from the original cost; this subtraction shall also
be taken into account for purposes of the definition of "original cost" in
section 88.
(d) The Director's decision under this section may be appealed under
sections 153 to 158.
Definition of control
25. For purposes of section 24, "control" – direct or indirect control or the
ability to
exercise or the right to acquire aforesaid control and, particularly, but
without
derogating from the generality of the aforesaid –
(1) if control is by virtue of shares – holding or having the right to hold or
to
acquire a majority of the share capital or of the issued share capital, or of
the voting power, or the right to hold or to acquire them, and also the
right to receive most of the profits or to appoint a majority of the
directors, or the right to acquire an aforesaid right;
(2) if control is by other means – the right to most of the capital, to most of
the profits, to a majority of the voting power, or to appoint a majority of
the directors, or the right to acquire an aforesaid right.
Who holds control
26. (a) In determining – for purposes of section 24 – whether control is or was
held by a certain person, the relative of that person, within its meaning in
section 76(d), shall be deemed to be identical with that person.
(b) If, at any time within three years after the transfer, control of the
transferred object is again held by the transferor, then it shall be deemed
to have been held by him throughout.
54
Definition of determining date
26A. For purposes of section 24, "determining date" – the date of the transfer
of a
business or asset, or the date on which a transaction was performed of which
the said transfer is a part or to which it is connected, or the date on which
the
first of several transactions was performed of which the said transfer is part
or
to which it is connected, all as the case may be.
Deduction for the replacement of machinery and equipment
27. (a) If a person engaged in any business or vocation expended a certain
amount during a certain tax year for the replacement of machinery and
equipment used or formerly used in that business or vocation, then – for
the determination of his chargeable income – he shall be allowed to
deduct an amount equal to the amount of the expenditure incurred by
him in the acquisition of the old machinery and equipment, less all the
depreciation he deducted on that machinery and equipment and the
amount received by him for their sale, or an amount equal to the amount
expended by him on the new machinery and equipment, whichever is
less; if an amount was deducted under this subsection, then any loss
permitted to be set off under Part Five in respect of the sale of the old
machinery and equipment shall be reduced by that amount.
(b) Subsection (a) shall not apply to private motor vehicles, within their
meaning in the Traffic Ordinance.
Depreciation deduction at an exchange of land and in
Evacuation and Compensation
27A. (a) In this section every term shall have the meaning it has in the Real
Estate Taxation Law, unless a different meaning is explicitly provided.
(b) When real estate rights are exchanged under Chapter Five AC@ of the
Real Estate Taxation Law, the following provisions shall apply to the
deduction of depreciation and also to additional deduction for
depreciation or amortization, within their meaning in section 3 of the
Inflationary Adjustments Law:
(1) the original cost of the replacement right shall be one of the
following:
(a) if the adjusted value of the replacement right is equal to the
sale value of the sold right – the balance of the original cost
of the sold right;
(b) if the adjusted value of the replacement right is less than the
sale value of the sold right – the balance of the original cost
of the exempt sold right;
(c) the provisions of subsection (b) shall apply, mutatis
mutandis, also to the sale of another unit in the compound to
an entrepreneur, in consideration whereof another unit was
received, as said in Chapter Five AD@ of the Real Estate
Taxation Law, up to the ceiling value;
(2) the balance of the original cost of the sold right shall be the
original cost of the part of the replacement right;
(3) the value of the additional replacement right on the day of its
acquisition shall be its original cost;
(4) the depreciation rate prescribed for the deduction of depreciation
in respect of the replacement right or of the additional replacement
right, as the case may be, shall be the rate of depreciation; 55
(5) the depreciation said in this section shall be allowed only if the
replacement right, part of the replacement right or the additional
replacement right is a depreciable asset.
Article Three: Set Off of Losses
Setting off a loss
28. (a) A loss incurred by a person during the tax year in a business or
vocation,
which – had it been a profit – would have been assessable under this
Ordinance, may be set off against that person's total chargeable income
from other sources in that tax year.
(b) If all of the loss cannot be wholly set off in the said tax year, then the
amount of loss not set off shall be carried forward to the subsequent
years in succession and it shall be set off against that person's total
chargeable income from business or vocation in those years, including
capital gains from business or vocation, or it shall be set off against that
person's entire chargeable income in those years under section 2(2), all
the conditions specified below having been met, provided that – if the
loss can be set off in one of these years – it shall not be allowed to be
set off in the following year:
(1) that person had no income from business or vocation in the year of
the set-off,
(2) that person ceased engaging in the business or vocation in which
he suffered the loss that he wishes to set off;
(3) the loss suffered by that person does not stem from a house
company, within its meaning in section 64, from a family company
within its meaning in section 64A or from a transparent company,
as defined in section 64A1(a).
(NOTE: Under the provisions of Amendment No. 154, the provisions of
subsection (b) apply to losses from business or vocation created in 2007
and thereafter – Tr,)
(c) Notwithstanding the provisions of subsections (a) and (b), if the
assessee so requests a loss shall not be set off under this section
against a capital gain which is an inflationary amount, or against a
capital gain, interest or dividend, if the tax rate applicable to them does
not exceed 20%.
(d) A loss incurred by a person in a citrus plantation, planted in grafted
condition, in the fifth and sixth years after the beginning of the tax year in
which it was planted, shall only be set off against his income from that
plantation in the sixth and seventh years.
(e) A loss incurred by a person in a citrus plantation, planted in ungrafted
condition, in the sixth and seventh years after the beginning of the tax
year in which it was planted, shall only be set off against his income from
that plantation in the seventh and eighth years.
(f) The provisions of subsection (b) shall apply to any loss which cannot be
set off as said in subsections (d) and (e).
(g) For purposes of subsections (d) and (e), a citrus plantation planted after
November 30 of any year shall be treated as if it had been planted in the
first month of the following tax year.
(h) A loss incurred by a person from the letting of a building may be set off
against his income from that building in subsequent years.
(i) Repealed 56
(j) In this section, "chargeable income" and "capital gain" – including
appreciation within its meaning under section 6 of the Land Appreciation
Tax Law 5723-1983 (hereafter: land appreciation).
Loss incurred outside Israel
29. Notwithstanding the provisions of section 28, the following provisions shall
apply to a loss incurred abroad:
(1) (a) If during the tax year an Israel resident incurred a loss abroad
which – had it been a profit – would have been liable to tax as
passive income, then it shall be set off against chargeable passive
income from abroad; however, a loss from renting a building,
which stems from depreciation, may also be set off against a
capital gain upon the sale of that building; for the purposes of this
section, "passive income" – income from interest, linkage
differentials, rent or royalties, which is not income from a business
or a vocation;
(b) if it is not possible to set off the entire loss in the tax year, as said
in subparagraph (a), the amount of loss that was not set off shall
be transferred to the following years, one after the other, and shall
be set off against chargeable passive income produced abroad
during those years, on condition that – if it is possible to set the
loss off in one of the years – it shall not be allowed to be set off in
the following year; however a loss from renting a building, which
stems from depreciation and which was brought forward from
previous years, may also be set off against a capital gain from the
sale of that building;
(2) if an Israel resident suffered a loss abroad from business or vocation,
and which – had it been a profit –would have been chargeable to tax in
Israel, then the following provisions shall apply to it:
(a) a loss suffered during a tax year shall be first set off against his
chargeable income, including capital gains, in the same tax year
from business or vocation abroad;
(b) if a balance of loss remained after the set off said in subparagraph
(a), then the said balance shall be set off against chargeable
passive income from abroad, which was left in that tax year after
the set off said in paragraph (1)(a);
(c) if a balance of loss remained after the set off said in
subparagraphs (a) and (b) and the said balance of loss is in a
business abroad which is controlled and managed from Israel (in
this section: the controlled business), then it shall be set off – if the
assessee so requests – against chargeable income produced or
accrued in Israel in that tax year;
(d) if it is not possible to set off the entire loss in that year, as said in
subparagraphs (a) and (b), and if he elected that the provisions of
subparagraph (c) apply to him, then the amount of a said loss that
cannot be set off under subparagraphs (a) to (c) shall be brought
forward to the following years, one after the other, and shall be set
off against the assessee's chargeable income, including capital
gains, from business or vocation abroad in those tax years;
(e) notwithstanding the provisions of subparagraph (d), if a balance of
loss remained after the set off said in that subparagraph and if the
balance of loss stems from a controlled business, then the balance
of loss shall be set off – if the assessee so requests – against his
chargeable income, including capital gains or land appreciation 57
within its meaning in the Real Estate Taxation Law, from business
or vocation in Israel; an amount set off as aforesaid shall not be
carried forward for setting off in subsequent tax years under the
provisions of subparagraph (d);
(3) set off shall not be permitted of a loss suffered abroad by an Israel
resident, for which – had it been a profit – no tax would have been
payable in Israel;
(4) section 28(c) shall also apply, mutatis mutandis, to the subject of this
section;
(5) a loss said in this section shall be allowed to be set off only if a return,
as
said in sections 131 and 132, was submitted to the Assessing Officer for
the tax year in which the loss was suffered;
(6) the Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe provisions for the implementation of this section,
inter alia on the matter of how to prove the loss.
Article Four: General Provisions
Restriction on deductions
30. No deduction shall be allowed for expenses under sections 17 to 27 in an
amount greater than was necessary for the production of the assessee's
income; any question on the subject of this section shall be decided by the
Director, but nothing in this section shall be construed as preventing a person,
who considers himself aggrieved by the Director's decision, from appealing
against it in accordance with the provisions of sections 153 to 158.
Regulations on the deduction of expenses
31. The Minister of Finance may, with approval by the Knesset Finance
Committee, make regulations – whether in general or for particular categories
of assessees – on the limitation or disallowance of the deduction of certain
expenses under sections 17 to 27, and in particular on –
(1) the method of calculating or estimating expenses;
(2) the amounts or rates of deductible expenses;
(3) the conditions for allowing expenses;
(4) the manner of proving expenses.
Deductions that are not to be allowed
32. In determining the chargeable income of a person, deductions shall not be
allowed in respect of –
(1) household or private expenses;
(2) payments or expenses, which are not money wholly and exclusively
expended for the production of income;
(3) capital withdrawn or a sum used or intended to be used as capital;
(4) the cost of improvements;
(5) any loss or expense which is recoverable under insurance or under a
contract of indemnification;
(6) rent for and the cost of repairs of premises or of any part thereof, which
were paid or incurred not for the purpose of producing income;
(7) amounts paid or payable as income tax;
(8) repealed
(9) (a) (1) payment of amounts of grant in consequence of retirement
or in consequence of death, which are exempt of tax under 58
section 9(7a), paid by a company controlled by not more
than five persons, within its meaning in section 76, to a
controlling member or to another in his stead, in respect of
years of employment up to the year 1975;
(2) payments to a benefit fund paid by a company said in
subparagraph (1) for a member, except payments to a
benefit fund for severance pay or pension at rates and on
conditions prescribed under section 22 of the Control of
Benefit Funds Law, but not more than NS 10,500 (in 2008;
in 2007: NS 10,220; in 2006: NS10,250; in 2005: NS9,980 –
Tr.) and exclusive of payments to a training fund, and
provided that deductions of a sum in excess of 4.5% of the
member's determining salary shall not be allowed;
the provisions of subparagraphs (1) and (2) shall also apply
to a person, if two years have not yet elapsed since the day
on which he ceased being a member; notwithstanding the
provisions of this paragraph, the Director may direct
otherwise if he sees fit to do so under the circumstances;
for this purpose:
"controlling member" – a person who, directly or indirectly, alone
or with a relative holds one of the following:
(a) at least 10% of the issued share capital or at least 10% of
the voting power;
(b) the right to hold at least 10% of the issued share capital or at
least 10% of the voting power, or the right to acquire them;
(c) the right to receive at least 10% of the profits;
(d) " the right to appoint a director;
"relative" – within its meaning in section 76(d);
"member" – a controlling member who has, alone or together with
his spouse, or whose spouse has, directly or indirectly, not less
than 5% of the issued share capital, or of the voting power, or of
the right to hold or to acquire each of these, or of the right to
receive profits; however, the rights of a spouse that was acquired
before marriage or inherited shall not be taken into account for this
purpose:
"determining salary" – as defined in section 3(e);
(b) the provisions of subparagraph (a) shall not apply to the amount of
a grant in consequence of death, which is exempt of tax under
section 9(7a), or to an amount of grant in consequence of death
which does not exceed NS 10,220 (in 2007; in 2006: NS10,250; in
2005: NS9,980 – Tr.) per working year, whichever is the smaller
amount.
(10) (a) premiums paid by a company to insure the life of a controlling
member in its own favor, within its meaning in paragraph (9),
except aforesaid premiums paid to a benefit fund;
(b) premiums paid by a partnership in its own favor to insure the life of
a partner, or paid by a partner in his own favor to insure the life of
his partner, when the insured person has at least 10% of the
capital of the partnership or of the right to its profits;
(11) expenses in respect of a benefit granted by an employer to his
employees which cannot be attributed to a particular employee, except
for expenses that by their nature are proved not to be intended to confer
personal benefits on an employee; expenses within the limits of amounts
prescribed in regulations under section 31 for the maintenance of a 59
vehicle in the employer's possession and used by his employees and the
benefit of its use cannot be related to a certain employee; expenses that
cannot be deducted as aforesaid shall be deemed work income of the
employees.
(12) amounts paid for an activity which is prohibited under sections 5A and
5B of the Wireless Telegraph Ordinance [New Version], 5732-1972;
(13) payments paid as supplements under section 179 of the National
Insurance Law [Consolidated Version] 5728-1968;
(14) (a) expenditures for the acquisition of insurance against loss of
working capacity;
(b) notwithstanding the provision of subparagraph (a), if the income in
respect of which insurance against loss of working capacity was
acquired is income under section 2(1) or (2), and if the insurance
is preferential insurance, then deductions will be allowed for
expenditures for the acquisition of the preferential insurance up to
3.5% of the income under section 2(1) or of the employee's salary,
as the case may be, which is liable income, on condition that
deductions under this subparagraph not be allowed in respect of
the said income that exceeds the amount that equals the total
average wage in the economy in the tax year, divided by three;
however, if the employer paid for his employee to a benefit fund on
account of the employer's benefit component an amount that
exceeds 4% of the employee's salary, then the differential between
the rate paid as aforesaid by the employer in respect of income
under section 2(2) and 4% shall be subtracted from the rate said in
the opening passage;
for the purpose of this paragraph: "preferential insurance" –
insurance against loss of working capacity, and if the insurance
was acquired before the insured person had reached age 60, if the
following two conditions also hold true for the insurance:
(1) the insurance period – other than group insurance –
continues at least until the insured person reaches age 60;
(2) if the insurance event occurs before the insured person
reaches age 60, then the moneys under the insurance will
be paid from the date on which the insurance event occurred
until the end of the period of loss of working capacity or until
the insured person at least reaches age 60, whichever
comes first;
"insurance against loss of working capacity" – as defined in
section 3(a);
"average wage in the economy" and "employer's benefit
component" – as defined in section 3(e3)(2);
"salary" – work income other than the value of the use of a vehicle
made available to the employee;
(15) educational expenses, including expenses for the acquisition of an
academic education or for the acquisition of a profession, other than
expenses for supplementary professional training that is not for the said
acquisition of an education or profession, but for the maintenance of the
what exists.
Restrictions on deductibility and on reduction of advances because
of faulty returns
32A. Notwithstanding the provisions of any statute, an assessee shall not be
allowed to deduct expenses or to reduce advance payments under section 60
175(d) in respect of payments to which the obligation to deduct at the source
applies, unless returns which the assessee must submit under sections 161,
166 or 171, as the case may be, have been submitted to the Assessing
Officer, in which are stated the name, address and identity number of the
person to whom or for whom payments were made, and in respect of a body of
persons – another identifying number, all in an accurate manner that enables
the Assessing Officer to identify the payment's recipient.
Restriction on deductions, credits and set-offs because of unacceptable books
33. (a) The Assessing Officer may refuse to allow the deduction of expenses
according to accounts submitted by an assessee who did not keep
acceptable books, and he may assess the expenses to the best of his
judgment.
(b) If an assessee did not keep acceptable books in a particular tax year,
then he shall not be allowed to set-off losses from earlier years against
his income in that year, and if the assessee was required to keep books
in a particular tax year and his books were found to be unacceptable
under aggravating circumstances, then no deductions or set-offs shall be
allowed him in that year for bad debts and losses and a loss for that year
shall not be recognized.
(c) If an assessee was required to keep books in a particular tax year and
did not keep books, or kept books but did not base his return on them,
then in that year he shall not be allowed deductions and set-offs for
depreciation, interest, lost debts and losses, and a loss for that year shall
not be recognized.
(d) If an assessee was required to keep books in a particular tax year and
did not keep acceptable books, then in that tax year he shall not be
allowed a tax credit under section 121A.
CHAPTER THREE: DEDUCTIONS, CREDITS
AND CHILDREN'S PENSIONS
Definitions
33A. In this Chapter –
"credit point" – an amount of NS 2,136 (in 2004 to 2008 – Tr.), linked to the
index as said in section 120A, set off against the tax for that year; (Amendment
No. 136 provides that the underlined words shall not apply in tax years 2005 to
2008; however, if at any time during those years the index rises to more than
5% above the index known on January 1, 2004, then this reservation no longer
applies, beginning with the next following tax year – Tr.)
"pension point" – an amount equal to the amount of a credit point, at its value
on December 31, 1996, adjusted under the provisions of section 120B in
respect of pension points and divided by twelve.
Credit for Israel resident
34. Two credit points shall be taken into account in calculating the tax of an
individual who was an Israel resident in the tax year.
Credit for oleh
35. (a) In calculating the tax of an oleh (new immigrant – Tr.), the following
shall
be taken into account –
(1) 1/4 credit point for each of the first eighteen months after his aliyah
(immigration – Tr.) to Israel; 61
(2) 1/6 credit point for each of the twelve months thereafter;
(3) 1/12 credit point for each of the twelve months thereafter.
(b) If the chargeable income of a registered spouse includes income of his
spouse who is an oleh and if the tax on their income is calculated jointly,
then the credit points said in subsection (a) shall be taken into account,
but if the income of the spouse who is not the registered spouse does
not exceed an amount equal to five times the amount of the credit points
said in subsection (a) and in section 38, then the income of the spouse
who is not the registered spouse shall not be included in the chargeable
income of the registered spouse and the said credit points shall not be
taken into account in calculating the tax of the registered spouse.
(c) The said credit shall be granted for a tax year wholly or partly within the
period of the said 42 months, according to the number of months that
the oleh resided in Israel in that year, and it shall only be granted the first
time he becomes an oleh; on his application, a consecutive period of
absence from Israel of not less than six months and not more than three
years shall not be included in the count of 42 months.
(d) In this section, "oleh" – a person who holds an oleh's visa or an oleh's
certificate under the Law of Return 5710-1950, or a person entitled to a
said visa or certificate who holds a visa and permit of temporary
residence under the Entry into Israel Law 5712-1952, or a person who
belongs to a category of persons who the Minister of Finance
determined shall for the present purpose be treated like olim, but
exclusive of a person whose Israel citizenship was withdrawn under
section 10(d) of the Citizenship Law 5712-1952.
(e) Notwithstanding the provisions of subsection (c), the Minister of Finance
may, with approval by the Knesset Finance Committee, prescribe –
(1) rules for the grant of credits under subsection (a) to a person who
in the past came within the definition of oleh;
(2) other provisions, either generally or in respect of particular cases,
on the beginning of the 42 month period and the interruption of its
continuity.
Credit for travel to place of work
36. In calculating the tax of an individual Israel resident, 1/4 credit point
shall be
taken into account as a travel credit.
Credit for women
36A. In calculating the tax of a woman, 1/2 credit point shall be taken into
account.
Credit for a spouse
37. In calculating the tax of a beneficiary individual Israel resident, who
proved to
the Assessing Officer's satisfaction that he supported his spouse during the tax
year, one credit point shall be taken into account; for purposes of this
section,
"beneficiary individual@ – an individual, if he or his spouse has reached the
retirement age, or if he or his spouse is blind or disabled within the meaning
of
those terms in section 9(5)(a).
Credit for a working spouse
38. (a) If the chargeable income of an individual Israel resident, who is a
registered spouse, includes the income of his spouse, and if it is proved
to the Assessing Officer's satisfaction that his spouse's income was
obtained by personal exertion from any business or vocation or from 62
employment, including income from personal exertion as said in
paragraphs (1) to (6) of its definition in section 1, then in calculating his
chargeable income 1/4 credit point shall be taken into account under
section 36, 1 1/2 credit points if they are not entitled to a pension point
under section 40(a) and 1 3/4 credit points if they are entitled to an
aforesaid pension point, and in respect of a beneficiary individual, as
defined in section 37, a credit point said in that section shall also be
taken into account.
(b) Notwithstanding the provisions of subsection (a), if the income of the
spouse who is not the registered spouse does not exceed an amount
equal to five times the amount of the said fractional credit points, as the
case may be, then the income of the spouse who is not the registered
spouse shall not be included in the chargeable income of the registered
spouse and the said fractional credit points shall not be taken into
account.
Credit for spouse who helps
39. In calculating the tax of an individual Israel resident whose spouse helps
him in
obtaining his income from any business or vocation during at least 24 hours in
each week during nine months of the tax year, then 1 1/2 credit points shall be
taken into account if he is not entitled to a pension point under section 40(a)
and 1 3/4 credit points if he is entitled to an aforesaid pension point, and in
respect of a beneficiary individual, as defined in section 37, a credit point
said
in that section shall also be taken into account, provided that – if in respect
of
his spouse he is also entitled to credits under section 38, then he shall be
granted the credits under one of the two sections, at his choice.
Credit for discharged soldier
39A. In calculating the tax on the income from personal exertion of a discharged
soldier, part of a credit point shall be taken into account for each month of
the
first 36 months after the month in which he concluded his regular service, as
specified below:
(1) 1/6 of a credit point – if he or she served regular service –
(a) if a man – of at least 23 whole months;
(b) if a woman – of at least 22 whole months'
(2) 1/12 of a credit point – if he or she served regular service –
(a) if a man – of less than 23 whole months;
(b) if a woman – of less than 22 whole months;
for this purpose: "discharged soldier" and "regular service" – as defined in
the Absorption of Discharged Soldiers Law 5754-1994.
Pension and credit points for children
40. (a) An individual Israel resident is entitled to pension points for each of
his
children, as prescribed in section 109 of the National Insurance Law
[Consolidated Version] 5728-1968; the pension points shall be paid by
the National Insurance Institute under the National Insurance Law.
(b) (1) If an Israel resident individual, who is the parent of a single parent
family, has children who during the tax year had not yet reached
age 19 and were maintained by him, but is not entitled to credit
points under section 37, then, in calculating his tax, in addition to
the pension points under subsection (a) in respect of the children
who live with him, 1/2 credit point shall be taken into account in 63
respect of each child in the year of its birth and in the year of its
maturity, and one credit point in respect of each child beginning
with the tax year after the year of its birth until the tax year before
the year of its maturity; and in respect of his being the parent of a
single parent family – one additional credit point only.
(2) If parents live separately and the maintenance of their children is
shared by them, then the parent who is not entitled to a credit point
under paragraph (1) shall receive one credit point or part thereof,
according to his share in the maintenance.
(3) For purposes of this subsection:
"year of birth" – the tax year in which the child was born;
"year of maturity" – the tax year in which the child reached age
18.
Credit point for divorced man who has remarried
40A. In calculating the tax of a divorced person who pays, or whose spouse pays
maintenance to his former spouse and who is married to another spouse, one
credit point shall be taken into account.
Credit point for a juvenile
40B. In calculating the tax of an individual, if he or his spouse has reached
age 16,
but has not yet reached age 18, one credit point shall be taken into account.
Half a credit point for individual who completed studies for a bachelor's
or master's degree
40C. (a) In calculating the tax of an individual Israel resident (in this
section:
individual) a credit point shall be taken into account, if he is entitled to
receive a bachelor's degree and half a credit point if he is entitled to
receive a master's degree from an institution of higher education.
(b) The credit point or half credit point said in this section, as the case may
be, shall be taken into account during a number of years equal to the
number of years of his academic studies, on condition that not more than
three tax years be taken into account for studies for a bachelor's degree
and not more than two tax years for studies for a master's degree.
(c) One credit point said in this section for studies for a bachelor's degree
shall be taken into account beginning with the tax year after the tax year
in which his studies for the bachelor's degree were completed, and half
the credit point for studies for the master's degree beginning with the tax
year after the tax year in which his studies for the master's degree were
concluded.
(d) Notwithstanding the provisions of subsections (a) to (c) –
(1) if the individual is entitled to receive a doctorate in medicine or
dentistry, then a credit point shall be taken into account during
three tax years and half a credit point during two tax years,
beginning with the tax year after the tax year in which his studies
for the degree of doctor were concluded;
(2) if the individual studied in a direct program towards the degree of
doctor, then one credit point for studies for a bachelor's degree
shall be taken into account beginning with the tax year after the tax
year in which his studies for the bachelor's degree were
concluded, and during the number of tax years said in subsection
(b) in respect of studies for the bachelor's degree; furthermore,
half a credit point shall be taken into account during two tax years, 64
beginning with the tax year after the tax year in which his studies
for the doctorate were concluded.
(e) The credit point or the half credit point said in this section, as the case
may be, shall be taken into account for studies toward only one
bachelor's degree or only one master's degree, and after the individual
presented to the Assessing Officer certification that he had completed
his studies and that he is entitled to the said degree.
(f) in this section –
"Council of Higher Education Law" – the Council of Higher Education
Law 5718-1958;
"institution of higher education" – within its meaning in the Council of
Higher Education Law;
"degree" – a recognized degree, within its meaning in the Council of
Higher Education Law.
Half a credit point for concluding professional studies
40D. (a) In calculating the tax of an individual Israel resident, half a credit
point
shall be taken into account, if he completed professional studies and is
entitled to a professional certificate, on condition that he submitted
certification of the conclusion of his studies and of his entitlement to the
said professional certificate to the Assessing Officer.
(b) The half credit point said in this section shall be taken into account
during a number of tax years that is equal to the number of years of
professional studies, on condition that it be taken into account in not
more than three years.
(c) The half credit point said in this section shall be taken into account
beginning with the tax year after the tax year in which his studies were
concluded.
(d) In this section,
"professional studies" – studies for a certain profession, with a study
program identical at least with the 1,700 study hours common at
institutions of higher education, as defined in section 40C;
"professional certificate" – a certificate awarded at the conclusion of
professional studies and recognized by a Government Ministry.
No duplication
40E. If the conditions set in section 40C and 40D hold true for an individual,
then he
shall be entitled to choose whether a credit point or half a credit point be
taken
into account in the calculation of his tax under section 40C or half a credit
point
under section 40D.
------------------------------------------------------------------------------------------------------------------
Note: Section 72 of Amendment No. 147 inserts the following section 40F, with
effect
in tax years 2005 and 2006:
Credit point for person who returned to work
40F. In the tax calculation of an individual Israel resident one sixth of a
credit point
shall be taken into account per month of work, in the course of six consecutive
months of work, if all the following hold true:
(1) before the month, in respect of which he claimed the credit said in this
section, he had work income in at least six consecutive months;
(2) the employment in respect of which he had the work income said in
paragraph (1) began between July 1, 2005, and June 30, 2006;
(3) before he began to work, as said in paragraph (2), he did not have any
work income during at least twelve consecutive months;
(4) during the period of 36 months that preceded the period said in 65
paragraph (3) he had work income during at least twelve consecutive
months;
for the purposes of this section:
"work income" – income under section 2(1) or (2);
"work" – includes engagement in a business or vocation.
------------------------------------------------------------------------------------------------------------------
Spouse who was married during part of the year
41. If a spouse who is not a registered spouse was married during part of the
tax
year, then – for purposes of calculating the tax to which he is liable – he
shall
be entitled –
(1) in respect of the period in which he was not married – to one twelfth of
the credit points under sections 34, 36, 40(b) and 40B, multiplied by the
number of months of the tax year during which he was not married;
(2) in respect of the period in which he was married – to one twelfth of the
credit point under section 66, multiplied by the number of months of the
tax year during which he was married.
42 and 43 – Repealed
Credit for expense of maintaining a relative in an institution
44. In calculating the chargeable income of an individual Israel resident, if
during
the tax year he or his spouse paid for the maintenance of a completely
paralyzed, permanently bedridden, blind or mentally unsound child, spouse or
parent and also of a retarded child, in a special institution, then a 35% tax
credit shall be allowed on that part of the amounts paid that exceed 12.5% of
his chargeable income; the Minister of Finance may, by regulations, set
conditions for entitlement to tax credits under this section. (Ceiling of
entitling
income: in 2008: NS 144,000 for an individual, NS 230,000 for a couple; in
2006 and 2007: NS140,000 and NS224,000; in 2005: NS136,000 and NS
218,000 – Tr.
Credit for incapacitated persons
45. (a) If an Israel resident had a paralyzed, blind or retarded child during
the
tax year, or if his spouse had an aforesaid child, then in calculating his or
his spouse's tax two credit points shall be taken into account for each
such child.
(b) repealed
(c) An individual shall be entitled to credit points under subsection (a) only
if
he did not receive tax credit under section 44 for the same child.
(d) The Minister of Finance may set conditions for entitlement to credit points
under this section. (Ceiling of entitling income: in 2008: NS144,000 for an
individual, NS 230,000 for a couple;: in 2006 and 2007: NS140,000 and,
NS224,000; in 2005: NS136,000 and NS 218,000 – Tr.)
Credit for insurance premiums and benefit fund contributions
45A. (a) An individual shall be given a tax credit of 25% of the amount paid by
him or his spouse in the tax year –
(1) for insuring his life or the life of his spouse with an insurance
company, if he is an Israel resident;
(2) as payment to a benefit fund to the credit of one of them, other
than payments to a pension benefit fund and other than payments
to a benefit fund which is a training fund.
(b) An individual shall be given a tax credit ofr 35% of the amounts he or his
spouse paid in the tax year to a pension benefit fund, or which they paid 66
as aforesaid to the State, to a local authority or to some other body
designated by the Minister of Finance in order to maintain his or his
spouse's pension rights, or paid as aforesaid for survivors' pension
insurance.
(b1) A beneficiary member shall receive a tax credit, as said in subsections
(a) and (b), also for amounts he paid for the insurance of his child's life in
an insurance company, to a benefit fund to his child's credit or for the
maintenance of his child's pension rights, subject to the conditions said
in those subsections, as the case may be, on condition that in that tax
year that child was of age eighteen or older.
(c) In this section –
"life insurance" – insurance against the risk of the insured person's
death, without any savings component, which does not include pension
payments to survivors;
"survivors' pension insurance" – insurance against the risk of the
insured person's death, without a savings component, which includes
pension payments to survivors;
"insured income", "entitling income" and "beneficiary member" – as
defined in section 47.
(d) Notwithstanding the provisions of subsections (a) and (b), the total
amount in respect of which credit shall be given to an individual who is
not a beneficiary member for amounts paid as said in those subsections
shall not exceed the larger of the amounts specified below:
(1) the amount of NS 1,728 (in 2008; in 2007: NS 1,680 – Tr.);
(2) the lower of the following two amounts:
(a) the total of amounts paid as said in subsections (a) and (b);
(b) (1) in respect of an individual who had no work income in
the tax year – 5% of his entitling income, provided that
the total amount for which he shall be given credit for
payments for survivors' pension insurance , as said in
subsection (b) not exceed 1.5% of the individual's
entitling income;
(2) in respect of an individual who did have work income
in the tax year – 7% of his entitling income, provided
that the total amount, in respect of which credit will be
given for amounts paid for survivors' pension
insurance as said in subsection (b) not exceed 1.5%
of the individual's entitling income, and that the total
amount for which credit shall be given in respect of the
amounts paid for life insurance as said in subsection
(a)(1), for survivors' pension insurance as said in
subsection (b) and in respect of income that is not
from work shall not exceed 5% of the individual's
entitling income;
(e) Notwithstanding the provisions of subsections (a) to (b1), the total
amount in respect of which credit shall be given to a beneficiary member
for amounts paid as said in those subsections shall not exceed the
larger of the amounts specified below:
(1) the amount of NS 1,680 (in 2008 – Tr.);
(2) the lower of the following two amounts:
(a) the total of amounts paid as said in subsections (a) to (b1);
(b) (1) in respect of a beneficiary member who did not have
insured income in the tax year – 5% of his chargeable
income up to the amount of NS 180,096 (in 2008; in 67
2007:NS175,200 – Tr.) per year, on condition that the
total amount, in respect of which credit will be given for
amounts paid for survivors' pension insurance, as said
in subsection (b), not exceed 1.5% of the beneficiary
member's entitling income;
(2) in respect of a beneficiary member who did have
insured income in the tax year – the amount obtained
by adding the amounts specified below:
(a) 7% of his entitling income that is insured
income, on condition that the total amount in
respect of which credit will be given for amounts
paid for survivors' pension insurance, as said in
subsection (b), not exceed 1.5% of his said
income, and that the total amount in respect of
which credit will be given for amounts paid for
life insurance under subsections (a)(1) and (b1)
and for survivors' pension insurance under
subsection (b) does not exceed 5% of his said
income;
(b) 5% of his chargeable income that is not insured
income, up to the amount of NS 180,096 (in
2008; in 2007: NS172,800 – Tr.) per year, less
the amount of NS 88,800 (in 2008; in 2007:
NS86,400 – Tr.) or the amount of his insured
income, whichever is the smaller amount, on
condition that the total amount, in respect of
which credit will be given for amounts paid for
survivors' pension insurance, as said in
subsection (b), does not exceed 1.5% of his
liable income that is not insured income.
45B. Repealed
Contribution to a public institution
46. (a) If a person contributed in a certain tax year an amount in excess of NS
380 (in 2006 and 2007 – Tr.) to a national fund or to a public institution
within its meaning in section 9(2) and designated for this purpose by the
Minister of Finance with approval by the Knesset Finance Committee,
then he shall be credited to the tax he owes in that year in the amount of
35% of the amount of the contribution, if he is an individual, and at the
percentage of the contribution prescribed in section 126(a) if it is a body
of persons, but in no tax year shall credit be given for a total amount of
contributions in excess of 30% of the assessee's chargeable income in
that year, or in excess of NS 4,013,000 (in 2008; in 2007: NS 4,000,000;
in 2006: NS 2,218,000;in 2005: NS 2,165,000 – Tr.), whichever is less
(hereafter: credit ceiling); any amount contributed in that tax year in
excess of the credit ceiling shall be credited against tax in accordance
with the provisions of this section during the following three tax years,
one after the other, on condition that in each of the said three tax years
no credit be allowed in respect of a total amount of contributions in
excess of the credit ceiling.
(a1) If a public institution said in subsection (a) did not submit two
successive
annual reports, or if the submitted reports show that it does not duly keep
books or that a substantive part of its activity is not for a public purpose, 68
then the Minister of Finance may cancel its designation for purposes of
subsection (a).
(a2) The renewal of a designation, which was canceled as said in subsection
(a1), requires approval by the Knesset Finance Committee.
(b) The amounts in subsection (a) shall be adjusted in every tax year,
according to the rate of index increase from the index published in
August before the tax year to the index published in August of the tax
year; the minimum amount increased as aforesaid shall be rounded off
to the nearest sum that is a multiple of NS 10, and the maximum amount
increased as aforesaid shall be rounded off to the nearest sum that is a
multiple of NS 1000; the Director shall publish a notice in Reshumot on
the amounts increased and rounded off as aforesaid.
(c) In this section, "national fund" – the Jewish Agency for Israel, the World
Zionist Organization, the United Israel Appeal and the Jewish National
Fund.
(d) (1) If the account books of a public institution were declared
unacceptable, and if that determination is no longer subject to
objection or appeal, then the Director may cancel the designation
under subsection (a) from that day forward.
(2) The institution shall inform the public of a said cancellation, at the
time and in the manner prescribed by the Director.
Overall ceiling on tax benefits for contributions and R&D
46A. Notwithstanding the provisions of any statute, the total amount in respect
of
which a credit will be allowed in a certain tax year for contributions under
section 46 and a deduction for participation in the financing of research and
development carried out by another person under section 20A and under the
Income Tax Law (Benefits for Securities that Finance Scientific Research and
Development) 5744-1983, shall not exceed 50% of the assessee's chargeable
income in that year; for this purpose: "chargeable income" – before the
deduction for participation in research and development.
Credit for contribution – addition to base for advance payments
46B. The amount of tax, from the payment of which a person was exempted
because of contributions under section 46 and under any other statute, shall
be added to the amount of tax that serves as base for the determination of his
advance payments under section 175.
Deduction of payments, benefits or pensions
47. (a) In this section –
(1) "entitling income" – the total chargeable income of an individual,
before the deduction under this section and under section 47A, as
specified below, as the case may be:
(1) in respect of an individual who only had work income – up to
the amount of NS 88,800 per year (in 2008; in 2007: NS
86,400 – Tr.);
(2) in respect of an individual who had no work income – up to
the amount of NS 126,000 per year (in 2008; in 2007: NS
122,400 – Tr.);
(3) in respect of an individual who had work income and income
that is not work income, in respect of the work income – up
to the amount said in paragraph (1), and in respect of the
income that is not work income – up to the amount said in
paragraph (2), less his work income, or less the amount said 69
in paragraph (1), whichever is less, on condition that his
work income be taken into account first;
(2) repealed
(3) "income of a self-employed member" – the individual's total
liable income before the deduction under this section and under
section 47A, up to the amount of NS 90,000 per year(in 2008; in
2007: NS 86,400 – Tr.), less his insured income;
(4) "insured income" – work income, in respect of which the
employer paid for his employee during the tax year amounts to a
savings benefit fund or to a pension benefit fund, and also work
income in respect of which the employee is entitled to a pension
under a statute or contract;
(5) "additional income" – the smaller of the following amounts:
(1) an individual's total liable income before deduction under
this section and under section 47A, which is not insured
income, up to the amount of NS 90,000 per year in 2008; (in
2007: NS 86,700 – Tr.);
(2) the individual's total liable income before the deduction
under this section and under section 47A up to the amount
of NS 360,000 (in 2008; in 2007: 345,600 – Tr.) per year,
less his insured income or the amount of NS 90,000 (in
2008; in 2007; NS 86,400 – Tr.), whichever is larger;
(6) "individual member" – an individual who is not a beneficiary
member, for whom one of the following holds true:
(1) he was born before 1961;
(2) during the tax year he had work income, in respect of which
he is entitled to a pension under a statute or contract;
(7) "beneficiary member" – an individual, in respect of whose income
amounts were paid for him during the tax year to a pension benefit
fund in an amount that was not less than 16%of the average wage
in the economy in that tax year;
(8) "average wage in the economy" – as defined in section 3(e3)(2).
------------------------------------------------------------------------------------------------------------------
Under the provisions of section 6 of Amendment No. 153, the above paragraph (8)
shall be read as follows:
in tax year 2007:
(8) "average wage in the economy" – 90% of the average wage in
the economy, as defined in section 3(e3)(2).
in tax year 2008:
(8) "average wage in the economy" – 95% of the average wage in
the economy, as defined in section 3(e3)(2).
------------------------------------------------------------------------------------------------------------------
(b) If during the tax year an individual member or his spouse paid to a
benefit fund for pension or benefits for the benefit of one of them, or if
during the tax year amounts an individual who is not a beneficiary
member or his spouse paid only to a pension benefit fund for the benefit
of one of them – also if he directed that after his death his right be
transferred to an institution recognized as a public institution for
purposes of section 9(2) – or if they paid as aforesaid to the State, to a
local authority or to another body designated by the Minister of Finance,
in order to maintain the pension right of one of them, then the amounts
paid as aforesaid shall be deductible, on condition that the deduction 70
does not exceed –
(1) 7% of his entitling income other than work income; however, if he
paid only for a pension and the amount paid exceeds 12% of his
aforesaid income, then– in respect of the part in excess of 12% –
he shall be allowed an additional deduction of up to 4% of that
income;
(2) the lower of these amounts:
(a) 5% of his entitling income which is work income that is not
insured income;
(b) 5% of his liable income that is work income, up to an amount
of NS 360,000 (in 2008; in 2007: NS 345,600 – Tr.) per year,
less his insured income;
(b1) if, during the tax year, a beneficiary member or his spouse paid amounts
to a savings benefit fund or to a pension benefit fund to the beneficiary
member's credit, and if a beneficiary member during the tax year paid
said amounts to the credit of his child, who in the tax year was aged 18
or more, then he shall be allowed to deduct the amounts paid as
aforesaid, on condition that the deduction not exceed the following, as
the case may be:
(1) in respect of amounts paid to a pension benefit fund – 11% of the
income of a self-employed member;
(2) in respect of amounts paid to a pension benefit fund for which
deduction was not allowed under paragraph (1), and in respect of
amounts paid to a savings benefit fund – 7% of the additional
income; however, if the amounts paid as aforesaid to a pension
benefit fund exceed 12% of his additional income, then in respect
of the part in excess of the said 12% he shall be allowed an
additional deduction that shall not exceed 4% of the additional
income, all on condition that no deduction be allowed under this
paragraph in respect of amounts deposited for the beneficiary
member with a pension benefit fund, the amount of which does not
exceed 16% of the average wage in the economy.
(b2) An amount deducted under subsection (b) is not deductible under
subsection (b1), and vice versa.
(c) An amount deducted under subsection (b) or (b1) shall not be taken into
account for the purposes of section 45A.
(d) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe for particular categories of persons deductions at
rates higher than those said in subsection (b), on conditions and with
restrictions which he shall prescribe,
Deduction for National Insurance and parallel tax payments
47A. (a) If in a tax year an individual paid insurance contributions under the
National Insurance Law [Consolidated Version] 5728-1968 (hereafter:
"the Insurance Law") and parallel tax under the Parallel Tax Law 5733-
1973 (hereafter: "parallel tax") in respect of income that is not work
income, then he shall be allowed a deduction of 52% of the amounts
paid by him, except for supplementary payments under section 179(a) of
the Insurance Law, provided that the deduction does not exceed his
chargeable income before the deduction.
(b) The provisions of subsection (a) shall also apply to an individual whose
employer is not obligated to pay parallel tax for him or to pay National
Insurance contributions for him, and who is obligated to pay them in
respect of his own work income. 71
(c) If an individual's employer is not obligated to pay parallel tax for him and
he himself also is not obligated to pay parallel tax, and also if another
individual is exempt of paying parallel tax, then he shall be allowed to
deduct 52% of the amounts which he paid for health insurance – other
than dental health insurance – to a body designated by the Minister of
Finance after consultation with the Minister of Health, up to the amount
of parallel tax which would have applied to him, had he been obligated to
pay it.
(d) The provisions of this section in respect of the Parallel Tax Law shall
only apply to the period that ends on December 31, 1996.
47B. Repealed
Remuneration and refund of expenses paid to pension counselor as
payments to a benefit fund
47C. (a) The Minister of Finance may prescribe conditions, under which – for the
purposes of sections 3(e3), 17(5a), 45A and 47 – remuneration and the
refund of expenses paid to a pension counselor shall be treated like
payments to a benefit fund; if the Minister of Finance prescribed as
aforesaid, then the conditions, ceilings and restrictions prescribed in the
said sections shall apply, mutatis mutandis, to the remuneration and the
refund of expenses paid as aforesaid.
(b) In this section, "pension counselor" – as defined in the Control of
Financial Services ( Pension Counseling and Pension Marketing) Law
5765-2005.
Credits for residents of an area
48. The Minister of Finance may prescribe, by Order with approval by the Knesset
Finance Committee, that all or some of the provisions of sections 34, 36 and
37 also apply – mutatis mutandis – to some or all residents of an area who are
not Israel citizens, as if they were Israel residents; for this purpose: "area",
"resident of an area" and "Israel citizen" – as defined in section 3A.
Credits for a foreign worker
48A. The Minister of Finance may prescribe that some or all of the provisions of
this
Chapter on credits shall not apply to foreign employees or to categories of
foreign employees designated by him, or that they apply to them partly on
conditions he shall prescribe; for this purpose: "foreign employee" – as
defined in the Foreign Employees (Prohibition of Unlawful Employment and
Assurance of Fair Conditions) Law 5751-1991, even if for purposes of this
Ordinance he is deemed a resident.
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Miss Sahara Kaplan, will attend to you
(in English) at Phone No. +972 3 546 88 88
In case of emergency, call Gabriel Hanner
at his
cellular: +972 50 552 33 33
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