Israel Tax 

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Israel Tax Laws and Regulations

Dealing with tax, payroll, and employment regulations for your staff from overseas is always a tricky process and poses complications that demand expert guidance. Israel is no exception and having experts in place will remove the demands of complying with both tax and social security regulations.

With over 20 years’ experience in the front rank of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law across the globe. Our ‘knowledge’ is vital for foreign companies expanding into Israel.

By using our PEO-service, we will take care of the complicated legwork so that you can focus on your business goals. Bradford Jacobs’ dedicated specialists remove the burdens of worrying about these complications while you focus on building your business in a new territory.

We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. Our guide unravels the ‘red tape’ surrounding taxation and highlights how Bradford Jacobs will assist your company with untying the knots – and avoiding the hazards!

Overview of Taxes in Israel

  • Personal Income Tax: Taxable income up to ILS 75,480 (€20,937, US$23,692)) - 10.0%; Six further rates up to ILS 647,640 (€179,653, US$203,285) - 14% to 50% (50% rate include 3% surtax on top rate); Minimum rate applying to some passive income - 31.0%

  • Social Insurance Taxes: Resident employees’ contribution - Monthly income up to ILS 6,331 (€1,756, US$1,988) - 0.4%; Monthly income above ILS 6,331 - 7.0%; Up to a maximum of ILS 44,020 (€12,215, US$13,826)

    Non-resident employees’ contribution - Monthly income up to ILS 6,331 (€1,756, US$1,988) - 0.04%; Monthly income above ILS 6,331 - 0.87%; Up to a maximum of ILS 44,020 (€12,215, US$13,826).

    (Employer's contributions below)

  • Health Insurance Tax: Monthly income up to ILS 6,331 (€1,756, US$1,988) - 3.10%; Monthly income above ILS 6,331 - 5.00%; Up to a maximum of ILS 44,020 (€12,215, US$13,826). Non-residents do not pay Health Insurance Tax.

  • Corporate Income Tax (CIT): The rate of 23% applies to companies incorporated in Israel and foreign companies with a presence in Israel.

  • Capital Gains Tax (CGT): Generally applied at 25% although can be levied at 30% in certain circumstances.

  • Value Added Tax (VAT): The standard rate is 17% applied to most goods and services. Exported goods and certain services are exempt.

Israel Individual Tax – Single Married

Married couples in Israel may file joint or separate tax returns. They can expect to be taxed on their worldwide income if they reside in Israel for 183 days or more in one tax year, or a combination of 30 days in the current year and 425 days in the previous two years, although the Israel Tax Ordinance offers these parameters only as guidelines.

The tax year runs from January 1 until December 31 and returns should be filed by April 30 of the following year, or May 31 if filed online.

Personal Income Tax rates for 2021:

  • 0 - ILS 75,480 (€20,937, US$23,692) : 10%
  • ILS 75,480 - ILS 108,360 (€30,058, US$34,012) : 14%
  • ILS 108,360 - ILS 173,880 (€48,233, US$54,578) : 20%
  • ILS 173,880 - ILS 241,680 (€67,041, US$75,860) : 31%
  • ILS 241,680 - ILS 502,290 (€139,333, US$157,660) : 35%
  • ILS 502,290 - ILS 647,640 (€179,653, US$203,285) : 47%
  • Over ILS 647,640 : 50%

Employee Social Insurance Contributions:

  1. Resident employees’ contribution:
    - Monthly income up to ILS 6,331 (€1,756, US$1,988) 0.4%
    - Monthly income above ILS 6,331 7.0%
    - Up to a maximum of ILS 44,020 (€12,215, US$13,826).

  2. Non-resident employees’ contribution
    - Monthly income up to ILS 6,331 (€1,756, US$1,988) 0.04%
    - Monthly income above ILS 6,331 0.87%
    - Up to a maximum of ILS 44,020 (€12,215, US$13,826).

Israel Individual Tax Rules

  • The tax year runs from January 1 to December 31.
  • Married couples may file joint or individual tax returns.
  • Employees (including resident foreigners) whose taxes and social security contributions are deducted at source by their employer need not file a tax return unless they exceed specified salary limits.
  • In other cases, returns should be filed by April 30 of the following year, or May 31 if filed online.
  • Expatriates subject to withholding tax can file individual returns on years of arrival and departure to benefit from possible tax allowances.
  • Individual tax residents must file a tax return if their salary exceeds ILS 647,640 (€179,653, US$203,285) when they must pay 3% surtax, regardless of deductions taken at source, bringing a 50% maximum income tax rate.
  • Individual tax returns must be filed if rental, foreign income, or foreign pension income exceeds ILS 337,000 (€93,627 US$105,850).
  • The Israel Tax Office defines residency on whether an individual’s ‘center of life’ is in Israel and provides general guidelines. An individual may be considered a tax resident if they are present in Israel for a minimum 183 days in a tax year, or a combination of 30 days in the current tax year and 425 days in the two previous years.
  • All Israeli residents pay tax on their worldwide income. Non-residents are taxed at the same rates as Israel residents on their Israel-sourced income and capital gains from assets.
  • Deductions and contributions are remitted to the authorities by the 15th of the following month.
  • Employers calculate monthly salary and tax contributions and complete the monthly Form 102, verify calculations before then submitting the year-end Form 126 to the authorities.
  • Accounts are regulated by the Israeli Accounting Standards Council and accounts must include a balance sheet, income statement, cash flow account and owning company’s equity account.

Israel Social Security and Statutory Contributions

Employer Payroll Taxes are as follows:

  • Social Insurance: Employers must contribute towards social insurance on behalf of their employees. Employers contribute the equivalent of 3.55% of salary up to ILS 6,331 (€1,756, US$1,988) per month, and 7.6% above that amount to an earnings limit of ILS 44,020 (€12,215, US$13,826). In the case of non-resident employees, the employer contributes 0.59% and 2.65% within the same parameters of earnings. This can be seen further below:

    Employers’ contribution for resident employees
    - Monthly income up to ILS 6,331 (€1,756, US$1,988) : 3.55%
    - Monthly income above ILS 6,331 : 7.6%
    (Up to a maximum of ILS 44,020 (€12,215, US$13,826))

    Employers’ contribution for non-resident employees
    - Monthly income up to ILS 6,331 (€1,756, US$1,988) : 0.59%
    - Monthly income above ILS 6,331 : 2.65%
    (Up to a maximum of ILS 44,020 (€12,215, US$13,826)).

  • Minimum Wages: Employers must comply with meeting minimum wage requirements, whether they are set by the state or collective agreements. The minimum an employee can be paid in 2021 is ILS 5,300 (€1,497, US$1,680) per month or an hourly rate of ILS 29 (€8.20, US$9.20), with planned increments until 2025. The minimum rate will be ILS 5,400 (€1,525, US$1,713) for 2022 rising to ILS 6,000 (€1,696, US$1,903) by December 2025.

Israel Corporate Taxes

Israel’s corporate taxes include:

Corporate Income Tax (CIT): The rate of 23% applies to companies incorporated in Israel and foreign companies with a presence in the country. Resident entities are liable for taxation on their worldwide income, with non-resident companies liable only on their Israel-sourced income. There are no local taxes on corporate income.

Value Added Tax (VAT): The standard rate is 17% applied to most goods and services and records must be kept for seven years and updated every quarter. Exported goods and certain services are exempt. These include some tourism services, sale of fruit and vegetables, financial services, and non-profit organizations, although these can be liable for a wages and profits tax.

Other Taxes: Capital Gains Tax (CGT) is generally applied at 25% but can be levied at 30% in some circumstances. Municipal taxes apply to property while capital gains tax can apply under the Land Appreciation Tax Law. Israel does not have Wealth, Inheritance, Estate or Gift taxes.

Corporate Deductions and Capital Allowances:

The Israel Income Tax Ordinance sets out regulations for yearly depreciation rates on industrial and other enterprises. Capital allowances can be permitted on start-up expenses, pension fund contributions, directors’ fees, and bad debt. Tax credits and relief can apply to charitable contributions, research, and development.

Avoid risks – make the right move

Israel’s tax regulations demand expert advice for incoming foreign companies. Businesses cannot risk stumbling into mistakes over payroll and taxation, with the threat of fines and sanctions. Do not waste time worrying about your move into Israel – contact us today!