Accounting Outsourcing and
Tax compliance in Israel

Israel – Accounting Outsourcing and Tax Compliance

Global Expansion Plus provides accounting outsourcing and tax compliance in Israel. We provide services with the support of our local accountants and tax specialists. We will perform bookkeeping, accounting, and filing a tax return on your behalf bearing all associated compliance risks. Every state will put in place a tax system to raise revenue. Israel is no different. Whether a resident or a non-resident, individual or corporate, there is the need to understand taxation in Israel. Otherwise, you are bound to get on the wrong side of the law.

Isreal in facts

  • Location: Middle East
  • Territory: 20,770 square kilometers
  • Capital: Jerusalem
  • Official language: Hebrew
  • Currency: New shekel (ILS)
  • Population: 9,19 million

Corporate income tax (CIT) in Israel

The standard corporate income tax in the year 2020 is equal to 23%. Isreal has ratified the Encouragement of Capital Investment Law that for many businesses and industries provides a reduced CIT rate.

Standard preferred enterprise

Companies with more than 75% of foreign investment that work in the research and development in the development area “A” are called preferred enterprise. The CIT rate for such companies is reduced to 7,5%.

Special Preferred Enterprise

Legal entities need to have a qualifying investment program to obtain the Special Preferred Enterprise status. Companies with Special Preferred Enterprises status apply CIT rate of 5% for the activities in the development area “A” and 8% for the businesses outside the development area “A.”

Special Preferred Technology Enterprise

The third special regime applies to the companies involved in the development of intellectual property on Israeli territory. Many qualification requirements and rules are allied to companies with special preferred technology Enterprise. The CIT rate for such companies is 6%.

Value-added Tax (VAT) in Israel

The standard VAT rate in Isreal is 17%. Some goods and services that have a strategic nature are zero-rated, while others are VAT exempt.
Companies in the financial sector, like banks, are paying VAT like a tax on their total payroll in the amount of 17%. The not-for-profit organization also pay 7,5% of total payroll cost/

Personal Income tax (PIT) in Israel

Personal income tax is presented at a progressive rate of starting from 10% ending with 50%. An increase tax rate is applied to the amount over the set limit. The resident employees are taxed on the same scale as the non-residents. Below is the table of tax rates and income brackets for the year 2020.
  • Under ILS 75,960 - 10%
  • Between ILS 75,960 and ILS 108,960 | ILS 75,960*10% = ILS 7,596 | 14%
  • Between ILS 108,960 and ILS 174,960 | ILS 7,596 + ILS 33,000*14%= ILS 12,216 | 20%
  • Between ILS 174,960 and ILS 242,120 | ILS 12,216 + ILS 66,000*20%= ILS 25,416 | 31%
  • Between ILS 242,120 and ILS 505,920 | ILS 25,416 + ILS 67,160*31%= ILS 46,545 | 35%
  • Between ILS 505,920 and ILS 651,600 | ILS 46,545 + ILS 263,800*31%= ILS 138,525 | 47%
  • Over ILS 651,600 | ILS 138,525+ ILS 145,680*31%= ILS 206,995 | 50%
The Israeli tax legislation also distinguishes income arriving from the passive activity like rental income or interest income and income coming from employment and personal business activity. The staring rate for the passive income for individuals under the age of 60 is 31%.

Withholding tax in Israel

The ground rule of the Israeli tax system withholds that tax the defined rate from each profit distribution that is going abroad unless there is a double taxation treaty signed between Israel and the receiving country.
Withholding tax applies to dividends, interest, and royalties and subject to and taxed at the payment.
Dividents between legal residents of Israel are exempt from WHT, dividends paid by the foreign subsidiary to Israeli holding company are taxed at 23%. Israeli residents that are receiving dividends are taxed at 25% if the individual holds more than 10% of the company. The tax rate is increased to 30%.
Interest income earned by the Israeli companies pays to withhold tax of 23%. Individuals are paying 25 from their interest income to the government of Israel.
The standard withholding tax for the interest income is 15%. Individuals are paying 35% of tax if they are not holding a substantial interest in the company. If the individual holds a significant interest, the rate is increased by up to 47%.

Payroll-Related Taxation in Israel

Israeli employees are paying personal income tax from their employment remuneration. Please refer to the progressive rates of the income tax.
Besides, there are many social and pension contributions paid both by the employer and the employee.

Employer’s national insurance contributions

Employers pay national insurance contribution monthly; the payment is made on a progressive scale outlined below:
  • Salary and wages up to ILS 6,331 – 3,55%;
  • Salary and wages between ILS 6,331 and ILS 44,020 - 7.6%
  • Salary and wages above ILS 44,020 are not taxed.
Employees are paying national insurance contribution at a lower rate:
  • Salary up to ILS 6,331 – 0,4%;
  • Salary between ILS 6,331 and the maximum amount of ILS 44,020 – 7%;
  • The amount of salaries over ILS 44,020 is not taxed;

Non-employers pay national insurance contributions every month. The payment is made on the progressive scale outlined below:

  • Salary and wages up to ILS 6,331 – 0,59%;
  • Salary and wages between ILS 6,331 and ILS 44,020 - 2.65%
  • Salary and wages above ILS 44,020 are not taxed;
Non-resident employees are paying a lower rate on national insurance contribution:
  • Salary and wages up to ILS 6,331 – 0,04%;
  • Salary and wages between ILS 6,331 and ILS 44,020 - 0.87%;
  • Salary and wages above ILS 44,020 are not taxed;

Health insurance contribution

Employees pay health insurance contribution in the amount of:
  • Salary and wages up to ILS 6,331 – 3,10%;
  • Salary and wages between ILS 6,331 and ILS 44,020 - 5%;
  • Salary and wages above ILS 44,020 are not taxed;

Import/ Export related taxation in Israel

Custom duty

Goods and products entering Israel are subject to customs duty. Israel has a Harmonised Customs Tariff for each category and type of product. Israel also has a free trade agreement with the European Union, the United States, Canada, and Mexico.

Excise taxes

Products like alcohol, tobacco, fuel and gasoline are subject to the excise taxes. The excise tax rate varies a lot according to the
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