Table of Contents
- Tax Residency
- Income Tax
- Value Added Tax (VAT)
- Property Tax
- Capital Gains Tax
- Filing Requirements
- New Immigrant Benefits
- International Tax Considerations
- Business Taxes
- Tax Compliance and Penalties
Tax Residency
Who is a Tax Resident?
You are considered an Israeli tax resident if you meet any of these criteria:
- Center of Life Test: Your main economic, social, and family ties are in Israel
- 183-Day Test: You spend 183 days or more in Israel during a tax year
- 425-Day Test: You spend 425 days or more in Israel over 3 consecutive years, including at least 30 days in the third year
Implications of Tax Residency
- Residents: Taxed on worldwide income
- Non-residents: Taxed only on Israeli-source income
Income Tax
Tax Rates (2024/2025)
| Income Bracket (NIS) | Tax Rate | Marginal Rate |
|---|---|---|
| 0 - 81,480 | 10% | 10% |
| 81,481 - 116,760 | 14% | 14% |
| 116,761 - 187,440 | 20% | 20% |
| 187,441 - 241,680 | 31% | 31% |
| 241,681 - 647,640 | 35% | 35% |
| 647,641+ | 47% | 47% |
Types of Income Subject to Tax
- Employment income (salary, bonuses, benefits)
- Business income (self-employment, partnerships)
- Investment income (dividends, interest, rental income)
- Capital gains (subject to separate rules)
- Pension and retirement benefits
Common Deductions
- Standard deduction: 2.25 tax credit points (≈ NIS 6,720)
- Spouse deduction: If spouse earns less than NIS 69,840
- Child allowances: Per dependent child
- Education expenses: University tuition, certain courses
- Medical expenses: Exceeding 2.5% of income
- Charitable donations: Up to 35% of income or NIS 8.9 million
- Professional expenses: Work-related costs
- Pension contributions: Subject to limits
Value Added Tax (VAT)
VAT Rate
- Standard rate: 18%
- Zero-rated: Exports, international services
- Exempt: Financial services, education, healthcare, rent
VAT Registration Requirements
- Mandatory: Annual turnover exceeds NIS 101,983
- Voluntary: Can register if turnover exceeds NIS 76,487
VAT Compliance
- Monthly returns: Due by 15th of following month
- Bi-monthly returns: Available for smaller businesses
- Annual returns: Summary return due by January 31st
Property Tax
Arnona (Municipal Tax)
- Based on: Property size, location, usage
- Rates: Vary by municipality
- Payment: Bi-monthly or annual
- Discounts: Available for seniors, disabled, new immigrants
Purchase Tax
- Residents buying first home: 0-10% depending on value
- Residents buying additional property: 8-10%
- Non-residents: 8-10%
- Investment properties: Additional 3% surcharge
Capital Gains Tax
Real Estate
- Residents: 25% on gains (with indexation adjustments)
- Non-residents: 25% on gains
- Primary residence exemption: Available for main home
- Betterment tax: Additional municipal tax on appreciation
Securities and Financial Assets
- Listed securities: 25% for residents, 30% for controlling shareholders
- Non-listed securities: 30%
- Foreign securities: Subject to tax treaties
Filing Requirements
Annual Income Tax Return
- Due date: May 31st (can be extended to November 30th with advance payment)
- Who must file:
- Self-employed individuals
- Multiple income sources
- Foreign income recipients
- Annual income over NIS 647,640
Required Documents
- Form 1301: Individual income tax return
- Supporting documents: Pay slips, bank statements, receipts
- Foreign income reports: If applicable
- Asset declarations: For substantial foreign assets
Electronic Filing
- Online system: Available through Israel Tax Authority website
- Digital signature: Required for electronic submission
- Tax software: Approved programs available
New Immigrant Benefits
10-Year Tax Exemption
New immigrants (olim) receive significant tax benefits:
- Foreign income: Exempt for 10 years
- Foreign assets: No reporting requirements initially
- Gradual phase-in: Partial taxation in years 4-10
Returning Resident Status
- 5-year absence: May qualify for returning resident benefits
- Reduced benefits: Typically 5-year exemption period
Requirements
- New immigrant visa: Must have official oleh status
- First-time residency: Cannot have been Israeli resident before
- Timely election: Must file proper forms within deadlines
International Tax Considerations
Tax Treaties
Israel has tax treaties with over 50 countries to prevent double taxation:
- Reduced withholding rates: On dividends, interest, royalties
- Tie-breaker rules: For dual tax residency
- Mutual agreement procedures: For dispute resolution
Foreign Tax Credit
- Credit for foreign taxes paid: Against Israeli tax liability
- Limitations: Cannot exceed Israeli tax on foreign income
- Documentation: Foreign tax certificates required
Controlled Foreign Corporation (CFC) Rules
- 10% ownership threshold: In foreign corporations
- Passive income attribution: Subject to current taxation
- Exemptions: Operating companies in treaty countries
Business Taxes
Corporate Tax Rate
- Standard rate: 23%
- Small businesses: Reduced rates for qualifying companies
- Preferred enterprises: Various incentive programs available
VAT for Businesses
- Standard rate: 18% on most goods and services
- Input VAT: Deductible on business purchases
- Output VAT: Charged on sales
- Monthly returns: Required filing and payment
Employment Taxes
- Income tax withholding: Employer responsibility
- National Insurance: Employee and employer contributions
- Pension contributions: Mandatory employer contributions
Tax Compliance and Penalties
Late Filing Penalties
- Income tax returns: 1,260 NIS plus 0.5% monthly interest
- VAT returns: 860 NIS plus 1% monthly penalty
- Severe delays: Additional penalties up to 5% of tax due
Late Payment Interest
- Current rate: Updates quarterly based on Bank of Israel rate
- Compound interest: Calculated monthly
- Payment plans: Available for qualifying taxpayers
Tax Audits
- Statute of limitations: Generally 4-6 years
- Documentation requirements: Must maintain records for 7 years
- Professional representation: Recommended for complex cases
Important Deadlines Calendar
Monthly
- VAT returns: 15th of following month
- Payroll taxes: 15th of following month
Quarterly
- Advance tax payments: March 31, June 30, September 30, December 31
Annual
- Income tax returns: May 31 (extensible to November 30)
- Annual VAT summary: January 31
- Annual employment reports: March 31
Getting Professional Help
When to Consult a Tax Advisor
- Complex situations: Multiple income sources, foreign assets
- Business planning: Entity selection, tax optimization
- Compliance issues: Audit representation, penalty appeals
- International taxation: Cross-border transactions, treaty benefits
Types of Tax Professionals
- Certified Public Accountants (CPA): Licensed for all tax matters
- Tax consultants: Specialized in tax planning and compliance
- Lawyers: For complex legal issues and disputes
Resources and Contacts
Israel Tax Authority
- Website: www.gov.il/en/departments/israel_tax_authority
- Phone: *4954 (from Israel), +972-2-5656400 (international)
- Service centers: Located in major cities
Important Forms
- Form 1301: Individual income tax return
- Form 1322: New immigrant election form
- Form 1325: Foreign resident declaration
Disclaimer
This guide provides general information about Israeli tax obligations and should not be considered as professional tax advice. Tax laws are complex and subject to frequent changes. Individual circumstances vary significantly, and specific situations may have unique requirements or opportunities.
It is strongly recommended to consult with a qualified Israeli tax professional or certified public accountant for:
- Specific tax planning and compliance advice
- Complex transactions or international tax matters
- Representation in tax disputes or audits
- Current updates to tax laws and regulations
The information in this guide is based on tax laws and regulations as of 2024/2025 and may become outdated as laws change. Tax rates, including VAT rates, are subject to periodic adjustments by the Israeli government.
Last updated: July 2025