Taxation in Israel on employees and companies

Individual Tax

Tax Rates

The ordinary marginal income tax rates on earned income for tax year 2020, per individual, are as follows:

The rates depend on various factors, such as whether the individual is: over age 60, a 10% shareholder or more, different rental income tax tracks, etc.

Credits for Tax Year 2020

Tax Credits:

A tax credit is a direct decrease of the calculated tax liability.

Credit Points

1. a) Each resident is entitled to credit points (2¼ for a male; 2¾ for a female). Each credit point is 2,628 NIS (as of 2020).

2. b) Child credit – Parents are allowed between 1 to 2.5 credit points for each child between ages 0-18. The credit point amounts vary between the mother and the father.
3. c) Oleh chadash – credit points as follows:

3 credit points for end 18 months from date of Aliyah.
2 credit points for the next 12 months.
1 credit point for the next 12 months.

1. d) Other points for post-graduation, single mother, disabled child or single parent, released soldiers, etc.

National Insurance (Social Security] including Basic Health Insurance
Current rates of National Insurance for employees, including health insurance and Bituach Leumi contributions (as of Jan 2020, in NIS)

Employment in Israel-Salary Package:

Below is a list of salary package an employee is entitled to get from his employee:

• Base salary
• Travel allowance (up to ceiling required by law)
• Annual vacation leave (up to number of days required by law and fixed by seniority)
• Sick leave-18 days per year up to 90 days cumulative
• Religious Holidays-as required by law
• Severance pay-one month’s salary for each year worked.
• Pension-As required by law; Since 2008, employers are required to fund a pension with equal contributions from the employer and employee. The stipulated minimum pension fund contributions is 18.5% of gross salary. The employer generally pays 6.5% towards pension funding and 6% towards severance funding. The employee pays 6% towards pension funding.

• Training Fund -Voluntary fund; The employer contributes 7.5 % of the base salary while the employee contributes 2.5 % of base salary (up to a maximum of salary as published for the specific year). The employer’s contribution is not taxable to the employee and the fund is not taxed on any income generated. After three years, the employee can withdraw all the contributions tax free if used for professional education. After six years, the contributions can be withdrawn tax free and used for anything.
• Car– It is not unusual for large companies to provide cars to certain management positions.  Hi tech companies do likewise for technicians.  The company purchases or leases the car and pays all expenses, including gas and maintenance.  It can deduct expenses and claim back 2/3rds of the VAT.   The employee is required to pay tax on the “benefit”.  The “benefit” is a fixed monthly amount based on the size of the car for old cars.  For cars purchased from 2010 and on, calculated as a percentage and price of the car.

Corporate Tax

Filing Status

A corporation is deemed to be subject to Israeli taxes if its activities are managed and controlled within the State of Israel or established under its laws.  A domestic corporation is subject to taxation on its worldwide income. A foreign corporation with an Israeli subsidiary is only taxed on Israel based income.

Tax Rates

In 2020, the corporate rate was reduced to 23%.  Dividends from the company to an individual are taxed at rates ranging from 25% to 33%.

VAT

Value-Added Tax (VAT) in Israel, is applied to most goods and services, including imported goods and services. As of 1 October 2015, the standard was lowered to 17%, from 18%.  Certain items are zero-rated which includes exported goods and the provision of certain services to non-residents.

We will be happy to give more details on the issues listed above.

Sincerely,
Ben Shmuel
Certified Public Accountants