1.Ministry
of Finance
(a) Economic Research and State
Revenue Administration
The Economic Research and State
Revenue Administration has two
duties: dealing with tax policy,
and providing the Ministry of
Finance with macroeconomic
consulting services. In tax
policy, it has various duties:
advising the Minister of Finance
and his official in matters of tax
policy; formulating a
tax-collection forecast in the
course of preparing the state
budget; monitoring tax collection
and the implementation of tax
policy during the year; and initiating
and promoting
proposals for changes in the tax
system as part of the government's
economic policy, including the
handling of tax legislation. The
Administration is also in charge
of tax research and provides the
public with current information on
tax collection. The Administration
coordinates the interministrial committee on government offices'
fees. It conducts discussions with
other governments to conclude
double-taxation treaties (see
Appendix). Finally, the
Administration monitors
macroeconomic developments,
advises the Ministry
administration in this regard, and
publishes information on the
topic.
(b)
Income Tax and Property Taxation
Division
The Division collects direct
taxes, property taxes, and Value
Added Tax from nonprofit
organizations and financial
institutions.
The Division is headed by Income
Tax Commissioner. The Division has
twenty seven regional assessors'
offices, nine regional
property-tax offices, four
investigation offices, and three
bailiffs' units. The Income Tax
Commission is composed of staff
departments headed by the Vice
Commissioner and deputy
commissioner who are in charge of
operations in their spheres of
responsibility. The departments
are Administration and
Organization, Assessments and
Economics, Investigations,
Professional Division, Legal
Division, Deductions system,
Collections and Intelligence,
Property Taxation, Internal
Auditing and Bookkeeping, and
Bailiff's Service.
The Division operates on the basis
of laws, regulations, and
directives including the Income
Tax Ordinance, the Property Tax
and Compensation Fund Law, laws
that encourage specific economic
activities (such as the
Encouragement of Capital
Investments Law), and the Tax
(Collection) Ordinance, to name
only a few.
In 1998, individual taxpayers
filed 368,000 tax returns
(including 50,000 employees and
85,000 corporate managers who are
required to file returns), as did
111,000 corporations (including
75,000 going concerns).
In 1998, the Division had 3,052
permanent employees and used 6,225
month of temporary labor.
(c) Customs and Value Added Tax
Division
The Customs and Value Added Tax
Division collects indirect taxes
on goods and services (with the
exception of VAT on nonprofit
organizations and financial
institution). The Division is also
in charge of applying and
enforcing import rules. It derives
its powers mainly from the Custom
Tariffs and Exemptions Ordinance
and the Customs and Excise Taxes
(Modification of Tariffs) Law,
among other statuses.
Changes in customs tariffs are
made by means of orders that the
Minister of Finance is authorized
to issue. Under certain
conditions, these orders require
approval of the Knesset Finance
Committee.
The Division is composed of an
administration and following field
units: seven customs houses,
seventeen VAT and purchase-tax
units, and five investigation
units. In 1998, the Division's
labor force (1,700 permanent
employees and 3,400 month of
temporary labor) handled some
350,000 businesses.
(d) Computer Service System
(Shaam)
The Computer Service System is
auxiliary unit of the Finance
Ministry, subordinate to the
Economic Research and State
Revenue
Administration, that develops and
manages computer information
systems that serve the Ministry
and its tax divisions.
The Division has 2,000 employees.
It is composed of an
administration and the following
field units: seven customs houses,
seventeen VAT and purchase-tax
units, and five units for
investigations.
2.Additional
Government Offices that Engage in
Collection
In addition to the Ministry of
Finance, various government
ministries - Transport, Justice,
Interior, etc. - apply and collect
fees. The main fees pertain to
driving and motor and motor
vehicles, court fees and fines,
and so on. Most of the revenues
from these fees are routed to the
state budget; a smaller pertain is
earmarked for the ministries that
collected them. All fees require
the approval of the Minister of
Finance and the relevant Knesset
committee before they are set. The
Minister of Finance approves
changes in fees after that are
discussed by an interministrial committee headed by the Director
of the Economic Research and State
Revenue Administration.
(a) National Insurance Institute
The national Insurance Institute
collects compulsory payments under
the National Insurance Law
(Consolidated Version), 5755 -
1995, and the taxes set forth in
the State Health Insurance Law,
5754 - 1994. The Institute is
supervised by the Minister of
Labor and Social Affairs, who
implements the National Insurance
Law and is authorized to introduce
regulations based on it.
The Minister heads the
fifty-member National Insurance
Council, in which labor
organizations, management
organizations, government
ministries, and the public are
represented. The Administration is
the managing and executive
authority of the National
Insurance Institute. The Institute
has nineteen branches and sixty
sub-branches countrywide. It had
3,300 employees in 1998.
(b) Municipal Authorities
Municipal authorities collect municipal
property taxes, fees,
and betterment charges for
properties in their areas of
jurisdiction. Each authority has
its own tax administration.
(c) Other Statutory Entities
Additional statutory entities,
such as the Israel Broadcasting
Authority and the Ports and
Railroads Authority, are
allowed to charge various fees and
duties. This chapter does not
discuss these payments
A. Income
Tax and Property Tax Division
1. Income Tax and Capital Gains Tax
Four types of taxes apply to income
and capital:
(a) income
tax;
(b) capital-gains
tax;
(c) payroll
tax;
(d) property
taxes.
(1)
Personal Income Tax
Personal income tax is computed in
the following way; of all the
taxpayer's income from all sources,
tax-exempt income and deductions
(including allowable expenses) bare subtracted
and (for the
self-employed only) losses are
offset. On the remaining income,
i.e., the taxable income, the tax
function (brackets, rates, etc.,) is
applied and the tax liability is
obtained. Credits are subtracted from the tax liability. The
remainder is personal income tax.
Tax Base
Personal income tax is imposed on
individuals' taxable income that was
accrued in, derived, or received in
Israel from
the following sources:
1. ...work income, including income
from a salary, a business, a
vocation, various types
...... allowances, and additional
income originating in taxpayer's
past work. Income derived
...... from abroad is not liable to
personal income tax in Israel unless
it is received in Israel and
...... unless the taxpayer practices
the same vocation in Israel or was
sent abroad by an Israeli
...... employer;
2. ...non-work (passive) income,
including income from interest and dividends, property rental,
...... royalties, and so on;
3. ...income from a random
transaction.
All individuals are assessed as
separate units, on the condition
that the sources of the spouses'
earned income are not
interdependent. When interdependence
in source of income is present, the
spouses are taxed jointly.
Main Types of Tax-Exempt Income
1. ...Work income of the blind and
the disabled up to NIS 38,100 per
month, and unearned
...... income up to NIS 4,560 per
month.
2. ...Benefits from the Ministry of
Defence and National Insurance
Institute (except for
...... maternity allowances and
unemployment compensation).
3. ...Interest on saving plans.
4. ...Gains from the sale of
securities - unless they are the
income of a business or derived
...... from a random transaction of
commercial nature.
5. ...Employers' contributions to
employees' advanced-training funds,
at 7.5 percent, are
...... tax-exempt from the
employee's standpoint up to a
maximum wage of NIS 14,400 per
...... month. If the employer's
contributions are kept with the
found for six years without
...... interruption, or for a
shorter period that they are
withdrawn for specific purposes
...... stipulated in the law (e.g.,
study), the withdrawal (including
indexation differentials,
...... interest, and other gains) is
tax-exempt.
6. ...Withdrawals of employer's
contributions from provident funds.
7. ...Withdrawals from provident
funds for severance pay confer a tax
exemption for one
...... month's income per year of
work up to an income ceiling of NIS
9,190 per year of work.
...... In cease of death, the
exemption ceiling for severance pay
is doubled.
8. ...Withdrawals from pension funds
are tax-exempt on 35 percent of the
pension up to a
...... qualifying allowance ceiling
of NIS 6,300 per month. The
non-exempt is taxable
...... at regular rates.
9. ...Lottery winnings and prizes
from parties other than employers.
Deductions from Income
1. ... Employer's allowable expenses
- 8.33 percent of pension-base
income that is deposited
...... with a severance-pay fund and
5 percent of income deposited with a
provident fund, or 6
....... percent deposited with a
pension fund. In the event of
benefit-type contributions, the tax
...... benefit is limited to a
qualifying income ceiling of NIS
9,200 per month.
2. ... For wage income that does not
continue a pension base, employees
who contribute to
...... provident funds are given a 5
percent deduction on income up to a
qualifying income
...... ceiling of NIS 9,200 per
month.
3. ... Self-employed taxpayers who
contribute to provident are given a
7 percent reduction on
...... income up to a qualifying
income ceiling of NIS 9,200 and up
to 11 percent of income
...... (up to the aforementioned
ceiling) for contributions to
pension funds.
4. ... Allowable expenses that are
incurred in order to produce income
- e.g., depreciation,
...... motor-vehicle expenses, per
diem, and research and development -
are tax-exempt.
...... A small portion of employees'
expenses are allowable.
5. ... Personal health-insurance
premiums (not including dental
insurance) are tax-exempt.
6. ... 52 percent of national
Insurance contribution expenses of
self-employed are tax-exempt.
7. ... In 1996, contributions to
advanced-training funds for the
self-employed became tax-
...... deductible. The rate of the
benefit has risen gradually and
peaked in 1998, when,
..... 7 percent of income could be
set aside (up to a ceiling of NIS
196,000 per year) at a
..... deduction of 4.5 percent.
Personal
Income - Tax Rates and
Brackets-Monthly Income, 1999
(NIS and Percent)
|
Tax
Bracket
|
Monthly
income
|
Percent
|
|
|
Minimum
(NIS)
|
Maximum
(NIS)
|
|
|
(1)
|
0
|
1,920
|
10
|
|
2)
|
1,921
|
3,830
|
20
|
|
(3)
|
3,831
|
10,100
|
30
|
|
(4)
|
10,101
|
18,300
|
45
|
|
(5)
|
18,301
|
18,301
and above
|
50
|
These brackets and rates apply only
to earned (work) income.Unreaded
taxable income is taxed at an
initial rate of 30 percent and
thence at the other brackets that
apply to the taxpayer's earned
income (45 percent and 50 percent)
after the earned and unearned
incomes are added together. Other
kinds of unearned (passive) income
are taxed at a limited uniform rate.
For example, dividend income and
income derived from abroad are taxed
at 25 percent and interest on bonds
and capital gains from the sale of
foreign securities are taxed at 35
percent.
Since the 1995 fiscal year,
individuals who have reached the age
of 60 have paid an initial tax rate
of 10 percent on all types of income
(earned and other). Their remaining
income is taxed at the regular rates
shown in Table VI-1.
Limited Tax Rates
The types of income listed below are
taxable at rates irrespective of the
tax brackets that apply to the
taxpayer's other income:
1. ... Income from dividends of
publicly-owned corporations - 25
percent.
2. ... Income from dividends of
Approved Enterprises under the Encouragement
of Capital
....... Investments Law - 15
percent.
3. ... Income up to NIS 6,870 per
month from rental of dwellings to
individuals is
....... tax-exempt. Income exceeding
this sum is subtracted from the sum
of the exemption
....... sum. In other words, the tax
exemption ceiling of NIS 6,870 per
month. Accordingly,
....... a monthly income from
residential rental that exceeds NIS
13,740 per month us taxable
....... at the regular income-tax
rates, with an initial bracket of 30
percent.
4. ... If a dwelling is rented to a
corporation for which the Income Tax
Commissioner has not
....... approved the aforementioned
exemption, the rent income is liable
to a tax rate of 10
....... percent. The income ceiling
that creates an entitlement to the
reduced tax rate of 10
....... percent is NIS 6,800 per
month. If the rate income exceeds
this sum, the entire rent
....... income taxed at the regular
income-tax rates, with an initial
rate of 30 percent.
5. ... Under certain conditions,
key-money income of individuals and
corporations is taxed at
....... a limited rate of 35
percent.
6. ... Mutual funds and foreign
securities - see section from and
reductions on capital-gains tax.
Tax Credits
Most credits are given in the form
of credit points, sometimes up to a
credit ceiling or a qualifyinf-income
ceiling, but
never greater than the pre-tax
liability. Each credit point is
worth NIS 165 per month in 1999, and
starting January 1, 1997,
credit points are adjusted on J
Since January 1, 1997, credit points
are adjusted on January 1 of each
year.
... The credits are listed below:
|
1.
|
Every
Israel-resident taxpayer is entitled to 2.25 credit points.
|
|
2.
|
Since
fiscal year 1996, women have been entitled to a further half
credit point.
|
|
3.
|
Married
persons with non-working spouses are entitled to an additional
credit point.
|
|
4.
|
Working
mothers of children under 18 are entitled to one additional
credit point for each child. They are
entitled to only half a credit point per child during the year
of the child's birth, and in the year in which
the child reaches age 18.
|
|
5.
|
Newly arrived immigrants are entitled to three additional credit
points in their first eighteen months in the
country, two additional credit points in the following year, and
one credit point in the next successive year.
|
|
6.
|
Individuals
with dependent children (divorcees, widows/widowers, and
single-parent families) are entitled to one
additional credit point on the grounds of being the heads of
single-parent families.
|
|
7.
|
Contributions
o provident funds, made out of wage income that is included in
the taxpayer's pension base, confers
a tax credit of 35 percent. The contribution is limited to 5
percent of qualifying income up to NIS 9,200 per month.
|
|
8.
|
Contributions
to provident funds from wage and work income that is not
included in the taxpayer's pension base give
the worker (employee or self-employed) a tax credit of 25
percent of the contribution not taken into account for
deduction.
|
|
9.
|
Charitable
donations are given a 35 percent credit up to 30 percent of
taxable income or NIS 451,000 whichever is lower.
The smallest allowable contribution is NIS 350. If the donor is
eligible for a deduction on account of research and
development expenses, the combined deduction and credit shall
not exceed 50 percent of his/her taxable income.
|
|
10.
|
A 15
percent tax credit is given for shift work, up to a maximum
credit of NIS 700 per month. However, the credit is not
awarded for the portion of the shift wage that, after added to
the regular wage, results in a monthly income exceeding
NIS7,960.
|
11. Residents
of specific localities are given tax credits irrespective of where the
income is derived from
Specific Localities and Income-Tax Credits and Reductions
(NIS and Percent)
|
Locality
|
Migdal
ha-'Emeq
|
Ofaqim,Safed,
Tiberias, Karmiel, Sederot, 'Arad, etc.
|
Misc
localities, mainly over the Green Line
|
Yeroham,Mitspe
Ramon,
Eilat
|
Northern
border localities (except Qiryat Shemona)
|
Qiryat
Shemona
|
|
Rate of
reduction (%) (2)
|
3
|
5
|
(3)
|
10
|
15
|
20
|
|
Maximum
qualifying income
|
NIS
6,935 per month
|
NIS
6,535 per month
|
NIS
6,935 per month
|
NIS1
10,100 per month
|
without
a ceiling
|
NIS
179,400 per year(4)
|
Notes
to the table:
|
1.
|
Residents
of Eilat also receive a credit for taxable income from a
business or vocation on account of income
generated in the Eylot area. Residents of Eilat can chose between
this benefit, or instead get 7% credit up to
a ceiling of NIS 10,100 income. Residents of Mitspe Ramon are eligible
to chose as an alternative a 25% reduction
for income (excluding dividends, interest, capital gains, and
income originating in real estate) derived in and near
Mitspe Ramon. The maximum credit is NIS 3,360 per month. In this
alternative, there are special rules for calculating
tax reductions
|
|
2.
|
The
tax reduction is a credit set at a certain percent of taxable
income as shown in the table
|
|
3.
|
In
most localities where a 7 percent reduction is offered, it is
also given to "teaching workers"
and "medical workers" who produce most of their earned
or vocational income in these localities,
even if they do not dwell there. People who practice these
occupations in Beit She'an or Qiryat
Shemona are also entitled to the 7 percent reduction even if
they do not live there
|
|
4.
|
A
discount of only 10 percent is given for income exceeding this
limit
|
Personal Earned
Income Tax, 1996 - 1999;Upper Limits of Brackets, Value of Credit Point,
and Tax Threshold,
and Ceiling of Benefits (NIS, current prices, and in percent)
Percent
|
|
Year
|
Month
|
|
:
|
1996
|
1997
|
1998
|
1999
|
1999
|
|
Tax
rates on earned income
|
Upper
limit of income-tax brackets (NIS)
|
|
10
|
...
|
19,640
|
21,240
|
23,040
|
1,920
|
|
15%
|
37,900
|
...
|
...
|
...
|
...
|
|
20%
|
...
|
39,360
|
42,480
|
45,960
|
3,830
|
|
30%
|
99,760
|
103,560
|
111,960
|
121,200
|
10,100
|
|
45%
|
180,740
|
187,680
|
202,920
|
219,600
|
18,300
|
|
50%
|
180,741
|
187,681
|
202,920
|
219,600
|
18,800
|
|
and
above
|
and
above
|
and
above
|
and
above
|
and
above
|
and
above
|
|
|
|
|
|
|
|
|
Credit-point
value
|
1,633
|
1,692
|
1,836
|
1,980
|
165
|
|
|
Total
tax according to number of credit points
|
|
2.25
|
24,495
|
28,875
|
31,272
|
33,792
|
2,816
|
|
2.75
|
29,938
|
33,105
|
35,856
|
38,700
|
3,225
|
|
3.25
|
35,382
|
37,335
|
40,455
|
43,680
|
3,640
|
|
3.75
|
39,363
|
40,830
|
43,416
|
47,724
|
3,977
|
|
|
Ceilings
for income-tax benefits
|
|
Income
qualifying for provident-fund benefits
|
90,600
|
93,600
|
102,000
|
110,400
|
9,200
|
|
Allowance
qualifying for 35% exemption
|
62,150
|
64,560
|
69,840
|
75,600
|
6,300
|
|
Exemption
for retirement grant (1)
|
7,320
|
7,850
|
8,490
|
9,190
|
.....
|
|
Income
ceiling for advanced-training fund purposes (employees)
|
158,000
|
160,800
|
168,000
|
172,800
|
14,000
|
Notes
to the table:
|
(1)
|
The
maximum allowable retirement benefit per year of work, as of
January in the relevant year.
Only in 1996 was the ceiling adjusted during the year.
|
(2) Corporate Income Tax
The Income Tax
Ordinance defines the taxable income corporations and allows them to
deduct various expenses that are in structured in order to generate
income.
Tax Base
The tax base is the same as that of personal-income tax. Taxable income
is adjusted to the rate of increase of the Consumer Price Index as set
forth in the Income Tax (Inflationary Adjustments) Law, which stipulates
the method of adjustment. The decline in inflation in the past few years
has made this adjustment less important.
Tax Rate
|
(1)
|
Ordinary
corporations are
taxed at 36 percent.
|
|
(2)
|
Corporations
with foreign investment are
taxed at 10-25 percent, commensurate with their proportion of
foreign investment.
|
|
(3)
|
Approved
Enterprises under
the Encouragement of Capital Investments Law (ECIL) pay
corporate tax at a rate of 25 percent.
|
|
(4)
|
The
alternative track for Approved Enterprises gives
such enterprises a tax exemption for two years, six years, or
ten years, depending on their location (investment area). The
alternative track is available to Approved Enterprises (as
defined in the (ECIL) that forgo an investment grant.
|
The following
amendment went into force in 1999:
Since 31.1.99, the exempt value from land-betterment tax from the sale
of two dwellings, was raised to NIS 1,500,000, according to the
conditions stated in Paragraph 49(e)(2), as mentioned above.
Also, there was awarded a partial exemption for the selling of two
dwellings a combined value of up to NIS 2,500,000, according to the
conditions stated in Paragraph (e)(a1) of the Land Betterment Tax Law.
Ceiling will be updated at the beginning of each year according to the
raise in the Consumer Price Index
Main Tax Exemptions and Reductions
|
Deductible
expences: payroll, raw materials, depreciation, interest,
research and development, etc.
|
|
Research
and development expenses are recognized as expenses for the year
in which they are incurred.
|
|
Approved
Enterprises mat deduct an accelerated rate of depreciation.
|
|
Ordinary
firms are exempt from tax on dividend earnings paid out of
ordinary income on which corporate tax has already been paid.
Approved Enterprises are liable to a 15 percent tax on dividends
that they distribute to individuals.
|
Tax
Base
Real capital gains from the sale of
business assets and
securities.Securities traded on the
stock exchange are exempt from
capital-gains tax, except:
(a)... securities that are racorded
in the books of account of the
taxpayer's business.
(b) ... securities held by
individuals who are deemed by the
tax assessor to be a part of the
business.
(c) ... securities held by corporate
|
General Section
