Our Firm was established in Tel Aviv, Israel 53 years ago and we were honored joined Integra International in August 2013. It is characterized by interdisciplinary service, which includes thorough examination of the client`s needs, while finding creative solutions which correspond to the client`s needs and size.
We will try, in the short space allocated to us, to summarize the reporting obligations of Israeli residents or foreigners who wish to establish a new business in Israel.
All corporations and individuals who wish to conduct business in Israel need to act according to these guidelines:
Register with the Vat Authority in order to receive a vat file number.(vat rate is 18%).
Register with the Income Tax Authority.
Register with Social Security Offices.
After these steps are taken, you will be able to start operating your business.
The fiscal year in Israel is a full calendar year, from January till December.
During the year, the taxpayer has to submit periodical reports as follows:
Monthly reports to the Vat Authorities which include: monthly turnover subject to 18% vat. Monthly vat paid on account of eligible expenses, deducted out of the vat payable.
Monthly turnover reports to the Income Tax Authority, according to which the taxpayer pays advance tax payments based on a percentage determined by the authorities. The percentage is determined by the authorities depending on the form of incorporation and the nature of the business.
Monthly reports on wages paid to employees accompanied by payment of taxes withheld.
In addition to the monthly reports, there are two more duties of reporting:
Yearly income tax reports: corporations are required to submit audited financial statements, while individuals are required to submit a yearly tax return which includes income from various sources: wages, self employment, labor income, professional income, interest, dividends, rent, royalties and capital gain. Israeli residents are required to report on a personal basis no matter where ever on the globe the income or gain is produced.
Assets and liabilities statement – usually the Tax Authority requests it from any individual who runs a business and has a vat file, and from shareholders who hold more than 10% of private corporations.
Regarding new immigrants, we would like to point out two major issues:
New immigrants are exempt from income tax on their income outside Israel from business activities they had prior to their immigration to Israel, and passive income generated abroad for a period of 10 years. New immigrants who immigrated to Israel after July 31, 2013 have to report on their exempt income every year.
New immigrants have the possibility of applying to the Israeli Income Tax Authority for a year of adaptation. During that year the new immigrants will not be considered Israeli residents for the purpose of income tax and in case they decide to leave Israel at the end of that year, they will not be subject to Israeli tax laws during that year. In order to enjoy this benefit, the new immigrants will be required to fill a form and submit it to the office of absorption in 90 days since arriving in Israel.
Tax rates:
Income tax:
Corporations – In 2013 corporate tax rate is 25%, being updated to 26.5% in 2014.
Individuals – There are tax brackets applied mostly on wages and self employment income starting at 10% up to 52%. The major bracket starts at NIS 168,000 up to NIS 480,000 and its rate is around 31%. Above NIS 812,000 the tax rate is 52%.
Thos tax rates will be increased by 1%-2% in 2014.
Capital gain:
Corporations - capital gain tax rate is 25%, being updated to 26.5% in 2014 Individuals - capital gain tax rate is 25%.
Tax on dividend:
Corporations – dividend between Israeli companies is not subject to tax. Dividend is taxed at the rate of 25% for individuals who hold up to 10% of the shares in a corporation, and 30% for individuals who hold more than 10%.
Social security:
Social security is paid in Israel on wages and self employment income up to 43,000 NIS monthly. Wages – employer pays 6%, employee pays 12%, withheld by the employer. Self employment income – 16% (13% after tax deductions). In certain cases social security tax is imposed on passive income, e.g. rental income.
The use of knowledge, expertise and alertness, usually lead at the end of the day to tax savings for the clients!
We will be glad to be at your service for any further clarifications or questions in all aspects of doing business in Israel