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Israel - Income Tax

Israel - Income Tax

Taxation of international executives


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All income tax information is summarized by KPMG Somekh Chaikin, the Israel member firm of KPMG International, based on the Israel Tax Ordinance and Regulations.

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

Generally 31.04.YY. but when required to submit based on double entry bookkeeping or submit online filling 31.05.YY

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Israel?


Individual taxpayers who are required to file a return must generally do so by 30 April following the tax year-end, or 31 May when an online filing is required or submitted based on double entry bookkeeping or an individual who has the obligation to file the. Any balance of tax owing for the tax year concerned should be paid by the individual once the return is processed by the tax authorities. However, it should be noted that interest and index linkage differences (that is adjustment for movements in the Israeli consumer price index) on the balance accrues from 1 January immediately following the tax return electronically

A resident taxpayer whose main income consists of employment income is not generally required to file an annual personal income tax return if the employment and other income of each spouse does not exceed certain limits and tax was withheld at the source.

Employers, in accordance with tables issued by the Commissioner of Taxes and updated from time to time, withhold tax on income from employment. Foreign employers are not exempt from the obligation to open and operate an Israeli payroll withholding tax file, on a monthly basis, in respect of personnel in Israel. Such an obligation may be satisfied by appointing a local representative (or an employee) to assist with payroll processing and reporting matters.


A non-resident who has income, which was accrued or derived in Israel, must file an annual personal Israeli tax return, unless tax was withheld at the source. Even where an expatriate is not obliged to file a return, he/she may wish to do so in the years of arrival and/or departure from Israel so as to benefit from the application of annual (rather than monthly) tax brackets in respect of income earned in Israel in the periods concerned. It should be noted that in order to obtain a refund from the Israeli Tax Authority one must obtain an Israeli bank account. 

Tax rates

What are the current income tax rates for residents and non-residents in Israel?


The tax rate is progressive for Israeli residents. There are different tax rates for income that is derived from personal exertion and for income that is derived from any other source in the state of Israel.

Income tax is calculated by applying a progressive tax rate schedule to taxable income.

The tax rates for personal exertion income are as follows.

Income tax table for 2016

Taxable income bracket   Total tax on income below bracket Tax rate on income in bracket
From NIS To NIS NIS Percent
0 74,640
107,040 6,216 14
107,041 171,840
22,096.8 31
238,801 496,920 88,168.8 35
496,921 640,000
147,168 47
Over   50%

These rates will also apply to all income earned by an individual of age 60 or over, other than income for which a specific rate is provided. The tax rates for income of an individual under the age of 60 from any other source are as follows (excluding incomes with specific tax rates).

Income tax table for 2016

Taxable income bracket   Total tax on income below bracket Tax rate on income in bracket
From NIS To NIS NIS Percent
0 237,600 73,470
496,920 88,168.8 34
496,921 803,519 147,168 48%
803,520 Over   50%


Non-residents are taxed progressively like Israeli residents. However, there are special rules that may apply to eligible non-residents which lower their tax liability in Israel. Such rules enable them to have deductions such as some of their personal expenses, and so on.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Israel?

For Israeli tax purposes, the test for being an individual Israeli resident is the center of life, which takes into account the overall connections with Israel (including family, economic, and social connections).

In addition, a presumption was determined according to which it is presumed that a person’s center of life will be considered as located in Israel if that person was present in Israel at least 183 days in a tax year, or was present at least 30 days in Israel in a calendar year and his/her total presence in Israel during the tax year and in the two preceding years was 425 days or more (this presumption can be contradicted by the tax authorities or by the individual).

Foreign residents who come to work in Israel on a B-1 visa for a specified period of time are generally not treated as residents for tax purposes by the Israeli tax authorities, but are still liable to tax as non-residents.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.


What if the assignee enters the country before their assignment begins?

In case of a foreign resident, if these days in Israel were working days, his/her income for these days will be added to his/her total annual income.

Termination of residence

Are there any tax compliance requirements when leaving Israel?

According to the law an individual is considered as having broken residency in Israel if he/she is no longer classified as an Israeli resident (as defined earlier) and additionally, has lived outside of Israel for at least 183 days a year for two consecutive tax years, and the individual’s center of life, according to domestic law, was outside of Israel for the following two years. If so, the individual is considered as having broken residency from the day he/she originally left Israel.

An important issue that should be addressed is the exit tax for Israeli residents. The exit tax is applied on the last day of the residency in Israel. However, it is possible to postpone the tax payment to the date of the actual sale of the asset, and the tax will be calculated according to the asset value on the sale day, on the linear appreciation of assets and stock options while residing in Israel.

What if the assignee comes back for a trip after residency has terminated?

There are no special consequences, after the assignee’s residency has terminated, when re-entering Israel at a later date for a trip  (which is
assumed to be for a short-period). 

Communication between immigration and taxation authorities

Do the immigration authorities in Israel provide information to the local taxation authorities regarding when a person enters or leaves Israel?

Yes, at the request of the Tax Authorities.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

No. However, the filing requirements in Israel are on a yearly basis. Therefore, if the assignee repatriate to his/her home country during the tax year, there might be an obligation, in some cases, to file a report to the Israeli tax authorities regarding income while resident in Israel.

Economic employer approach

Do the taxation authorities in Israel adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Israel considering the adoption of this interpretation of economic employer in the future?1

There is no official position of the Israeli tax authorities regarding the subject. However, in practice the economic employer approach may be applied by the Israeli tax authorities when determining application of treaty benefits.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?


Types of taxable compensation

What categories are subject to income tax in general situations?

In general, all types of remuneration and benefits, whether in-cash or in-kind, arising from/attributable to employment services performed in Israel, subject to certain exemptions, are taxable. The following are examples of elements of an expatriate remuneration package, which would be included as income for tax purposes:

  • cost-of-living allowances
  • housing allowances
  • housing provided by the employer on a non-arm’s length basis
  • reimbursement of taxes
  • use of a company car
  • reimbursement of unsubstantiated moving expenses
  • cash allowances for home leave
  • children education fees
  • employer provided domestic assistance
  • contributions to medical, dental, sickness, and disability plans
  • the benefit of loans at reduced or zero-interest rates provided directly or indirectly by the employer
  • contributions to life assurance plans
  • contributions to profit sharing plans and certain pension plans
  • employee stock purchase plans/stock option plans.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Israel? If so, please provide a general definition of these areas.

There is only limited scope to receive tax-exempt income in Israel. However, a variety of tax exemptions are provided to new immigrants and returning residents, as defined in the Israel Tax Ordinance and Regulations.

Expatriate concessions

Are there any concessions made for expatriates in Israel?

Non-resident expatriates, subject to certain conditions, may enjoy significant benefits that are not available to Israeli residents.

  • Visiting lecturer: A foreign resident professor or teacher who was invited to Israel from abroad and who is paid for teaching or conducting research at an institution of higher education according to the Council of Higher Education Law – 1958.
  • Foreign expert: From March 2005, a foreign expert is a foreign resident who complies with all of the following:
  • 1. he/she has resided legally in Israel
  • 2. he/she was invited from abroad by an Israeli resident that is not a manpower company or temporary agency, in order to perform duties for the inviting Israeli resident in the area of expertise of the foreign resident
  • 3. during the entire period of his/her stay in Israel or the region he/she was employed or provided service in his/her area of expertise
  • 4. for his/her services, he/she was paid more than the amount of 13,100 (in 2017) multiplied by the number of months of his/her stay in Israel, and tax was withheld as required by law
  • 5. if he/she resided in Israel for less than one month the amount will be calculated linearly by dividing it into 30 and multiplying it by the number of days he/she stayed in Israel.

It should be noted that the recently the Israeli Tax Authority started in practice to request for receipts to support actual Per-Diem expense at the amount of NIS 320, otherwise they tend to agree on a lower amount without a receipts. We encountered this practice in tax negotiation upon assessments of annual tax returns and currently this practice was not published in a circular or by amending the current tax regulations for foreign-experts. 

Salary earned from working abroad

Is salary earned from working abroad taxed in Israel? If so, how?

Non-resident employees who receive earnings for work carried out abroad are generally not taxable on these earnings.

Israeli residents are taxed on a personal basis. However, special tax rates apply to salary earned by an Israeli resident working abroad for an Israeli employer for a consecutive period of over four months. In this case, certain deductions and exemptions may be granted to the employee.

New immigrants and returning veterans receive a 10-year exemption on income produced or derived abroad.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Israel? If so, how?

An Israel resident is liable to tax on a capital gain derived or produced in Israel and outside Israel. A foreign resident, subject to the provisions of the relevant double taxation treaty, is liable to tax on a capital gain derived or produced in Israel, but is eligible for certain exemptions including capital gains on the sale of shares traded on the Tel Aviv stock exchange and, subject to complex transitional rules and exceptions at 31 December 2008, the sale of shares in private companies.

As of 1.1.2012., an individual shall be liable to tax on a real capital gain at the rate no greater than 25 percent, and the capital gain shall be deemed the highest bracket of his/her chargeable income.

Real capital gain upon a sale of securities in a body of persons where the seller is an individual who was a substantive shareholder (that is - holder of at least 10 percent of the means of control in a company, whether directly or indirectly) when the shares were sold or at any time within 12 months before the sale, shall be charged tax at a rate of no more than 30 percent.

Regarding historic assets, different tax rates may apply depending on the date of acquisition.

Dividends, interest, and rental income

Rental income

Rental income is charged at progressive rates, as described in the table below. Hence, income from these sources during 2016 will be taxed as follows.

Income tax table for 2017

Taxable income bracket Total tax on income below bracket
Tax rate on income in bracket
From NIS To NIS NIS Percent
0 238,800 73,470 31
238,801 496,920 88,168.8 35
496,921 640,000 147,168
640,001 Over   50%

Rental income on residual property has specific benefits including an exemption under certain amounts and conditions or the ability to choose a route of taxation of 10%.

Income from dividends

Income from dividends will be taxed at a rate of 25 percent for an individual that is not a significant shareholder. A significant shareholder will be taxed at a rate of 30 percent.

Income from interest

Income from interest will be taxed at a rate of 15 percent when the underlying asset in hand is not fully index-linked. It will be taxed at a rate of 25 percent when the underlying asset in hand is fully index-linked. Generally, there are exceptions to these tax rates, especially when the income from interest is derived by a company which is being held by the individual or when special relations exist between that company and the individual (such as, labor relations). In such cases, the tax rate that will apply would be according to the table earlier (progressive rates).

Gains from stock option exercises

The table below deals with stock options that were granted since 1 January 2003 and forward under Section 102 of the Israeli Tax Ordinance. KPMG Israel would like to point out that a different rule deals with stock options issued prior to 1 January 2003 in Israel. The taxation on stock options for migrant employees will be linear. That is to say, if the employee leaves Israel prior to the vesting date, only the appreciation while the employee resided in Israel will be considered as income sourced in Israel, calculated on a linear basis.

Residency Status   Taxable at:  
  Grant Vest Exercise
Resident N* N Y
Non-resident N* N Y

* Except when there is a grant of a traded stock option under a non-trustee track

Foreign exchange gains and losses

Foreign resident individual is exempt from tax on exchange gains from a loan under certain conditions. The Ordinance determines that a loss which, had it been a profit, would have been assessable under the Ordinance may be offset against chargeable income. Therefore, when foreign exchange gains are exempt from taxation, it is not possible to offset any foreign exchange losses. Other losses, from exchange gains that are not exempt, may be offset against other finance income in the current year.

Principal residence gains and losses


Capital losses

In general, the Ordinance determines that losses can be offset only if they would have been liable to tax, had they been gains. Capital losses are first offset against real capital gains. Each Shekel of the balance of the capital losses is thereafter set off against NIS3.50 of the taxable inflationary gains. Any balance remaining is carried forward and may be offset only against capital gains and land appreciation gains. Capital losses may not be offset against ordinary income.

Personal use items

There is no capital gain taxation when selling an asset for personal use.


No taxation until selling the gift to a third party when the recipient of the gift is either a relative of the grantor or a person to whom it was proved that the gift was granted in good faith. It should be noted that a grant of a gift to a non-resident will cause a tax event upon the transfer of the gift.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Israel? If so, please discuss?

An important issue that should be addressed is the exit tax for Israeli tax residents. The exit tax is applied on the last day of the residency in Israel. However, it is possible to postpone the tax payment to the date of the actual sale of the asset, and the tax will be calculated according to the asset value on the sale day, on the linear appreciation of assets and stock options while residing in Israel.

Are there capital gains tax exceptions in Israel? If so, please discuss?

There are various exceptions in Israel to the usual taxation of capital gains. Such instances include but are not limited the following:

  • exemption from capital gain taxation to new immigrants, returning veterans, or (under a much more limited scope) returning residents derived from assets located outside of Israel for 10 years subject to certain conditions
  • 1. after 10 years, the exemption is reduced in a linear manner
  • exemption from taxation for a foreign resident selling share in a Tel Aviv stock exchange traded company, subject to certain exceptions
  • sale of shares by a foreign resident in a private company subject to certain exemptions and complex transitional rules at 31 December 2008

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Deemed disposal is relevant when exit tax is implemented on the last day of the assignee in Israel, although there was no actual sale on this date and the assignee still has the asset at his/her possession.

General deductions from income

What are the general deductions from income allowed in Israel?

In general, personal tax credits, known as credit points, are granted to Israeli resident taxpayers and they then are deducted from the income tax liability. A taxpayer’s entitlement to credit points generally will depend on personal and family circumstances, and whether the spouse’s earnings are assessed separately. In addition, there are certain credits and deductions regarding deposits to recognized pension plans.

A foreign resident is entitled to certain credit points (unless the foreign resident is classified as a foreign expert).

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Israel?

The following are the normal methods of recognizing tax reimbursements paid by the employer: current year gross-up, current year reimbursement, one-year rollover, and loan/bonus. A gross-up is required in the year of departure.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Israel? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.


Pay-as-you-go (PAYG) withholding

Not relevant.

PAYG installments

Not relevant.

When are estimates/prepayments/withholding of tax due in Israel? For example, monthly, annually, both, and so on.


Relief for foreign taxes

Is there any Relief for Foreign Taxes in Israel? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

In certain situations, the Israeli Tax Ordinance grants a credit for foreign taxes paid overseas.

Israel has double taxation treaties with a number of countries, which contain specific foreign tax relief and credits. There is also a specific relief provision applicable to Israeli residents who are assigned by an Israeli employer to work abroad for a continuous period of more than four months. Furthermore, an Israeli resident who has moved overseas for work purposes will be granted tax relief regardless of whether the employer is an Israeli resident or not.

General tax credits

What are the general tax credits that may be claimed in Israel? Please list below.

General credits include, but are not limited to, the following:

  • contribution to a public institution
  • credit for children
  • credit for Israel resident
  • credit for oleh (new immigrant)
  • credit for womencredit for a spouse (in certain cases)
  • credit for discharged soldier
  • credit point for juvenile
  • credit for insurance premiums and benefit fund contributions
  • credits for a foreign worker (subject to conditions)

Sample tax calculation

This calculationassumes a married, male taxpayer resident in Israel with two children whose three-year assignment in the US begins 1 January 2010 and ends 31 December 2012. The taxpayer’s base salary is USD100,000 and the calculation covers three years.3

  2010 2011 2012
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = NIS3.50.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Israel.
  • His company car, a Mazda 6 – 51, was purchased new in 2010 and is used for business and private purposes.
  • The employee is deemed resident of Israel throughout the assignment.
  • The employee is reassigned to the United States, but remains under the payroll of his Israeli employer.
  • All tax obligations are paid by the employee. None of the components are grossed-up.
  • A 15 percent tax is imposed on the interest income.
  • The foreign tax paid in the host country is USD20,000 per year.
  • The calculations were made according to Income Tax Regulations (Salary from work rendered outside of Israel) 1982.
Calculation of taxable income
Year ended 2010 2011 2012
  NIS NIS NIS (estimate)
Days in Israel during year 365 365 366
Earned income subject to income tax      
Salary 350,000 350,000 350,000
Bonus 70,000 70,000 70,000
Cost-of-living allowance 35,000 35,000 35,000
Net housing allowance 42,000 42,000 42,000
Company car 46,920 48,000 48,000
Moving expense reimbursement 0 0 0
Home leave 0 17,500 0
Education allowance 10,500 10,500 10,500
Total earned income 554,420 555,500 555,500
Other income 21,000 21,000 21,000
Total income 575,420 576,500 576,500
Deductions 151,814 151,814 151,814
Total taxable income 442,582 443,662 443,662

Calculation of tax liability

  2010 2011 2012
Taxable income as above 442,582 443,662 443,662
Israeli tax thereon 176,866 177,384 177,384
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 55,417 55,446 55,446
Total Israeli tax 121,448 121,938 121,938


1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Based on the Israel Tax Ordinance and Regulations.

© 2019 Somekh Chaikin, an Israel Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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