The corporate tax rate has been reduced from 25% in 2016 to 24% in 2017, and will be reduced to 23% in 2018.
In 2016, the Israel Tax Authority (ITA) published a tax circular that addresses taxation of the ‘digital economy’ (i.e. taxation of foreign companies that operate in Israel online, both in e-commerce and online services). Value-added tax (VAT) and corporate tax aspects of the digital economy are developing tax areas that should be monitored.
The Encouragement Law has been expanded to provide for two new tax incentive regimes (in addition to the other tax incentive regimes already in place), the Preferred Technology Enterprise regime and the Special Preferred Technology Enterprise regime. Further reduced tax rates are available under these new regimes. For more details, see the Tax credits and incentives section.
Effective 1 January 2017, a company's 10% or more shareholder will need to recognise dividend income, employment income, or other income for withdrawals of cash exceeding 100,000 Israeli shekels (ILS) (including certain loans and guarantees) or for the personal use of certain company assets. Detailed rules apply.
Personal income earned by individuals via their personal service companies in certain cases shall be taxed as if earned by the individual personally and shall be taxed at the individual's marginal tax rate, with the corporate veil lifted with respect to such income. Detailed rules apply.