Israel-incorporated companies and foreign companies that have a branch presence in Israel are both subject to Israeli corporate tax. An Israeli-resident entity is subject to Israeli corporate tax on worldwide income while a non-resident entity is subject to Israeli corporate tax only on income accrued or derived in Israel. Income sourcing rules determine when income is to be considered from an Israeli source.
The corporate tax rate is 23% in 2018 (24% in 2017).
Business operations qualifying under the Encouragement of Capital Investments Law are entitled to reduced rates of tax depending upon their location and other conditions (see the Tax credits and incentives section).
Closely held personal service companies
A tax provision effectively lifts the corporate tax veil of a personal service company that meets the tax law definition of a ‘minority company’ that provides services to another company (the ‘other company’). A ‘minority company’ is generally defined as a company that is directly or indirectly held or controlled by no more than five individuals (taking into account certain relatives). This provision is generally intended for situations when an individual in the minority company (‘individual’) is providing officer or management type services to the other company. In such a case, the income shall not be taxed to the minority company but, rather, shall be taxed to the individual as employment income, business income, or other income, depending upon the circumstances. The employment income classification shall apply if 70% or more of the total income or taxable income of the minority company in the tax year is sourced from the services performed by the individual or the individual's relatives during a period of at least 30 months during a four-year period or if the individual's services performed for the other company are of the type that is performed in an employer-employee relationship.
Local income taxes
Israel does not impose district or local taxes on corporate income.