Personal tax credits
Residents are entitled to personal tax credits against their tax liabilities according to their status. Each point is worth ILS 235 per month, with resident individuals being entitled to a minimum of 2.25 points. Additional points are granted for, among other items, dependent children, new immigrants, and single-parent families.
Foreign residents are not entitled to personal tax credits.
Donations to recognised public institutions entitle the taxpayer to a tax credit of 35% from donations that in aggregate are not less than ILS 200, provided the donations do not exceed 30% of annual taxable income or ILS 10,019,808, whichever is less. Excess donation amounts can be carried forward for three years under certain circumstances.
Tax benefits for new immigrants and returning residents
New immigrants and returning residents (who were foreign residents for a continuous period of at least ten years and returned to Israel to become an Israeli tax resident after such period) may enjoy the following tax benefits upon becoming tax resident in Israel (returning residents from 1 January 2007 to 31 December 2009 may enjoy these benefits where they were foreign resident for at least five years):
- Exemption from Israeli taxation for a period of ten years from the date of becoming Israeli tax resident on passive income that is accrued or derived from outside of Israel or that is sourced from assets overseas. This exemption shall apply to income from dividends, interest, rent, royalties, pensions, annuities, and the like.
- Exemption from Israeli taxation for a period of ten years from the date of becoming Israeli tax resident on income from a business, vocation, or salary that is accrued or derived from outside of Israel. This exemption may be limited in certain cases.
- Exemption for a period of ten years from capital gains tax on the sale of assets located outside of Israel. The capital gain exemption shall apply even where the overseas assets sold are purchased during the ten-year exemption period. Where assets are disposed of after the expiry of the ten-year period, the taxable amount will be calculated on a linear basis by applying the ratio between the exempt and non-exempt periods to the total holding period of the asset.
- Exemption from reporting income derived or produced abroad or which are sourced from assets outside of Israel.
Pursuant to certain transition provisions, an individual will qualify for the above benefits if one has returned to Israeli tax resident status in 2007, 2008, or 2009 after having been a foreign resident for a continuous period of at least five years (rather than requiring the above mentioned ten-year period).
A returning resident, who was a foreign resident for only six years before returning to Israeli residency status, shall enjoy the following:
- Exemption from Israeli taxation on passive income (but not pension income), and only for a period of five years from the date of becoming Israeli tax resident. This exemption applies only to passive income generated by assets that were acquired while the person was a foreign resident.
- Exemption for a period of ten years from capital gains tax on the sale of assets located outside of Israel but only with respect to assets that were purchased during the period the individual was a foreign resident.
Detailed rules apply to the above provisions. This subject matter is complex and requires review of each person's specific facts and circumstances.
Special deductions for qualifying expatriates
'Foreign expert’ status is granted to a non-resident who, while abroad, has been invited by an Israeli individual or by an Israeli resident entity (not being a manpower company or temporary agency) to perform services in their area of expertise for the inviting party and meets the following conditions:
- The person must reside/work in Israel legally.
- The person must perform duties in their area of expertise for the entire period of their stay and not perform some other duties.
- The person must earn more than ILS 14,300 monthly for performance of the services in Israel.
Additional qualifying conditions apply.
A non-resident who is granted ‘foreign expert’ status is entitled to deduct from Israeli taxable income the following items for a period not exceeding 12 months of employment in Israel:
- Documented rent and certain utilities (gas, water, electricity) costs or accommodation expenses. Therefore, the employee should retain a copy of rental contracts, hotel bills, and utility charges.
- Daily living expenses: In accordance with the ITA guidelines, these expenses are limited to the lower of (i) ILS 350 or (ii) 50% of the employee’s gross remuneration. This deduction is only for the actual days that the employee is physically present in Israel.
'Approved specialists’ (non-residents approved by the director of the Investment Centre at the Ministry of Industry and Trade), provided they are experts who possess skills not readily available locally, are taxed at a maximum rate of 25% on their earnings for a period of three years, with a possible extension of up to a further five years. They are also entitled to the benefits available to foreign experts in the first 12 months. Approval is generally given on income up to 75,000 United States dollars (USD) per annum.