Palestinian territories

Corporate - Deductions

Last reviewed - 23 June 2021

In calculating the taxable income of any person, costs and expenses that were spent or deserved entirely and exclusively for the production of gross income during the tax period shall be deducted, and that includes:

  • Sale, transportation, marketing, and distribution expenses.
  • Administrative, legal fees, and rental expenses.
  • Fixed finance charge (Murabaha) and loan interest.
  • VAT on salaries and wages and VAT paid on the profits of banks, financial companies, and institutions.
  • Salaries and paid wages.
  • Incorporation expenses, fees of evacuation for old premises, the one-time fee at move-in to new premises, and promotional expenses, provided they are equally distributed over five years from the date of payment.
  • Severance payments paid in accordance with the legislations in force.
  • The compensations paid for work injury or death, the expenses of medical treatment of employees and their families, and life insurance premiums against work injuries.
  • The amounts paid by the employer for any fund that is approved by the Minister, such as the saving, social security, and health insurance funds.
  • The actual training costs for staff and employees that do not exceed 2% of annual net income.
  • The actual expenditures for internal research and development (R&D), scientific research, and partnership with scientific institutions for the purpose of development of no more than 2% of gross income or ILS 500,000 per year, whichever is lower.
  • The actual expenditures to adopt Palestinian specifications and standards, and the application of best practices in the management of institutions, including the development of electronic accounting systems and the adoption of international accounting standards, not to exceed 2% of the gross income or ILS 500,000 per year, whichever is lower.
  • The actual expenditure for exploring and searching for new export markets to promote Palestinian products that do not exceed 2% of the gross income or ILS 500,000 per year, whichever is lower.
  • Foreign exchange losses.
  • The specific rate of the cost of assets, such as machinery, tools, equipment, furniture, furnishings, and buildings that contain functioning machines, currently owned by the taxpayer or will be owned in the future for its depreciation during the tax period through which the income was achieved pursuant to a regulation issued in accordance with the provisions of this Law by Decree.
  • Business entertainment expenses with a percentage not exceeding 1% of the gross income or ILS 150,000 per year, whichever is lower, to the natural and legal person, with the exception of public shareholding companies as this expense shall be accepted for these companies with a percentage of no more than 1% of the gross income or ILS 300,000 per year, whichever is lower.
  • The bad debts, in accordance with the instructions issued by the Minister upon the recommendation of the Director and in coordination with the Monetary Authority and relevant authorities.
  • The loss resulting from the replacement of machinery, tools, and equipment, or their parts used in the work. This loss shall be calculated on the basis of the cost of the machinery, equipment, or tools, or some of their parts, exclusive of the price received by the taxpayer and the sums deducted previously for their depreciation.
  • The allocations of branches in the expenses of the main headquarters that is located outside Palestine with a percentage not exceeding 2% per year of the gross taxable income of branches in Palestine.
  • Allotment of risks and claims under settlement that are reported to insurance companies in accordance with instructions issued by the Minister upon the recommendation of the Director.
  • Allotment of collecting doubtful debts, interests, and commissions incurred on such debts for the banks and the specialised lending companies in accordance with instructions issued by the Minister upon the recommendation of the Director.

The expenses and expenditures that are related to tax-exempt income shall be excluded in accordance with instructions issued by the Minister upon the recommendation of the Director.

Net operating losses

Losses that cannot be deducted from income in the same year could be carried over to the following tax years for a maximum limit that does not exceed five tax years, under the condition that the taxpayer provides accurate accounts.

Payments to foreign affiliates

According to Article 31 (2) of the Palestinian Income Tax Law, a resident person who pays any amount that is subject to tax in Palestine shall withhold tax at a rate of 10%.