Israel Tax Guide 2012

Transcription

1 Israel Tax Guide 2012

2 foreword A country s tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. This handy reference guide provides clients and professional practitioners with comprehensive tax and business information for 100 countries throughout the world. As you will appreciate, the production of the WWTG is a huge team effort and I would like to thank all tax experts within PFK member firms who gave up their time to contribute the vital information on their country s taxes that forms the heart of this publication. I would also like thank Richard Jones, PKF (UK) LLP, Kevin Reilly, PKF Witt Mares, and Kaarji Vaughan, PKF Melbourne for co-ordinating and checking the entries from countries within their regions. The WWTG continues to expand each year reflecting both the growth of the PKF network and the strength of the tax capability offered by member firms throughout the world. I hope that the combination of the WWTG and assistance from your local PKF member firm will provide you with the advice you need to make the right decisions for your international business. Jon Hills PKF (UK) LLP Chairman, PKF International Tax Committee jon.hills@uk.pkf.com I

3 important disclaimer This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. II

4 preface The (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of 100 of the world s most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current as of 30 September 2011, while also noting imminent changes where necessary. On a country-by-country basis, each summary addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country s personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. In addition to the printed version of the WWTG, individual country taxation guides are available in PDF format which can be downloaded from the PKF website at PKF INTERNATIONAL LIMITED APRIL 2012 PKF INTERNATIONAL LIMITED ALL RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION III

5 about pkf international limited PKF International Limited (PKFI) administers the PKF network of legally independent member firms. There are around 300 member firms and correspondents in 440 locations in around 125 countries providing accounting and business advisory services. PKFI member firms employ around 2,200 partners and more than 21,400 staff. PKFI is the 10th largest global accountancy network and its member firms have $2.6 billion aggregate fee income (year end June 2011). The network is a member of the Forum of Firms, an organisation dedicated to consistent and high quality standards of financial reporting and auditing practices worldwide. Services provided by member firms include: Assurance & Advisory Corporate Finance Financial Planning Forensic Accounting Hotel Consultancy Insolvency Corporate & Personal IT Consultancy Management Consultancy Taxation PKF member firms are organised into five geographical regions covering Africa; Latin America; Asia Pacific; Europe, the Middle East & India (EMEI); and North America & the Caribbean. Each region elects representatives to the board of PKF International Limited which administers the network. While the member firms remain separate and independent, international tax, corporate finance, professional standards, audit, hotel consultancy, insolvency and business development committees work together to improve quality standards, develop initiatives and share knowledge and best practice cross the network. Please visit for more information. IV

6 structure of country descriptions a. taxes payable FEDERAL TAXES AND LEVIES COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX/VALUE ADDED TAX FRINGE BENEFITS TAX LOCAL TAXES OTHER TAXES b. determination of taxable income CAPITAL ALLOWANCES DEPRECIATION STOCK/INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES c. foreign tax relief d. corporate Groups e. related party transactions f. withholding tax G. exchange control H. personal tax i. treaty and non-treaty withholding tax rates V

7 international time Zones AT 12 NOON, GREENwICH MEAN TIME, THE standard TIME ELsEwHERE Is: A Algeria pm Angola pm Argentina am Australia - Melbourne pm Sydney pm Adelaide pm Perth pm Austria pm B Bahamas am Bahrain pm Belgium pm Belize am Bermuda am Brazil am British Virgin Islands am C Canada - Toronto am Winnipeg am Calgary am Vancouver am Cayman Islands am Chile am China - Beijing pm Colombia am Croatia pm Cyprus pm Czech Republic pm D Denmark pm Dominican Republic am E Ecuador am Egypt pm El Salvador am Estonia pm F Fiji midnight Finland pm France pm Guernsey noon Guyana am H Hong Kong pm Hungary pm I India pm Indonesia pm Ireland noon Isle of Man noon Israel pm Italy pm J Jamaica am Japan pm Jersey noon Jordan pm K Kazakhstan pm Kenya pm Korea pm Kuwait pm L Latvia pm Lebanon pm Liberia noon Luxembourg pm M Malaysia pm Malta pm Mauritius pm Mexico am Morocco noon N Namibia pm Netherlands (The) pm New Zealand midnight Nigeria pm Norway pm O Oman pm G Gambia (The) noon Georgia pm Germany pm Ghana noon Greece pm Grenada am Guatemala am P Panama am Papua New Guinea pm Peru am Philippines pm Poland pm Portugal pm Puerto Rico am VI

8 Q Qatar am R Romania pm Russia - Moscow pm St Petersburg pm s Sierra Leone noon Singapore pm Slovak Republic pm Slovenia pm South Africa pm Spain pm Sweden pm Switzerland pm T Taiwan pm Thailand pm Tunisia noon Turkey pm Turks and Caicos Islands am U Uganda pm Ukraine pm United Arab Emirates pm United Kingdom (GMT) 12 noon United States of America - New York City am Washington, D.C am Chicago am Houston am Denver am Los Angeles am San Francisco am Uruguay am V Venezuela am Vietnam pm VII

9 Israel israel Currency: Shekel Dial Code To: 972 Dial Code Out: 00 (NIS) Member Firm: City: Name: Contact Information: Ramat-Gan Robert Kordonsky robert@ahcpa.co.il a. taxes payable TAxEs AND LEVIEs COMPANy TAx ORDINARy INCOME Israeli resident companies are liable to Israeli taxes on their worldwide income and capital gains. A non-resident company is only liable to Israeli tax on income sourced in Israel. A Company resident in Israel is one that is incorporated in Israel or managed and controlled in Israel. The Corporate tax rate in Israel will be 25%from 2012 onwards (in %). The financial year runs from 1 January to 31 December. A company must normally submit tax returns within five months of the end of its accounting period (This period may be extended for up to 13 months.) Companies must make monthly advance tax payments of company tax, based on the previous year s tax liability. In addition, monthly payments must be made within 15 days of the month s end at the rate of 45%, in respect of certain expenses, which are not allowable for tax purposes, such as excessive travel and entertaining costs. Where the company has taxable income, such payments are treated as advanced payments. CAPITAL GAINs TAx Capital gains are divided into two elements. That part of the gain which is inflationary by nature is taxable at the rate of 10% in respect of the inflationary gain which was earned up to 31 December 1993 and at zero rate thereafter. The real gain is taxable at the corporate tax rate. Non-resident companies are liable to Israeli tax on capital gains derived in Israel. Foreign residents have the option of having the real gain calculated by reference to changes in the exchange rate of the foreign currency as related to the Israeli currency. BRANCH PROFIT TAx There is no Branch profit tax in Israel i.e. profits of an Israeli branch of a foreign company can be distributed to the foreign country (after paying Israeli tax on the profit itself) with no withholding tax on the distribution. VALUE ADDED TAx (VAT) VAT is charged at a rate of 16% on the supply of goods and services by Israeli business entities. The export of goods and certain services from Israel are zero-rated. FRINGE BENEFITs TAx (FBT) There is no separate fringe benefits tax in Israel. Fringe benefits are included in the employee s gross income and are taxed as salary. LOCAL AND OTHER TAxEs PURCHAsE TAx Purchase tax is payable on the purchase of real estate at rates from 3.5% to 5.0%. A purchase tax ranging from 0% to 5% is payable if the building is a residential apartment. NATIONAL INsURANCE (social security) Employers are required to pay a National Insurance premium as well as payments in respect of health insurance. These payments amount to % of salaries. Of this amount, 12.0% is recoverable from employees. The monthly ceiling up to which salary payments are levied onis five times the average salary (NIS 40,790) effective from January 1, 2012(in the monthly ceiling was 8 times the average salary) and relates to both employees and the selfemployed.dividend income is exempt from the social security payment. MUNICIPAL RATEs Municipal Rates are levied by local authorities. The government decides the maximum rate of increase. The local councils set their own rates accordingly based on square meters of occupied real estate. LAND BETTERMENT TAx Tax on land betterment accrued until 7 November 2001 is set at the marginal rates of up to 46% for individualsand up to 25% for companies. Tax on land betterment accrued after 7 November 2001 till 31 December 2011 is set at the ratesof 20% for individuals and 25% for companies. Tax on land betterment accrued after 1 January 2012 is set at 1

10 Israel the rates of 25% for individuals and 25% for companies. These rates are calculated in proportion to the period from the date of acquisition of the asset to the date of disposal. The sale of residential real estate by individuals is exempt from this tax if certain conditions are met. EsTATE TAx At present there is no estate tax in Israel. b. determination of taxable income Taxable income is generally based on income reported in the financial statements subject to adjustments as indicated in the tax law. Special regulations apply in respect of the matters referred to below. DEPRECIATION Deductions for the depreciation of assets which are used by a company are inflation adjusted and calculated normally on the straight-line basis at the following annual rates: Nature of Asset Rate (%) Buildings of industrial companies and hotels 5 Other buildings Hotel equipment Plant and machinery of an industrial company Other plant and machinery 7 10 Electronic equipment 15 Furniture and office equipment 6 7 Furniture and office equipment (restaurants and hotels) 9 12 Computers and software Trucks and commercial vehicles 20 Cars 15 Patents and know how 12.5 Research and development expenditure Accelerated depreciation up to 200% can be claimed on equipment used in production activities, if certain conditions are met. stock/inventory Inventory is valued using the FIFO or weighted average methods (LIFO is not a permissible alternative). DIVIDENDs Dividends received by an Israeli company from another Israeli company are exempt from company tax, except where the income out of which the dividend is paid is from a foreign source. Dividends received from an approved enterprise (see below) are subject to 15% company tax. Dividends received from non-resident companies are fully liable to company tax at the rate of 25%. Dividends paid to a non-resident shareholder are subject to withholding tax of 25% unless a lower rate is provided for within the framework of a double tax treaty. Dividends paid after 1 January 2012 to Israeli or foreign individuals and foreign companies are subject to withholding tax of 25% (till 31 December %). However, dividends paid after 1 January 2012 to major shareholders (holdings of 10% and above) are subject to withholding tax of 30% (till 31 December %). These rates may be reduced according to the terms of the relevant tax treaty. With effect from 1 January 2003, taxes paid on foreign income, including both company tax and dividend withholding tax can be set off against taxes payable in Israel in specific cases. INTEREsT DEDUCTIONs Interest is normally deductible on an accrual basis. However, interest payable to a non-resident is effectively deductible only when payment is effected since a deduction may only be taken if tax has been withheld at source from the interest payment within three months of the end of the company s accounting period. There is no curtailment of deductible interest by reference to debt/equity ratios. 2

11 Israel LOssEs Trading losses may be set off against all categories of income and capital gains in the same accounting period. Unutilised losses may be carried forward indefinitely against future income and capital gains which result from the business from any trade or business carried on by the company but not against income or gains from any other source. Generally, carry forward of losses may be denied where there has been a change in the control of the company and one of the purposes of the change is tax avoidance. Losses may not be carried backwards. Losses incurred abroad are allowed as a deduction from Israeli income on certain conditions only. FOREIGN sourced INCOME For entities controlled by Israeli residents, CFC tax is payable in Israel at the rate of 25% if the following conditions apply: (1) The source of income of the foreign corporation is passive (interest, dividends, royalties, rentals, etc.) (2) The foreign corporation has paid tax in a low tax territory (less than 20%) (3) Israeli residents control more than 50% (in certain circumstances more than 40%) of the shares in the foreign corporation or have the right to influence certain management decisions. PARTICIPATION ExEMPTION In Israel in most cases there is no participation exemption. However,an Israeli holding company, under specific conditions, is exempt from tax on dividends received from foreign subsidiaries; from capital gain on the sale of such subsidiaries; and from interest on deposits made in Israel by the subsidiaries. Foreign shareholders benefit from a reduced withholding tax of 5% on dividends distributed by the holding company. An Israeli shareholder will pay between 25% to 30% withholding tax on dividends distributed. OTHER INCENTIVEs There are various other incentives available such as employment incentives; international trading company incentives; the construction of dwellings for rental; research and development (R&D) where bi-national funds have been established to promote joint ventures;tourism industry schemes;and incentive training programs with the granting of loans for the encouragement of small businesses. The Law for the Encouragement of Capital Investment established a management body to grant benefits for tourist attractions and the creation of a tourist investment board. There are also benefits in the field of renewable energy. The Israeli government has signed R&D co-operation agreements with the United States, Canada, the European Union and some countries in Asia. A government Seed Fund has been established to encourage investment in start-up companies by matching the capital of investors. Special Free Trade Zones have been established with major tax benefits including exemption from VAT, lower tax rates, and exemption from property tax. INCENTIVEs In order to encourage both local and foreign investment, Israel grants a number of significant tax incentives which have the effect of eliminating or substantially reducing the tax rate for companies. These incentives are known as incentives for approved enterprises. These incentives are included in the Encouragement of Capital Investments Law. In 2011 new amendments were published regarding to the Encouragement of Capital Investments Law. The amended law is effective as of 1 January According to the amended law the incentives will be given by two geographical zones: 1.1. Zone A (as defined in the zone map which is in force until the end of 2012, generally defined as periphery regions that are distant from the centre of Israel. The zone map for 2013 and onwards is yet to be determined) The rest of the country. 2. An Industrial Enterprise that meets the requirements of section 18A of the Law is entitled to a reduced corporate income tax rate, in respect of income generated from 2011 onwards, although aminimum of 25% of the company s total turnover must be generated from exports. 3. The tax benefits are not time limited, meaning that any industrial company which exports 25% of its total turnover is eligible for the reduced tax rates for as long as it meets the above criteria. However there are no benefits guaranteed for the years to come and it could be altered by new legislation. 3

12 Israel 4. The tax benefits are applicable in relation to the Enterprise s total turnover. The reduced corporate income tax rates are 10% for companies in Zone A and 15% for the rest of Israel. These rates will be reduced over the next few years to 6% and 12% respectively. 5. An Industrial enterprise, only if located in zone A, is entitled to a grant when filing a comprehensive investment plan, which fulfils the legislative intent. A qualified investment may include investments in human capital and other investments which meet the legislative intent of the amended law. 6. The grant is expected to be set at 20% of the company s investment, with an option for an additional 4% of administrative grant. A company defined by the Israeli Investment Centre ( IIC ) as a Big Company will be entitled to a grant no larger than NIS 20 million (20% of a NIS 100 million investment plan), while others will be entitled to a grant no larger than NIS 6 million (20% of a NIS 30 million investment plan). 7. A company is able to enjoy both the grants track and the tax benefits track, under the condition of being located in zone A. 8. Dividends distributed to Israeli and non-israeliresidents (companies and individuals) would be subjected to a 15% withholding tax or to a reduced tax rate according to the relevant tax treaty s provisions. 9. There are transitional provisions for companies with plans under the previous law provisions. REsEARCH AND DEVELOPMENT INCENTIVEs The Office of the Chief Scientist in the ministry of industry, trade and labour is responsible for implementing the government s policy of encouraging and supporting industrial research and development in Israel. This office provides a variety of support programs which have helped to make Israel a major centre of hi-tech entrepreneurship. The R& D Fund offers grants of between 20% and 50% for approved projects. If the project is commercially successful, the company is under an obligation to repay the grant through royalty payments. Grants of up to 90% of costs are available for biotechnology research and up to 85% for technological incubators. c. foreign tax relief Foreign tax credits are given to Israeli-resident companies in respect of foreign taxes borne on overseas sourced income and capital gains. There is no system of global foreign tax credits. Each foreign source is treated as separate for the purpose of the consideration of credits. With effect from 1 January 2003, an Israeli company is allowed to deduct the tax paid on foreign company profits and also the withholding tax paid on dividends from taxes payable, provided it holds directly at least 25% (or at least 50% indirectly) of the shares in the foreign company. d. corporate Groups In general, there is no consolidation of profits and losses of a group of Israeli companies for tax purposes. However, consolidated tax returns may be filed for a group of industrial companies meeting certain criteria. e. related party transactions The tax assessing officer has powers to impose arm s length prices on arrangements between related parties. Market value can be determined by a prior ruling from the tax authorities. In November 2006, new legislation was introduced relating to transfer pricing for multi-national groups with effect from the 2007 tax year. f. withholding tax Withholding taxes are deducted from payments of interest, dividends and royalties made to non-residents, subject to Tax Treaty arrangements. See Section I below for treaty and non-treaty rates. G. exchange control There are no exchange controls in Israel and foreign currency can be freely transferred in and out of the country. H. personal tax Income tax is payable by Israeli-resident individuals on income derived from all sources, including passive income and all income derived or paid from overseas sources. 4

13 Israel Non-resident individuals are only liable to income tax on Israeli-sourced income. Factors determining residence include situation of family, business and social activities. For information regarding the tax rates see below. Rental income is taxed in the hands of an individual at rates of 10% or 15%, with no allowance for the deduction of expenses, depending on whether the property is situated in or out of Israel (This does not include commercial rentals). Individuals can choose to pay normal taxes on rental income and then can claim deductions (financial expenses, maintenance and other expenses relating to the property) against the rental income. The tax rate on the net income will be the marginal rate of the individual. Rental income of residential apartments in the hands of an individual is exempt up to NIS4,510 per month. Interest incomeis taxed in the hands of an individual at rates between 15% to individual marginal rate depending on circumstances. Exemptions are provided for low income earners. TAx RELIEF FOR NEw AND RETURNING REsIDENTs A major tax reform for new and returning residents has been retroactively in force from January There has been a change in the definition of foreign resident. Individuals who leave Israel will only lose their Israeli residency status if they are outside of Israel for at least 183 days each year during two consecutive tax years and their primary residence is outside of Israel for a further two years. A senior returning resident is defined as an individual who returns to Israel to reside after being a foreign resident for at least five consecutive years if they return to Israel in the tax years 2007 through 2009, or at least 10 consecutive years if they return to Israel after summary OF BENEFITs Details Passive income-exemption from foreign assets purchased before becoming Israeli resident Exemptions from foreign business income and foreign salary Foreign companies that are managed and controlled from Israel, CFC, or foreign professional company Foreign allowances and pensions Capital gain exemption Tax return Benefit for new resident and senior returning resident 10 years exemption 10 years exemption Those companies will be considered as foreign for 10 years 10 years exemption 10 years No need to submit a tax return on the exempt income. OTHER No tax is payable on income arising outside Israel and received by non-residents who are in the country temporarily,who do not intend to establish a place of residence and who have not resided in Israel for periods totalling six months in the tax year. Approved specialists are foreign experts whose status is granted by the Investment Centre where no Israeli resident could perform the job or possess the necessary skills to do so. Approved specialists are liable to a maximum tax rate of 25% on their income for a period of three tax years, with a possible extension for a further five years. The rates of tax on monthly taxable income of individuals as of January 2012 are: Monthly Income (NIs) Rate (%) 0 5, ,071 8, ,661 14, ,071 21, ,241 40, Over 40, The above rates relate to income from employment, trading or profession. 5

14 Israel i. treaty and non-treaty withholding tax rates Dividends (%) Interest (%) (1) Royalties (%) Non-Treaty Countries: 20/25 0/25 25 Treaty Countries: Austria /10 (2) Belarus 10 5/10 (3) 5/10 Belgium /10 Brazil 10/ /15 (4) Bulgaria / Canada /15 China 10 7/10 10 Croatia 5/10/15 5/10 5 CzechRepublic 5/ Denmark Estonia 0/5 (10) 5 0 Ethiopia 5/10/15 5/10 5 Finland 5/ France 5/10/15 5/10 0/10 Germany /5 Greece Domestic (5) Hungary 5/ India Ireland 10 5/10 10 Italy 10/ /10 Jamaica 15/ Japan 5/ Korea 5/10/15 7.5/10 2/5 Latvia 5/10/15 5/10 5 Lithuania 5/10/ /10 (6) Luxembourg 5/10/15 5/10 5 Mexico 5/ Moldova 5/ Netherlands 5/10/15 10/15 5/10 Norway Philippines 10/ Poland 5/10 5 5/10 Portugal 5/10/ Romania 15 5/10 10 Russia Singapore 5/ Slovak Republic 5/10 2/5/10 5 Slovenia 5/10/15 0/5 5 South Africa /15 Spain 10 5/10 5/7 Sweden [7] Switzerland 5/10/15 5/10 5 Taiwan 10 7/

15 Israel Dividends (%) Interest (%) (1) Royalties (%) Thailand 10/15 10/15 5/15 Turkey Ukraine 5/10/15 5/10 10 United Kingdom /15 United States 12.5/25 10/ /15 (8) Uzbekistan /10[9] Vietnam /15 1. Many treaties provide for an exemption for certain types of interest, e.g. interest paid to public bodies and institutions. Such exemptions are not considered in this column. 2. The lower rate applies depending on the type of royalties. Normally, royalties other than film royalties are subject to the lower rate. 3. The lower rate applies to interest payable to a bank or a financial institution. 4. The higher rate applies to royalties from trademarks. 5. The domestic withholding tax applies. 6. The lower rate applies to royalties for industrial or scientific equipment. 7. Film and natural resource royalties are not exempt; however, no specific rate is provided under the treaty. 8. The lower rate applies to copyright and film royalties. 9. The lower rate applies to copyright royalties (excluding film royalties). 10. The rate applies if (i) the Estonian company owns directly at least 10% of the capital in the Israeli company, or (ii) dividends are paid to the government of the other state, a local authority or the central bank, or to a pension fund or other similar institution providing pension schemes in which individuals may participate, subject to further conditions. Note: A substantial tax reform was approved by the Israeli parliament in December 2011 and part of the final legislation was not completed. The information above reflects the expected changes in the final versions of the legislation. 7

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