Income Tax – Reductions and Exemptions
In order to
implement the
different goals
of the
government,
the tax burden
in Israel is
spread
differently
between
citizens:
• Development towns - assistance to residents of
development towns where economic conditions
are usually worst than urban areas in the center of
the country.
• Front line towns - towns located near the country's
borders receive tax reductions in order to
encourage settlement in these areas.
• Persons of limited means - tax reduction to low
income populations.
• Other deprived populations - benefits for disabled
persons, elderly etc.
• Specific tax benefits - encouragement of specific
populations to generate income. for example:
working women, discharged soldiers, youth etc.
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Direct taxes
Tax Methods:

The personal method – based on the person generating the income. If
the person generating the income is an Israeli resident, the state levies
a tax on his revenues, even if they are generated outside its territory.

The territorial method – based on the territory where the income is
generated. The state levies tax on income generated within its
territory, even if it is generated by foreign residents.
The Israeli tax method – the territorial method was used until 2003. following a
tax reform, the personal method has been adopted and used since 2003.
Today, therefore, every Israeli citizen is required to pay tax for any revenue
generated both in Israel and outside it. Foreign residents are required to pay tax
for revenue generated within the Israeli territory.
Israel has signed a tax treaty for the prevention of double taxation along with 50
other countries, specifically to prevent Israeli residents from paying taxes twice
for their revenues in both those countries and in Israel.
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Methods of Collecting Tax
 Deduction at source – a tax deducted by employers from
employee salaries, and a tax deducted from the revenue of some
self employed persons.
 Prepayments – tax paid every month (or every two months) by
self employed persons and companies. The prepayment amount
is usually determined as a percentage of the reported monthly
turnover. The size of the prepayment may be increased or
decreased during the year.
 Assessments – an examination of the reports submitted by
taxpayers and an evaluation of their liable income conducted by
the employees of the Tax Authority is called an Assessment.
Here too, following the examination, additional tax is collected
beyond the declared income.
Tax collection is conducted under the power of The Tax
Ordinance – Collection.
Fees
Purchas
e tax
Levied
on
purchas
e of land
in Israel.
Fuel Blo
Other
surcharges
Customs
Buying
tax
VAT
VAT (Value Added Tax) - an indirect tax
VAT is levied on the
added value - the
difference between
sales and purchases.
VAT is an indirect tax
levied on a wide variety
of products and
services (excluding
fruits and vegetables,
the Eilat region and
incoming tourism
services).
VAT contributes to the
sense of equality since
it is levied on every
liable person.
VAT is a very
recommended tax,
simple and easy to
manage and collect.
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VAT (Value Added Tax) – an indirect tax
Disadvantages:
 "Encourages" evasion among some service providers (plumbers,
technicians, builders, garages, doctors and others).
 VAT is a regressive tax. i.e. the lower the income, the higher the
percentage of the income paid as VAT. This is because VAT is
levied on consumption, and consumption constitutes a larger
part of the income in lower income populations (higher income
populations save a large part of their income and VAT is not paid
for savings).
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