preface

8. TAXATION
8.1. GENERAL
A gradual reduction of tax rates for both individuals and companies was
implemented over the past decade.
The latest reform was introduced in July 2009, whereby corporate and
individual tax rates would be gradually reduced from 24% and 45%
respectively in 2011 to 18% and 39% respectively in 2016.
A special tax regime is applicable to industrial companies complying with
minimum export conditions (see chapter 7).
8.2. INCOME TAX
8.2.1. Overview
Taxation in Israel is based on an individual method. Accordingly, as of
2003, all Israeli residents are liable to payment of tax in respect of their
entire income worldwide.
The individual method raises, in effect, the tax liability on passive
income, such that income generated or derived outside Israel will also
be liable to tax - regardless of whether it was received abroad or in
Israel.
Foreign residents are also liable to tax on income generated or derived
in Israel, subject to source rules and the double taxation treaties signed
between Israel and the relevant countries.
Nevertheless, as of January 1 st , 2009 a new legislation elaborates on the
tax exemptions for foreign residents, prescribing as follows:
(a) an exemption for foreign residents on interest income, discount fees
and exchange differentials derived from corporate bonds on the Tel
Aviv Stock Exchange (the exemption applies to all foreign resident
on the date of payment, even if the bonds were acquired prior to
January 2009).
(b) a foreign resident will be exempt from capital gains tax on the sale of
marketable securities, provided the capital gain is not derived from
that resident’s permanent establishment in Israel.
BDO Israel
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