Overview of Israeli Personal Taxes
In Israeli, expect to pay the following significant taxes:
Tax Summary at the end.
Note, 100% accuracy of information is not guaranteed.
The information is presented here to "give you an idea" of the situation in
Israel. Before making any major financial decisions based on this information consult
an Israeli tax expert.
Israeli Income Tax
Israeli Definition of Taxable Income
All income and "benefits" received from an employer are taxable as income. Examples include:
Things that are NOT income (and are not taxed):
Income Tax Rates
Income tax ranges from 10% to 50%. The curve is pretty steep with anyone making decent wages paying 30% and anyone making a good wage paying 45% on the top end of his income.
Current Israeli income tax tables can be viewed at www.mof.gov.il/itc/h4/d_text.htm.
Since the page is in Hebrew, here's a translation to English and into a U.S. (IRS)
style tax table (valid as of Feb. 21, 1999):
Year 2000 update: As of March, 2000 there is an additional 3% tax on income over NIS 24,000 per month.
Income Tax Deductions / Reductions / Exemptions
The Israeli income tax system offers tax credits, that is direct reductions in the amount taxed. These credits are called "points" (nekudot).
As of 1999, each point was worth a tax credit of 165 NIS from the monthly income tax (subtracted from the tax bill). There are a variety of rules that apply besides those above, such as a deduction if living in a "development" town, settlements, or the Golan. Since I can't put all of them here (nor am I an expert) I can only present a reasonable example.
A Reasonable Example:
A new immigrant, married with children, non-working wife, 3rd year in Israel, living in a coastal town, will receive 4.25 points (or a tax reduction of 701 NIS).
Salary = 15,932, Tax Points (reductions) = 4.25
Now, a new immigrant in their first year in Israel with a lower income may avoid taxes altogether. This depends on your level of income and tax status - single, married (and whether your spouse is working or not). A single immigrant or a married one with wife working can earn up to NIS 4800 before paying any taxes. With wife not working, up to NIS 5350.
Income Tax Payment
Income tax is deduced from every paycheck. At the end of the year, the employer hands you a tax summary of what was deducted during the year. If something is incorrect (for example they took too much because you were unemployed during some months), you can file for a refund. Otherwise, no filing of any kind is necessary. This is one real advantage of the Israeli tax system. No filing, no record keeping (no trying to figure out if you can amortize the solar water heater into a 5 year tax deduction). (Exception, if you are self employed or operate a business, bi-monthly and/or monthly filing is necessary which requires the use of a government certified tax accountant and significant record keeping.)
However, it is worth noting that the employer (actually, his accountant) can make mistakes. Further, complications such as changing jobs, periods of unemployment, working multiple jobs (or having some other side incomes) can cause mistakes in the amount taken. In this case filing is required to recover overpayment (and there is a tax industry which lives off getting it back for you for a percentage).
Its Not As Bad As It Seems...
A note from an editor at Arutz-7 Israel Radio:
"Sometimes when you just repeat the bare facts, as this page does, it makes things more frightening than they need be. For instance, this page emphasizes that the taxes are taken on every aspect of one's salary.
This, of course, sounds foreboding. But, the taxes are taken off automatically from the the entire salary, such that one does not "suddenly get hit" with extra taxes or have his family budget messed up as a result of the extra costs. When a person gets a job, he asks how much he'll make; they give him a gross salary figure, then the two of them approximate the net (including all taxes above), then they'll up the gross a little to compensate, and that's it.
This page may make it sound it sound like there's a little guy with spectacles taking the last pennies out of the poor immigrant's hands...that's not the case.
Further, it would seem that Kitzvat Yeladim (national child subsidy payments paid by the government to parents) would belong on this page to offset the fears. This can be quite a sum, especially for a young couple where the husband does even a few weeks of army service and then has a few kids. And how about Kitzvat Bigud (clothing allowance for jobs that require a uniform) and Dmei Havra'ah (required employer vacation monitary allowance) and other such national assistance payments?" (Meaning, much of that tax money comes back around via various government services and programs and/or government mandated payments to employees.)
Social Security (called Bituach Leumi in Hebrew) includes an old-age/retirement pension, unemployment insurance, welfare and disability assistance.
The tax is a straight 5% of taxable income (more or less, some benefits may not be taxed under this tax). It is deducted from every paycheck.
Exceptions: This tax is ~2 1/2% for income that is "under 1/2 the average national wage" and has a cap at "4 times the national wage". Unfortunately, I have been unable to determine exactly what this is, here's a best guess: 1/2 is somewhere around NIS 3,500 per month and 4 times is somewhere around NIS 24,000 per month.
Health Tax (Dmay Briyut) pays for your national health insurance (for details on what this covers, see the Medical page).
This tax is also a straight 5% of taxable income (again, more or less). It is
deducted from every paycheck.
Property Tax, actually Residency Tax (Arnona in Hebrew) is charged on all property in Israel. This tax is levied by the local government (city, town, village, or community). The tax is paid by the current resident of the property. So, whether you buy, rent or open a store, you pay the tax. The price charged is determined by square footage (actually square meters in Israel) versus the per-meter rate of the building and the multiplier rate of the zone. (Zone is an area quality factor.)
The resulting rate can go as high as 25% of the monthly rent or loan payment (actually, I'm not aware of there being any limit, that's just the worst I've heard of). From my personal experience, 15-20% seems to be normal (personally I'm paying 19%).
I don't know if the payment method is the same for all locations. In the city where I live, I receive a yearly bill, which if paid gets a 10% discount. Otherwise they bill bi-monthly.
Sales / VAT Tax
In the U.S. there is "sales tax", a percentage you pay when you buy things. In Europe and Israel, there is a VAT tax (Value Added Tax). This covers products and services. So, besides paying tax when you buy things, you also pay tax to the plumber, dentist, lawyer, even insurance. (If you get in an accident, you must even pay VAT tax on the insurance deductible.)
Currently the VAT tax rate is 17%.
These taxes may or may not apply, depending on your lifestyle and business:
So, here's a summary of Israeli taxes:
Tax Discounts / Breaks
The bad news is, for the average working person there really are no major tax breaks. But, depending on circumstances, these may apply:
Obviously, compared to the U.S., Israeli taxes are high, very high. So, how can the impact be offset? Here are a few ideas: