Resident individuals are taxed on their worldwide income and capital gains. Married couples can opt for joint or separate taxation.
Taxable income includes (1) employment income, (2) business income, (3) investment income (dividends, interest, rents, royalties), and (4) pension income. Income and capital gains are taxed at progressive rates.
For 2011, the maximum personal tax rate is 45%. Income tax rates have been decreasing in recent years and are scheduled to decrease to a maximum rate of 39% in the year 2016.
|TAXABLE INCOME, ILS (US$)|
|Up to 60,840 (US$16,783)|
|60,840 – 103,920 (US$28,668)|
|103,920 – 168,840 (US$46,577)|
|168,840 – 254,880 (US$70,312)|
|254,880 – 482,760 (US$133,175)|
|Over 482,760 (US$133,175)|
|Source: Global Property Guide|
Residents are entitled to deduct the following:
Rental income is taxed at progressive rates. The taxable income is computed by deducting income-generating expenses from the gross income. Allowable deductions are depreciation, building insurance, municipal duties, management charges, maintenance and repairs. Depreciation rate is 2% per annum.
Most properties sold in Israel are exempt from capital gains tax. If the gains are taxable, the net gain is taxed at the standard income tax rates.
The taxable capital gain is computed by splitting the capital gains into its real and exempt inflationary components. The inflationary portion of the gain is computed by applying the Israeli Consumer Price Index (CPI) to the cost of the capital asset. The inflationary portion was charged at 10% on the amount accruing up to 31 December 1993. No tax is levied on the inflationary portion accruing since that date.
Property taxes are no longer levied in Israel.
Income and capital gains earned by companies are subject to corporate income tax at a flat rate of 25% as of 2012. Income-generating expenses are deductible when calculating taxable income.
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