Various types of business entities starting from companies to cooperatives operate in Israel. Businesses are subject to different types of taxes that we discuss discussing in this article. To address the legal issues related to setting up of businesses in Israel, you have to consult an experienced Israeli lawyer in the US.
Because Israel maintains a customary system of taxation, Taxes are imposed both at the corporate level and also on distributing the income to shareholders. The corporate tax rate is 23%. In case of resident companies, companies that are controlled and managed in Israel and companies that are incorporated in Israel, the taxes are imposed on their worldwide income and capital gains while non-resident companies are obligated to pay taxes only for their income that originates in Israel.
According to the Israeli tax ordinance, the residents of Israel are subject to taxes on their worldwide income. The income that Israeli residents have generated inside and outside the country including the income originating from employment, royalties, capital gains, business and interest are subject to being taxed. As Israel maintains a progressive taxation system, the tax rates that are about 10% in the initial periods may increase by up to 50%.
Non-residents have to pay taxes for the income that originated from an Israeli source.
VAT And Other Indirect Taxes
As per the Value added Tax (VAT) law, VAT applies to goods and services that are rendered. At the time of sale, the seller collects the VAT from the buyer. VAT is collected on the import price of goods or on the prices of transactions in Israel. The Israeli law clearly mentions the transactions that are exempted from VAT.
Real Estate Taxation
Taxes that are associated with real estate business include:
Land Appreciation Tax: It is associated with the disposal of real estate assets located in Israel. The rate of land appreciation tax is the same as that of the corporate tax rate.
Land Purchase Tax: Acquiring the ownership of real estate property located in Israel is subject to land purchase tax of 6%.
Municipal property tax: Local municipalities levy municipal property tax on real estate property by estimating the location, size and purpose of the property. The tenant is obligated to pay the tax, regardless of whether they own the property or rents it.
Foreign businesses planning to operate in Israel have to conduct a deep analysis of the tax system in Israel to choose a business structure that would help them pay a comparatively lesser tax.