Corporate Tax in Israel

In Israel There is an obligation to pay income tax on both private individuals and businesses. For businesses registered as limited liability companies (Ltd company), the tax on the income is called “corporate tax”.

Corporate tax is an income tax imposed proportionally – according to the rate established by law – on limited liability companies. That is, the amount of tax that the company must pay will be proportional to the amount of its income.

Although the tax is defined as an income tax, it is actually imposed only on the company’s profits.

The tax is imposed on the net profit of the companies i.e. the profits left in the company’s  after deducting the various expenses involved in the activity.

Example 1 : Company X had revenues of 2 million NIS in a certain tax year. The total operating expenses, financing expenses, management expenses, maintenance, etc. also amounted to 2.1 million NIS. That is, after deducting the expenses from the income, the company has no profit left, and therefore it is not subject to tax. the not loss can be deducted the year after.

Example 2: Company Z had revenues of one million in a certain tax year. its  total expenses that year amounted to 700,000 NIS. The company will be liable for the net profit, NIS 300,000, in corporate tax at the rate set by law.

The tax rate

In Israel, the corporate tax rate is fixed in the Income Tax law, and is updated every few years. As of today, the 2022 corporate tax is 23%  corporate tax rate in Israel in the last ten years is:

Year 2021 – 23%
Year 2020 – 23%.
2019 – 23%.
2018 – 23%.
2017 – 24%.
2016 – 25%.
2015 – 26.5%.
2014 – 26.5%.
2013 – 25%.
2012 – 25%.
2011 – 24%.
2010 – 25%.

The tax payment process

Each limited liability company pays monthly tax advances to the ITA (Israel Tax Authority), i.e. the estimated portion of its income, based on the report submitted in the previous year. At the end of the tax year, the ITA makes an exact calculation for each company and examines whether the advances cover all of its tax liability, Or the company must make an additional tax payment. Alternatively, it is possible that when calculating the annual tax, it will turn out that the advances paid exceed the amount required to be paid, for example when the company accumulated unexpected losses during the year. In the event of an overpayment of corporate tax, the tax authority is obligated to grant a refund Company tax.

Tax Benefits

After calculating the amount of tax that a company is required to pay as derived from the profits, the tax benefits to which the company is entitled can be deducted from it, thus reducing the amount of the payment.

For example, the law to encourage capital investments in Israel grants significant benefits to companies that invest in certain enterprises, according to criteria established by the Ministry of Economy and Industry, including:

Any company that complies with the conditions set forth in the law will be entitled to a reduced corporate tax rate of 16%, and in some cases, for example when the location of the plant is in a development area as defined by the law, the tax will be reduced to 7.5%, a rate that is significantly lower than the normal corporate tax rate.