Have you heard of France's ISF, or Impôt Sur la Fortune? A tax that only applies to the "rich"? You should know that there's also an additional tax in Israel for high earners. This contribution is called "מס יסף". (Remind you of anything? Yessef? ISF?)
Exceptional tax on high incomes in Israel
The exceptional contribution on high incomes applies to anyone whose gross annual taxable income exceeds a certain ceiling. This ceiling is set by the government, and is updated every year.
- For fiscal year 2016, the amount of the cap was 803,520 Shekels.
- For the 2017 tax year, this cap has been reduced to 640,000 Shekels.
In fact, many more people are now affected by this additional tax.
As we explain in this article
Since the beginning of 2017, the exceptional contribution on high incomes has risen from 2% to 3%.
So, if your gross annual income exceeds the ceiling set by law, you will now have to pay an additional tax of 3% (in 2017).
Exceptional tax on high incomes: What exactly do we pay on?
The Israeli tax authorities have determined that the exceptional contribution must be paid if "Gross taxable income" exceeds a certain ceiling (see above).
Therefore, here is a list of the different types of income that will increase your gross taxable income:
Your gross monthly income as an employee
Your monthly salary is used to determine your gross annual taxable income.
Gross profit in your self-employed activity
Are you self-employed (Ossek Patour or Ossek Mourché)? Your gross annual profit from your business activity is taken into account to determine your gross taxable income.
The dividends you receive from your company are added to your gross annual taxable income.
See also: Taxation for companies in Israel
The tax is also paid on real estate capital gains
- Capital gains realized on the sale of a residential apartment.
If the value of the sale exceeds 4 million Shekels (in 2016), the full amount of the capital gain will be added to your gross taxable income.
In other words, when you sell an apartment that costs more than 4 Million, take into account that the tax on the capital gain realized will be 28% and not 25%.
- Capital gains on financial investments.
If you have realized a capital gain on financial investments, the amount of the gain will also be added to your annual gross taxable income.
Is my spouse's income added to my gross taxable income?
It's important to note that taxation in Israel is personal and independent. The notion of a "tax household" does not exist in most cases.
This means that your spouse's income is not taken into account, and is not added to your gross taxable income.
Distribution of income over several years
In Israel, it is possible to distribute income received over several years backwards.
For example, you receive a salary of 300,000 shekels in March 2017. This salary was paid to you as a bonus for your performance over the previous 24 months. We can define that this bonus must be split between the years 2015, 2016 and 2017.
The types of income that can be split are: salary differences, an employee's vacation buyback, a possible grant awarded on account of retirement or death.
The position of the tax authorities is clear: the allocation of these amounts changes the amount of annual gross taxable income.
In this way, you can avoid paying this exceptional contribution for the years concerned.
Withholding tax for employees in Israel
If you are employed in Israel, and earn more than the legal maximum, your employer will deduct this additional tax at source.
As a result, your payslip will show a maximum tax rate of 50%.
Obligation to submit your annual tax return
A taxpayer will be required to file an annual tax return (דוח אישי) if his or her gross taxable income exceeds the ceiling set by law.
For example, even if the taxpayer is only an employee
However, if his income exceeds the ceiling, he will still have to file a tax return with the tax authorities in Israel.
Payment of the additional tax will be made at the time of submission of the annual tax return.
In cases where the capital gain realized on the sale of real estate exposes the seller to this exceptional contribution, the real estate administration office in Israel will inform the seller of this and specify to which tax authority he must submit his statement.
Your questions - Our advice :
As you can see, anyone whose gross taxable income exceeds the ceiling is obliged to file an annual tax return. As the amount of tax due can reach substantial sums, it's best to seek specialist advice.
- Does my income from working abroad count towards my gross taxable income?
- I've been an Ole Hadash for less than 10 years. I earn 200,000 Shekels in Israel as an employee and 150,000€ in France. Do I have to file an annual tax return and pay the additional tax?
- In the case of a real estate capital gain, can I distribute the gain over previous years?
- What are the risks if I don't declare?
- How can the taxman know how much I earn?