What is Israel Corporation Tax Rate(Mas Chavarot)?
Well, just like people pay tax, Corporations need to pay tax too. The Corporate Tax Rate in Israel is 23% (currently 2021) and is payable on the profits of a company for each fiscal year. The Israel corporation tax rates are lower than the tax rates on most individuals to encourage investment.
When is corporation tax paid?
Instalments – during the year, the Israel corporation tax is payable in the form of monthly deposits. It is calculated based on Companies turnover.
Final Payment – After the year end, the Company’s financial statements are prepared and audited. Once they’re finalized they’re submitted together with a Corporation Tax Return to the Israeli Tax Office. A final tax assessment for the year will be issued to the Company. The tax already paid will serve as prepayments towards the final tax liability. If the prepayments exceed the tax assessment a tax refund will be issued. Or in the event of an underpayment, the Company will need to pay the balance.
Sometimes during the year the company can see that its profits will be lower than expected. If this happens it is possible to request to modify the percentage require or even to cancel the requests for instalments.
Taxes on Israeli dividends
Even though Companies pay corporation tax, when the shareholders withdraw funds from the company, they need to pay a second tax. However, shareholders have two options to withdraw the money:
- Take a salary from the company.
- Withdraw the money as a dividend.
For reasons of tax optimization, it is preferable to take a salary capped according to the various tax advantages of the shareholders. Then to take the remaining profits in the form of dividends.
Important to know: The tax rate for dividends is 25% or 30%, depending on your personal status.
Our firm will help you legally optimize your profits by paying as little tax as possible, regardless of your tax status.
Ma’am - The VAT Office in Israel
The Ma’am is the Value Added Tax or VAT, an indirect tax on consumption.
It is reportable and payable every 2 months for companies with an annual turnover of less than 1.5 Million shekels (for 2020). If a company has an annual turnover above 1.5 Million shekels, they need to report every month.
Important to know:
- Currently, the Maam rate is 17% (current in January 2021) on the turnover achieved.
- Only the one who is obliged to declare it (Hevra Baam, ossek mourchi) can deduct the Maam on expenses.
- Exports of goods and services are generally exempt or subject to a 0% value added rate.
- This means that one can recover the Maam on the expenses made in Israel but one does not pay the Maam on the receipts.
- This is one of the main tax advantages associated with exporting from Israel.
- Maam fraud is subject to criminal law, which can result in legal action, and heavy fines.
You’ve understood got the basics, the tax system in Israel is complex, it is advisable to call on professionals if you need.
The Companies which pay lower rates of tax
The Israeli government are keen to encourage investment, and to do so they can offer reduced rates of taxation to companies which meet the necessary requirements. There are several sectors including, hospitality, high tech, infrastructure etc… for which companies can receive preferential tax treatment.
Additionally, foreign companies operating through a branch in Israel, can usually withdraw their profits to the parent company abroad without paying any dividend tax. However, this is not a reduction in the Israel Corporation Tax rates. Read our article on Foreign Companies in Israel for more information.