Tax rates in Israel

What are the Israel Income tax rates in Israel?

The income tax on individuals in Israel range between 10% and 50%. Which tax rate you pay will depend on the types of income and how much you earn.

Use the Dray & Dray Income Tax Calculator

If you’re registered as a freelancer (Osek Murshe or Osek Patur), our software can calculate how much tax you’ll owe. It’s simple, quick and easy. Just answer a few questions and see your result. Click below to open our income tax calculator.

How do income tax brackets work?

Like most other countries, Israel has a progressive income tax system that can often be confusing for new taxpayers. Based on the tax brackets system, as your income increases, you’ll pay higher tax rates – But you still pay the lower rates of tax on the part of income which fell into the lower brackets.

When your income is split into different brackets. Each bracket is taxed at a different rate. You start in the smallest bracket, once that’s full, you move into the next. As you make more money, only the income in the higher brackets are taxed at higher rates.

For example

Let’s say you have an annual profit in from your Osek Murshe in 2022 of 220,000 ₪ (and no other Income). So a basic tax calculation might look like this:

  1. On the first bracket; up to 77,400₪ you pay tax at 10%:
    77,400* 10% = 7,740₪
  2. Then move into the 2nd bracket, the income between 77,401₪ to 110,880₪ you pay 14%: 33,479 * 14% = 4,687₪
  3. And you keep going until you reach the bracket with the highest level of income. 

So, if you have a high income, you won’t pay income tax at a high rate on all of your income, only the part which falls into the higher tax brackets.

Applying Credit Points, National Insurance, etc...

But in reality, you pay less Income Tax once your tax credits have been applied. Individual’s are entitled to an annual tax deduction which is calculated based on their personal circumstances. Read our Credit Points Guide for more information.

Also, it’s important to remember that in addition to Income Tax calculated using the Israel income tax rates brackets, you must also contribute to Bituach Leumi (National Insurance).

You can find more information on this topic in Hebrew on the KolZchut website.

Active Vs. Passive income

Active income is work that you’re actively involved in. For example working as an employee or running a business. Passive income is earned from assets that you own e.g. rental income, dividends etc.

Individuals under the age of 60 can’t use the lower tax brackets (under 31%) for passive incomes.

Incomes taxed at lower tax rates

There are numerous types of incomes which have special tax rates. And these are lower than the rates specified in the tax rates brackets system. For example, tax on dividends can reach a maximum of 25% or 30%.

  1. Rental income (Israeli residential) – 10% (conditions apply)
  2. Rental income (non-Israeli) – 15% (conditions apply)
  3. Interest – usually 25%
  4. Dividends – 25% (30% for a controlling shareholder)
  5. Capital gains – usually 25%
  6. Lottery wins – 25%

The special tax rates for rental income depend on the location and classification of the real estate. We’ve written are article which explains this for you.

Dray & Dray - accountancy services

The Dray & Dray office provides a range of accountancy services to clients throughout Israel and beyond. We take pride in our strong client relationships and ease of communication.  

Don’t hesitate to request a free quote – we’ll do our best to satisfy you.

The above should not be construed as a recommendation and / or opinion and in any case it is recommended to obtain personalized professional advice. We will be happy to be at your disposal for any questions and / or clarifications in this matter and in general.

Got Questions ?
Ask an accountant for free

Boruch Levenson

Backed by his team of Israeli tax specialists, Boruch cares for the requirements of the English speaking population.

TAX GUIDES

Recent articles :

Setting up a payroll in Israel

Setting up payroll in Israel

Setting up a payroll system in any country requires a thorough understanding of the local laws, regulations, and reporting requirements.

employing relatives

Employing relatives

Tax Considerations When Employing Relatives in Your Business in Israel When it comes to running a business, it is common

Working from home expenses

Working from home expenses

Following the covid pandemic, many businesses have moved to outsourcing their jobs to freelancers working from home. As a home-based

Signup
to the newsletter

Receive our tips, advice, tips to better understand taxation