Tax recommendations for year-end 2023
As we approach the end of the calendar and tax year, and in view of the recent changes in Israeli taxation, we've decided to provide you with a useful roundup of the last things you need to remember as the year draws to a close.
It is essential to keep track of your expenses and contributions, whether you are self-employed or employed, in order to maximize the effectiveness of your tax obligations in Israel.
Of course, tax optimization should not be the only consideration when it comes to your pension contributions and other payments. Other factors, such as planning your future savings or preserving your rights, are just as crucial.
Pension contributions in Israel
First of all, here's a quick summary of the law governing retirement in Israel, when you're self-employed. (Ossek Patour or Ossek Mourché):
Since January 1, 2017 the self-employed have been obliged to contribute towards their retirement. This law was passed to protect self-employed people who were not thinking about the future and who found themselves with nothing when retirement day came.
Here are the main contribution rules for the self-employed:
- All self-employed people between the ages of 21 and 55 are required to contribute.
- The amount that the self-employed person must contribute is up to the average wage, i.e. 11,870 shekels for the year 2023.
- A self-employed person who is also an employee does not have to make any additional contributions. This is because they contribute the necessary sums for their retirement via their salary.
- The amount of the contribution is the result of the expected profit. In practical terms, a self-employed person generating a monthly profit of 10,762 shekels or more will have to contribute up to the maximum sum of 897 shekels per month.
Of course, you can contribute more if you feel like it, but the tax benefits are limited to this ceiling.
Loss of working capacity insurance - ביטוח בגין אובדן כושר עבודה
If you contribute a sum each month to cover a possible incapacity to work in Israel, you should be aware that the tax authorities recognize this contribution as a business expense. This expense can amount to up to 3.5% of your income. However, it is capped at 11,870 shekels per year.
Keren hishtalmut - Training fund
Keren Hishtalmut is Israel's favorite investment. The maximum amount you can contribute is 12,776 shekels or 4.5% of your income. (Maximum income for the self-employed: 283,911 shekels). From a tax point of view, the gain from this contribution can be as much as 6388 shekels.
However, you can contribute more to your Keren Hishtalmut provided the total for the year is not more than 19,920 shekels. Profits from this investment are tax-free when you withdraw them, under certain conditions.
Payments to Bituach Leumi
When you pay installments (מקדמות) to Bituah Leoumi, you receive 52% of that installment as a tax-deductible expense. Therefore, we recommend that you pay the December installment no later than 12/31/2023. This will enable you to generate an additional expense, and will reduce your annual taxable profit.
Less profit automatically means less tax to pay this year.
Don't wait until 2024 - it's already (probably) too late.
Property income in Israel (for individuals)
In 2023, rental income is tax-exempt up to a ceiling from 5,471Shekels / month. In other words, if you earned less than 65,652 shekels in 2023 through your residential property income, you will be exempt from paying taxes in Israel.
If you exceed this threshold, you can opt for 2 schemes:
- Lump-sum payment of 10% on all rents collected.
In this case, no deductions or tax credits are taken into account. You can opt for this system provided you declare and pay up to 30/01/2024.
- Payment based on actual income generated by the property.
In this case, several factors come into play that can significantly reduce your tax liability on your property income in Israel. Very often, this system is more advantageous from a tax point of view. We therefore always recommend that you carry out a study before "jumping" into the 10% package.
We explain it all on video:
Tax payments for 2023
Finally, it is important to point out that taxes for the 2023 fiscal year, which are paid until 31/01/2024, will not include interest and indexations.
How can we optimize your tax situation for 2023?
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As an expert in tax optimization, our priority is to provide you with top-quality advice and support. We regularly propose optimization strategies to help you minimize your tax burden.