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Personal, not territorial, taxation
According to Article 2 of the Israeli Tax Code, an Israeli resident is subject to taxation on a personal, not a territorial, basis. How do I understand taxation in Israel?
In other words, regardless of where the profit is made, it will be subject to taxation in Israel.
Of course, there are agreements between countries to avoid "double taxation", which translate into Amanat Mas - tax treaty.
At the same time, a person who is not considered an Israeli resident will be subject to Israeli tax only on profits made in Israel.ALSO READ: How do taxes work in Israel?ALSO READ: Tax exemption in Israel for 10 years after your aliyah
Here's an example to help you understand the principle
Réouven is a software engineer. He develops Smartphone applications that he sells to companies.
Recently, Réouven received a call from a company based abroad. (in France, for example), which wants to hire Réouven for a period of 5 months, during which he will stay in France and develop a revolutionary application for the company.
For the development of this application, Réouven negotiated a remuneration of 45,000 Shekels/month, i.e. 225,000 Shekels over a 5-month period.
If Réouven is considered an Israeli resident, he will have to pay income tax in France, and will then be subject to income tax in Israel, in accordance with the existing treaty between the 2 countries.
This is a personal tax, not a territorial one.In other words, no matter where the income was earned, you'll have to pay tax in Israel.
However, if Réouven is not considered an Israeli citizen, he will have to pay income tax in France only, and will be able to bring his money back to Israel, legally, without having to pay additional taxes.
Israel's tax system is complex, and it's advisable to seek professional assistance.
