Simple Tax Guide for Americans in Israel

If you are an American citizen living in Israel, you should read this article in the Haaretz:

IRS now hunting for American tax fugitives in Israel

The U.S. Internal Revenue Service starts a campaign to track down the tens of thousands of Americans living in Israel who are federal income tax outlaws.

At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and permanent residents living in Israel for over 15 years. We have been vetted by the State Department and are listed on the Official List of US Tax Preparers maintained by the US Consulate in Tel Aviv. Our clients hail from all parts of Israel - Tel Aviv and Jerusalem, Haifa and Beersheba, Ashod and Petah Tikva.

As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country. 

 

We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS. 

 

The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.

We have many clients living in Israel and know how to integrate your Israeli taxes into the American tax return. Any Israeli income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in France for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.

We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.

Unfortunately, unlike most countries in the world, you must also file your taxes on worldwide income so long as you are a U.S. citizen or green card holder. You always have the option to give up your U.S. citizenship - by following proper IRS and State Department procedures you can surrender your U.S. Citizenship and therefore cut off your obligation to file U.S. taxes in the future. You must surrender the Citizenship for non-tax avoidance reasons and then can usually only return to the U.S. for no more than 30 days per year for the subsequent ten years. This is another service that we have provided many clients in the past.

Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax and legal concerns; we look forward to working with you.

Below we include information on the Israeli Tax System for American expatriates.


Israel's tax is imposed on a personal basis, in place of the previous territorial basis. All sources of income are taxed in Israel. In 2010 Israel's corporate income tax rate is 25% and the individual income tax rates are 10%-45%. There are reduced tax rates for passive income. Israel tax withholding for non-residents are: Dividends- 20-25%, Royalties- 25%, Interest- 15, 20, 25%.

Dual Citizen Taxation:

A contract exists between Israel and the USA concerning taxation of residents with dual citizenship. If an employee has dual citizenship and is earning money in Israel, tax obligations are obliged to the authorities of Israel. These obligations are based on one's individual status in Israel and America (additional taxes once returned in the states, working in America, investments, income). However, one will not pay double taxes on the same income. An employee won't be taxed in America for income made in Israel.

Social Security and Medical Insurance:

Each employee must pay social security and health insurance by deducting from one's salary based on individual income. Both employee and employer are required to pay social security. The top rate for social security payments are: Employer- 5.43% and Employee- 12% and are subject to a monthly ceiling of 76,830NIS.

A non-resident employee in Israel must issue private health insurance for the entire length of stay. Non-residents are entitled to a limited service from the social security benefits. The social security rate that will be deducted monthly will be a minimal applicable fee.


Israel Income tax rates

The maximum personal marginal tax rate for earned income for 2010 is 44% in Israel. The marginal rate will be gradually reduced until it reaches 39% in 2016.

Basis – Israeli residents are taxed on their worldwide income. Nonresidents are taxed only on Israeli-source income.

Residence – An individual is resident in Israel if his/her "centre of vital interests" is in Israel. The number of days an individual spends in Israel and overseas also affects residence status: an individual will be deemed to be resident if he/she spent 183 days or more in Israel or if in the current tax year he/she spends 30 or more days in Israel, and the total period of the stay in Israel in the tax year and in the 2 preceding tax years on a cumulative basis amounts to 425 days or more.

An Israeli resident who spends 2 consecutive years abroad (183 days each year) and whose centre of vital interests in the 2 subsequent years was located abroad will be deemed to be a foreign resident from the date the individual chose to leave Israel.

Tax Filing status – A married couple living together may opt for joint or separate assessment.

Taxable income – All income from employment and business is taxable, including the value of fringe benefits and cost-of-living allowances. Passive income from bank deposits and savings, both in Israel and overseas, also are taxable. A new Israeli resident and a senior returning resident will be entitled to a tax exemption for certain types of income for a period of 10 years starting from the date of immigration/return to Israel. The benefit period may be extended for a maximum additional 10-year period provided certain investment criteria are fulfilled and approval is obtained from the Minister of Finance. Regulations will be issued to specify the benefits for the additional 10-year period.

Capital gains – Capital gains tax may arise on the sale of assets. A 20% tax applies on gains derived by noncontrolling shareholders (i.e. those holding less than 10% of the Israeli company payer's shares) from the disposal of company securities; otherwise, the rate is 25%.

Tax Deductions and tax allowances – Tax deductions are granted for pension fund contributions and individuals are entitled to various personal allowances.


Other taxes on individuals:

Capital duty – No
Stamp duty – No
Capital acquisitions tax – No

Real property tax – Property betterment tax is applicable to the sale of real property. The principles of the property betterment tax are similar to those of the capital gains tax. The "betterment", in real terms, derived from a purchase date up to 11 November 2001, will be subject to the marginal individual tax rate. The balance of the betterment, in real terms, will be taxed at the marginal individual tax rates up to 20% (for individuals).

A purchaser of real property is subject to purchase tax (acquisition tax) at a rate of 5%. However, various rates ranging from 0%- 5% apply to the purchase of a residence.

Inheritance/estate tax – No
Net wealth/net worth tax – No

Social security – National insurance is required by law (covering allowances and stipends for pensioners, widow/ers, disability, maternity, children's allowances, industrial accidents, military-service pay and unemployment). Some employers pay part or all of workers' compulsory contributions to the national insurance scheme.


Administration and compliance:

Tax year – Calendar year

Tax Filing and tax payment – Individuals must file an annual tax return no later than 30 April of the following year (an extension to file may be obtained in certain circumstances).

A new Israeli resident and a senior returning resident will not be subject to the reporting requirements in Israel for income derived from or accrued outside of Israel, or sourced from assets outside of Israel for a 10-year period.

Tax Penalties – Penalties apply if advance payments are overdue or if tax returns are filed late. The balance of any tax due is payable from the beginning of the following tax year and is linked to the consumer price index. Any overdue tax balance attracts interest at an additional 4% plus the inflation rate until paid in full.


Israel Corporate tax

The basic rate of company tax is reduced from 26% to 25% on 1 January 2010, and will be further gradually reduced until it reaches 18% in 2016. Israeli companies classified as approved enterprises are entitled to reduced tax rates (0%-25%), with the rate and period of benefits depending on the location of the plant, the percentage of the foreign investment, the track chosen and whether certain conditions are satisfied. There are no basic differences in the tax regime as it is applied to different forms of business organisations. Partnerships are transparent for tax purposes.

Year Company Tax Rate
2010 25%
2011 24%
2012 23%
2013 22%
2014 21%
2015 20%
2016 18%

Residence – A corporation is deemed to be resident in Israel if its activities are managed and controlled from Israel or if it is organized under the laws of Israel.

A corporation managed and controlled by a new Israeli resident or a senior returning resident (i.e. an individual who spent 10 years abroad) generally will not be classified as an Israeli resident company for a benefited period of 10 years.

Basis – Israeli resident companies are subject to tax on worldwide profits and gains, with credit granted for overseas taxes. A nonresident company is subject to tax only on Israeli-source profits, which include, inter alia, income of an Israeli permanent establishment or income accrued and produced in Israel, as well as capital gains from the sale of Israeli assets.

Taxable income – For a resident corporation, corporate income tax applies to all income regardless of where it arises. Adjustments for inflation are treated as ordinary income or expenditure (the adjustment inflation law was abolished as of the 2008 tax year). Israeli resident companies are liable for capital gains tax on their worldwide capital gains.

Taxation of dividends – The tax rate on dividends distributed by an Israeli resident company to another Israeli company is 0%, provided the dividends arise from income produced or accrued in Israel. The tax rate on dividends from income produced or accrued abroad and from dividends derived from abroad is 25%, with credit granted for tax withheld. Alternatively, the gross dividend would be subject to the regular corporate tax rate with both a direct and indirect foreign tax credit if the Israeli company qualifies for the indirect tax credit mechanism. Dividends distributed by an "approved enterprise" are generally taxed at a rate of 15% if the distribution is made from profits attributable to the approved enterprise, or at a reduced rate of 4% on the new alternative incentive track (the so-called "Ireland Track").

Capital gains – The capital gains tax rate depends on the purchase date and the nature of the asset. The general capital gains tax rate is 25%. Corporations are taxed at 25% on gains realised on the disposal of shares (with respect to gains accumulated from 1 January 2003). If the seller was a corporate entity subject to the Inflationary Adjustments Law as of 2006, it will continue to be subject to the corporate tax rate on gains derived from the disposal of traded securities purchased before 1 January 2006. The inflationary component of the gain is exempt from tax for both corporations and individuals.

An Israeli resident is subject to capital gains tax in Israel on the disposal of all its assets regardless of whether the assets are located in Israel. Capital gains derived from the sale, exchange, transfer or other disposition of tangible and intangible capital assets located in Israel or constituting a direct or indirect ownership interest of assets in Israel, are treated as Israeli-source income and subject to Israeli capital gains tax, regardless of whether the seller is a resident in Israel for Israeli tax purposes. Shares and other securities of Israeli companies, or shares and other securities of non-Israeli companies holding their main assets in Israel, may be treated as Israeli assets.

However, persons who are not resident in Israel for tax purposes are exempt from Israeli capital gains tax on gains from the sale of shares traded on the Tel Aviv stock exchange and gains from the sale of shares of Israeli companies traded on stock exchanges overseas acquired after listing, unless the gain is attributable to a permanent establishment the seller maintains in Israel.

Nonresidents are also exempt from tax on gains derived from the sale of shares allocated to them by an Israeli-resident company in consideration for their capital investment provided the allocating company was qualified, at the time of the allocation, as a "Research and Development (R&D) Intensive Company".

Additionally, an exemption from capital gains tax applies on the sale of Israeli securities acquired between 1 July 2005 and 31 December 2008 by residents of countries that have concluded a tax treaty with Israel, provided the gains are not attributable to a permanent establishment of the seller in Israel.

Following a recent amendment, a broad exemption from capital gains tax applies to gains derived from the sale of securities in Israeli or Israeli-related companies acquired on or after 1 January 2009 by all nonresidents (both entities and individuals), regardless of whether the nonresident is eligible for tax treaty benefits. This exemption is subject to several restrictions. The exemption does not apply (1) to shares in companies whose assets consist primarily (directly or indirectly) of real property (i.e. land or buildings); (2) if the shares being sold were purchased from a related party or by way of certain tax-deferred reorganizations; (3) if the shares were held through a permanent establishment; or (4) when the nonresident selling entity is 25% or more controlled by Israeli residents.

Losses – Trading or business losses may be offset against income from any source in the same year. Losses may be carried forward indefinitely to be offset against business income and business capital gains. Losses may not be carried back.

Surtax – No
Alternative minimum tax – No

Foreign tax credit – Israel grants a direct foreign tax credit on foreign taxes paid on non-Israeli-source income. An indirect tax credit is granted in certain cases.

Participation exemption – A special tax regime applies to Israeli holding companies that invest in foreign corporations. Eligible corporations will be entitled to an exemption from tax on qualified dividends received from foreign subsidiaries and on capital gains derived from the sale of shares in foreign subsidiaries, as well as a full exemption from tax on financial income derived from investments in the Israeli capital market. In addition, dividends paid by the holding company to nonresident shareholders will be subject to a 5% withholding tax, rather than the normal 25% rate.

Holding company regime – See under "Participation exemption".

Incentives – Various programs are available, e.g. foreign investment incentives (approved enterprise status, various tracks), a holding company regime and R&D incentives. See tax rates section above.


Withholding tax:

Dividends – A 25% withholding tax is levied on dividends paid to a controlling foreign resident shareholder (i.e. one that holds 10% or more of the Israeli payer's shares for a period of 12 months before the payment); otherwise, the rate is 20%. These rates may be reduced under an applicable tax treaty or an incentives regime.

Interest – A 15%, 20% or 25% withholding tax is levied depending, inter alia, on the type of loan (whether or not linked to the index) and whether the recipient of the interest income is an individual or a "body of persons". These rates may be reduced under an applicable tax treaty.

Royalties – A 15% withholding tax is levied on royalty payments to nonresidents if the payer is an "approved enterprise"; otherwise, the rate is 25%. The rate may be reduced under a tax treaty.

Branch remittance tax – No


Other taxes on corporations:

Capital duty – No
Payroll tax – No

Real property tax – Property betterment tax is applicable to the sale of real property. The principles of the property betterment tax are similar to those of the capital gains tax. From 2010, the betterment derived from the purchase date until the sale date will be subject to the corporate tax rate at the sale date.

Social security – National insurance is required by law (covering allowances and stipends). Some employers pay part or all of employees' compulsory contributions to the national insurance scheme.

Stamp duty – No
Transfer tax – See under "Real property tax".

Other – A purchaser of real property is subject to a purchase tax (acquisition tax) at a rate of 5%.

Purchase tax (also applicable to individuals) is levied on certain imports or local industrial production and is collected from local manufacturers 30 days after the month in which the goods are sold and from the importer when the goods are released from customs.


Anti-avoidance rules:

Transfer pricing – The transfer pricing rules, based on the OECD guidelines, apply to transactions between an Israeli resident and its related nonresident. A hierarchy of transfer pricing methodologies applies, with preference given to transaction-based methods over profit-based methods.

Documentation requirements mandate that the taxpayer attach a statement to the annual tax return and provide a detailed transfer pricing study at the request of the tax authorities. Advance pricing agreements may be obtained.

Thin capitalisation – No

Controlled foreign companies – A foreign company "controlled" by Israeli shareholders that has accumulated undistributed passive profits taxed at a rate lower than 20% will be considered a CFC. In such a case, the Israeli controlling member will be treated as if it had received its proportionate share of profits as dividend income (deemed dividends).

Simultaneously, a tax credit (a deemed credit) will be given to the Israeli controlling shareholder in the amount of the foreign tax that would have been paid if the undistributed passive profits had been distributed as a dividend.

Other – Artificial transactions may be subject to challenge.

Disclosure requirements – The taxpayer generally must disclose all facts relevant for taxation, especially with respect to transactions with related parties.


Administration and compliance:

Tax year – The tax year begins in January, but this may be changed for special circumstances by application.

Consolidated tax returns – The filing of a consolidated return is generally not permitted in Israel. Each company in a group is required to file its own return. However, if certain conditions are satisfied, qualified "industrial companies" may file a consolidated return for tax purposes.

Tax Filing requirements – Companies must file an annual tax return no later than 5 months after the end of the tax year (an extension to file may be obtained in certain circumstances).

The tax authorities determine advance tax payments, with some taxpayers required to pay according to monthly turnover.

Tax Penalties – Penalties apply if advance payments are overdue or if tax returns are filed late. The balance of any tax due is payable from the beginning of the following tax year and is linked to the consumer price index. Any overdue tax balance attracts interest at an additional 4% plus the inflation rate until paid in full.

Rulings – Taxpayers may request a ruling on the tax consequences of a proposed transaction.


Israel VAT (Value Added Tax) Rates

The standard VAT rate in Israel is 16%.

Certain items are zero rated, including exported goods, intangible goods and the provision of certain services to nonresidents, tourism services, the transport of cargo to and from Israel, the sale of goods and services to the Eilat free-trade zone, and the sale of fresh fruit and vegetables.

VAT Registration – An Israeli company must generally register for VAT purposes. A foreign company registered in Israel, or a non-registered foreign company that carries on an activity or business in Israel, must notify the VAT office closest to its place of business within 30 days from the date of commencing its activity in Israel through a representative in Israel.

Filing and VAT payment – The dealer will collect VAT on the goods, services or assets it sells. The VAT collected will be transferred to the VAT authorities once a month or once every 2 months, whichever is determined more appropriate by the authorities based on the annual turnover's projection (once a month if turnover is higher than approximately USD 150,000). Against this, the dealer may claim a refund on the VAT it pays for goods, services or assets that it purchases in the course of doing business.

VAT relief – The annual revenue threshold to qualify as an "exempt dealer" under the VAT law will be increased from NIS 70,605 to NIS 100,000 as from 1 January 2012. Such dealers are exempt from output VAT and receive relief from filing periodic VAT returns (other than the annual declaration reporting annual turnover), but can still claim input VAT (subject to several exceptions).

Taxable transactions – VAT applies to most goods and services, including imported goods and services.


Who is required to file an Israeli tax return, and by when


Unlike in the US and the UK, not everybody in Israel has to file a tax return.


In some countries, including the US and the UK, virtually everyone has to file an annual tax return. Here in Israel, to make things easier for some, not everybody has to do so. Here is an overview of the requirements for the 2010 tax year, namely the year ended December 31, 2010.

When is the filing deadline?

The filing deadline is May 31 for online filers and for businesses required to keep double-entry books and April 30 for other individuals.

Time extensions for filing can be requested from the Israel Tax Authority if you have a good reason.

Alternatively, most accounting firms are allowed to spread out the filing of their clientsÂ’ tax returns over a longer period, without providing reasons, according to a special arrangement between the ITA and the Institute of Certified Public Accountants in Israel.

Who must file online?

Online filings are required from you if you are required to file a tax return (see below) if any of the following also apply in the year: if you have income from a business, employment, agriculture; if you sold a nonexempt Israeli real-estate interest and didnÂ’t pay tax at the maximum rate; if you are a 10%-or-more shareholder in a controlled foreign company (see below); if you carried out a reportable tax planning act (see below); or if the ITA requested it. Even if you are required to file online, you also must still file old-fashioned way (on paper).

Notwithstanding the above, no online filing is needed in the following cases: (1) if your income from a business, employment and agriculture didn’t exceed NIS 76,710 – nor did your spouse’s income exceed that amount, nor did your joint income exceed NIS 153,420; or (2) if you and your spouse have reached retirement age (generally 67 for men, 64 for women); or (3) you are a 10%-or-more shareholder in an Israeli company; or (4) you claimed a “negative income tax” benefit.

Who has to file a tax return?

The rules are complex. In principle, Israeli resident individuals over 18 must file a tax return unless they are eligible for a filing exemption. These rules apply even if you donÂ’t need to file online.

Who is exempt from filing?

Residents will be EXEMPT from filing a tax return if all their income in the tax year was salary income or rental income, or foreign income, foreign pension income, interest income, securities income, or other income or a combination thereof – but only if a number of conditions are met, as summarized below. (Certain people must always file an annual tax return as described in the next paragraph).

• New and senior returning residents are exempt from Israeli tax and reporting obligations regarding non-Israeli source income and gains for 10 years after becoming Israeli resident. (Senior returning residents are individuals who lived abroad at least five years and returned to reside Israel in 2007-09, or lived abroad 10 years if they returned to Israel after 2009.)

• Salary income may fall within the filing exemption if it did not exceed NIS 613,000 in 2010 (for each spouse) and the required tax was withheld at source.

In addition, such “salary income” should be one of the following: employment income; pension paid by an employer or a provident fund; severance pay paid upon death or leaving an employer; a lump sum paid instead of a pension; income realized by an employee from shares or share options, pursuant to a plan approved under Section 102 of the Income Tax Ordinance (regardless of which alternative was adopted: capital gain or salary income).

If you had more than one employer in the year, the tax withholding needs to be according to instructions obtained from the local tax office.

• Rental income may fall within the filing exemption if it was from renting out residential accommodation in Israel; the required tax was paid; it did not exceed NIS 318,000 in 2010 (for each spouse); 10% tax was paid thereon by January 30, 2011; and it and no expenses, losses, exemption or credit was claimed.

• Foreign income may fall within the filing exemption if it was accrued or derived outside Israel or if it relates to foreign securities or Israeli company securities publicly traded on an exchange outside Israel; it did not exceed NIS 318,000 in 2010 (for each spouse); and tax was paid on account unless an exemption applies.

For example, new and senior returning residents (who lived abroad five or 10 years, depending on the date they returned) enjoy a 10-year tax and reporting exemption for foreign income and gains.

• Foreign pension income may fall within the filing exemption if any tax due has been paid and it did not exceed NIS 318,000 in 2010 (for each spouse). New and senior returning residents (who lived abroad five or 10 years) enjoy a 10-year tax and reporting exemption for foreignsource income, including foreign pensions.

• Interest income may fall within the filing exemption if it relates to interest, discount income, inflation indexation or exchange gains that are nonbusiness in nature and accrued or derived in Israel from a savings plan, deposit, provident fund, publicly traded bond, State of Israel bond or makam (short-term bond).

The filing exemption only applies if the income is exempt or any tax due was withheld; the income must not exceed in total NIS 613,000 in 2010 if it was taxable.

Where tax applies, it is due at rates of 15% (instruments unlinked to the rate of inflation or an exchange rate), or 20% (linked instruments), or up to 45% (in 2010, if interest expenses are claimed; or the lender holds 10% or more of any means of control of the borrower, an employee or service provider, or is related to the borrower).

• Securities income may fall within the filing exemption if it relates to the sale of securities traded on a stock exchange in Israel or abroad, or a sale of makam short-term bonds; it is exempt or any tax due was withheld; and it must not exceed in total NIS 1,752,000 in 2010 if it was taxable.

• Other income may fall within the filing exemption if it did not exceed NIS 318,000 in 2010 and was any of the following: income from which 46% tax was withheld even if you are eligible for a lower rate, or at least 30% tax was withheld if so approved by the ITA (to get any lower rate, you must file a tax return); income that is exempt from tax, provided it is not business, professional or salary income.

Who must always file?

Notwithstanding the above, Israeli resident individuals must generally file an annual personal tax return if they fall into any of the following categories:

1) Holders of a 10% or more interest in a privately held entity, directly or indirectly.

This does not apply to new and senior returning residents for 10 years, as outlined above.

2) A married couple not entitled to claim separate tax calculations; for example, because their income is not from independent sources.

3) If income includes severance pay upon leaving an employment or death, or a pension lump sum that the ITA allowed to be spread over more than one year.

4) Sports persons.

5) An individual who was required to file a tax return in the previous year, unless this was because he or she was a residential property landlord.

6) If the individual, or the individualÂ’s spouse or child under 18, held at any time in the year any of the following: any right in a foreign-resident entity that is not publicly traded on a stock exchange; or other foreign assets if their value on any day in the year was NIS 1,768,000 or more; an account at one or more foreign banking institutions if the total balance in all foreign banking institutions on any day in the year was NIS 1,768,000 or more. This does not apply to new and senior returning residents for 10 years.

7) If the individual conducted a taxable real-estate transaction (directly or via a real-estate entity) in the year unless tax was paid at the maximum rate, or if the tax was spread over more than one year.

8) With regard to trusts, annual tax returns are required from: the trustee of an Israeli Residents’ Trust or an Israeli Residents’ Testamentary Trust, the latter having at least one Israeli resident beneficiary (on Form 1327); but if a settlor or beneficiary are elected to be “assessable or chargeable,” or a “representative settlor/ beneficiary,” they file the return instead of the trustee (on Form 1301); the trustee of a trust that has income or an asset in Israel (Form 1327).

The finance minister is empowered to exempt trustees from filing annual tax returns if all their income is exempt from Israeli tax. In various other cases it may be enough to file a trust notice form instead of a tax return. Trusts are complex and specific advice is strongly recommended in each case.

9) Holders of 10% or more of a passivecontrolled foreign corporation (CFC) or a foreign professional corporation (FPC), as defined in the tax law. This reporting requirement shall not apply to new and senior returning residents for 10 years, as outlined above.

10) Anyone else asked to file a tax return by an assessing officer.

Taxpayers who are not in employment or business, who do not fall within the two reporting requirements listed in No. 6 above and had annual income below NIS 16,605 in 2010 will not be subject to file an annual tax return. This will benefit a number of low-income earners.

Additional reporting requirements apply to anyone who conducts a prescribed reportable tax-planning act (also known as aggressive tax planning).

Do children have to file an Israeli tax return?

Israeli resident children who were under 18 at the beginning of 2010 must file an annual tax return if they had taxable income of NIS 73,460 or more in the year.

When do foreign residents have to file an Israeli tax return? In principle, foreign resident individuals who derived taxable Israeli source income in the year must file an annual Israeli tax return. However, they may be EXEMPT from filing a tax return if the required tax was withheld and the income is one of the following: a business or profession conducted in Israel for no more than 180 days in the year: salary, pension, annuity, interest, dividend, rent, royalties.

In practice, Israeli banks are required to withhold tax from most payments – typically 25%. It is necessary to apply upfront to the Israeli payor’s tax office to apply any more beneficial provisions in a bilateral tax treaty or the domestic Israel law. No tax is withheld on patach foreign- currency bank deposits for five to 20 years at Israeli banks if the appropriate bank forms are filled out when remitting funds to Israel.

Which companies have to file? Briefly, any entity that has income that is taxable in Israel must file an annual Israeli tax return, accompanied by audited financial statements.

As always, consult experienced tax advisors in each country at an early stage in specific cases.