Before going into depth on any one subject, it is worthwhile to look at some of the basic concepts within the Income Tax Law.
- Israeli residents are subjected to Israeli taxation on their worldwide income. A credit is given for foreign tax paid.
- Non-Israeli residents are subject to Israeli taxation only on their Israeli-earned income.
- The tax year runs from 1st January through to 31st December.
- Tax files are joint between husband and wife. Whilst the tax calculations are generally seperate, both husband & wife are responsible for payment of the tax owed by the other.
- Income is classified as either earned (e.g. salary, self-employment) or passive - with differing tax rates applying. There is also a difference to the calculation of ביטוח לאומי depending on the defintion.
- Income considered joint (most types of passive income) is taxed as being earned by the higher earner of the couple.
- Tax is to be deducted at source by employers on salary income, and by banks on interest, dividends and capital gains earned through the bank.
- There is also a system in place for self-employed contractors and corporations to pay tax during the year, by a mixture of tax at source and payments on account.
- Tax owed should be paid by the end of the tax year, i.e. 31 December. Any tax owed but not paid by that date is subject to interest (4% per annum) and הצמדה (linkage to the retail price index).