1. Pre-entry Tax Planning
1.1 In your jurisdiction, what pre-entry estate and gift tax planning can be undertaken?
There is currently no gift tax in Israel (except on gifting Israeli real
estate). However, the gifting of certain assets located outside of
Israel may trigger a CGT exposure.
1.2 In your jurisdiction, what pre-entry income and capital gains tax planning can be undertaken?
Effective 1 January 2007, ‘New Immigrants and Returning Residents’
(Israeli citizens who have lived abroad for at least 10 years) are entitled
to a package of tax benefits, the most valuable being a 10-year tax
holiday (exemption) on all non-Israeli sourced income and capital
gains, even if the foreign assets are acquired after immigrating to Israel.
1.3.In your jurisdiction, can pre-entry planning be undertaken for any other taxes?
If a new immigrant settles a trust during the 10-year tax holiday
in favour of non-Israeli beneficiaries only (e.g. his children/
grandchildren), then the trust continues to be exempt from tax in
Israel in perpetuity, provided it is irrevocable within the meaning of
Amendment 147 to our Income Tax Ordinance.
2. Connection Factors
2.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?
There is a clear-cut distinction in Israel between obtaining Israeli
citizenship and Israeli tax resident status. One could be an Israeli
citizen but not deemed an Israeli tax resident if their habitual
residence is not in Israel. The definition of an Israeli tax resident is
set out in our Income Tax Ordinance.
2.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?
Israeli tax residency is acquired on the basis of the “centre of life” tests. The number of days spent in Israel also affects tax residence status
and is deemed an important factor by the Israeli Tax Authority.
An individual will be deemed to be resident for tax purposes if he
spends 183 days or more in Israel in any given tax year (a tax year
commencing 1 January and ending 31 December), or if during the
current tax year, he has spent at least 30 days in Israel and the total
accumulated duration of his stay in Israel in the three preceding
tax years is at least 425 days. The Israeli Tax Authority, having
published several circulars on this issue, may determine someone to
be a tax resident even if he spends less days in Israel. For the latter
definition, specific advice should be sought.
2.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?
Once an individual is categorised as an Israeli tax resident under the
terms and conditions set out in the Israeli Income Tax Ordinance,
he immediately becomes subject to tax on his worldwide income,
unless he is entitled to a 10-year tax holiday as described in question
1.2 hereinabove. In many cases, it is advisable to obtain a legal
opinion from Israeli tax counsel, on the tax residency status of
an individual, which also takes into account case law precedents,
rulings issued by the Israeli Tax Authority and Circulars published
2.4 If residence is relevant, how is it defined for taxation purposes?
An Israeli resident is defined as an individual whose centre of life
is in Israel, taking into account the person’s family and economic
and social links. Additionally, as mentioned in question 2.2 above,
the number of days spent in Israel is an extremely important factor.
2.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?
It is not relevant at all. One can be an Israeli national and not be
deemed an Israeli tax resident and vice versa.
2.6 If nationality is relevant, how is it defined for taxation purposes?
It is not relevant, as explained in question 2.5 hereinabove.
2.7 What other connecting factors (if any) are relevantin determining a person’s liability to tax in your jurisdiction?
An Israeli tax resident is taxed on his worldwide income and a non-
Israeli tax resident is taxed only on Israeli-sourced income.
3. General Taxation Regime
3.1 What gift or estate taxes apply that are relevant to persons becoming established in your jurisdiction?
In Israel, there is no gift tax other than on gifting of real estate
assets, in which case specific legal advice should be sought. As an
example, under ordinary circumstances, the gifting of a residential
property by a parent to a child over 18 will be subject to one third
of the usual purchase tax and exempt from capital gains tax (CGT).
It should be noted that whilst there is no gift tax in Israel, if the asset
gifted is located outside of Israel and is not liquid (e.g. cash) the gift
may trigger a CGT exposure.
Estate tax in Israel was abolished in 1981.
3.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?
An Israeli tax resident, as defined by our Income Tax Ordinance, is
liable to report and pay taxes in Israel on his worldwide assets.
3.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?
The direct taxes include: capital gains tax; dividend tax; tax
on interest earned; tax on rental income; and tax on real estate
transactions (purchase tax and land betterment tax).
3.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?
There is a VAT of 17% on products and professional services.Import duties apply at different rates depending on the product.
3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?
We are not aware of such provisions; however, the banking
institutions in Israel will not allow funds to enter the country from
abroad unless the new immigrant can prove they were taxed in the
jurisdiction he emigrated from, prior to arriving in Israel.
3.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?
Yes, there are various anti-avoidance rules, for example: Clause 196
of our Income Tax Ordinance states that a trust holding company,
even if incorporated, managed and controlled in Israel, will not be
deemed as an “Israeli Resident” for the purpose of double taxation
treaties Israel is signed on.
4. Taxation Issues on Inward Investment
4.1 What liabilities are there to tax on the acquisition,holding or disposal of, or receipt of income from investments in your jurisdiction?
There is capital gains tax at 30% on disposal of assets (the equivalent
is land betterment tax for real estate). There is a 25% dividend tax
and 25% income tax on interest earned. The CGT exposure may be
reduced or eliminated in certain circumstances, especially on the
disposal of real estate, where certain statutory relief is granted.
4.2 What taxes are there on the importation of assets into your jurisdiction, including excise taxes?
There are various rates of importation and excise taxes depending on the product imported. Each product has its own rate of tax.
4.3 Are there any particular tax issues in relation to the purchase of residential properties?
Yes, the rule is that any purchase of real estate is subject to Purchase
Tax (to be paid by the purchaser).
Under certain conditions, one may be tax exempt or may be entitled
to a reduced tax levy.
Purchase tax on residential homes is calculated on a sliding scale. One
scale applies to purchasers buying a residential apartment or house
when the property purchased is the purchaser’s sole residential home
in Israel (single home-purchaser) and another significantly higher
scale applies to those buying additional home/s beyond their first one
(multiple home-purchaser). Purchase tax for a single home-purchaser
starts at 0%, whereas the tax rate for a second home starts at 5%.
Please note that non-Israeli residents will not be entitled to this
exemption unless they prove that they do not own a home in their
5. Taxation of Corporate Vehicles
5.1 What is the test for a corporation to be taxable in your jurisdiction?
Any corporation is deemed to be resident in Israel if its activities
are managed and controlled from Israel and/or if it is organised and
incorporated under the laws of the State of Israel.
5.2 What are the main tax liabilities payable by a corporation which is subject to tax in your jurisdiction?
Israeli resident companies are subject to tax on worldwide profits and gains.
Corporate tax is currently 26.5%.
5.3 How are branches of foreign corporations taxed in your jurisdiction?
A non-resident company is subject to tax only on Israeli-sourced
profits, which includes income derived from an Israeli permanent establishment or income accrued and generated in Israel, as well as
capital gains from the sale of Israeli assets.
6. Tax Treaties
6.1 Has your jurisdiction entered into income tax and capital gains tax treaties and, if so, what is their impact?
Israel has entered into many Tax Treaties (52 in total), and such
Treaties are highly enforced by the Tax Authority and courts of
law and are taken into consideration by professionals when giving
advice and when producing written legal opinions.
6.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?
The Treaties generally follow the OECD model.
6.3 Has your jurisdiction entered into estate and gift tax treaties and, if so, what is their impact?
No, because there is no estate or gift tax for Israeli residents’ recipients.
6.4 Do the estate or gift tax treaties generally follow the OECD or another model?
In general, there is no estate tax or gift tax. However, the Tax
Authority does usually recognise gift or inheritance tax paid in
another jurisdiction for the purpose of stepping-up on the value of
assets held abroad by Israeli tax residents.
7. Succession Planning
7.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in your jurisdiction?
According to the Succession Law, the courts in Israel have the
authority to judge in matters of inheritance of any person who
resided in Israel at the time of their death or a person who lived
abroad but has an estate in Israel.
The choice of law is also set out in the Succession Law: the Israeli
court will apply the succession laws of the place of domicile of the
deceased at the time of death. This is the basic rule where there is
a conflict of laws.
There are three exceptions to the said basic domicile rule:
(a) Certain assets that fall under Section 138 of the Succession
Law will be subject to the laws of their location if the “lex
situs” expressly excludes the application of any foreign law
on these assets. In these specific cases, the Israeli court will
apply the foreign laws presented to it by an appropriate legal
(b) The capacity to make a Will – the laws applicable when
dealing with questions of capacity are those of the place of
domicile of testator at the time of making the Will.
(c) The form of the Will – a Will with international aspects is
valid under the Israeli Succession Law if it is deemed valid,
by the law of the country where it was written, by the law
of the country of residence, ordinary place of domicile or
citizenship of the testator at the time of signing the Will or at
the time of death, and if the Will relates to real estate – also
by the laws of the jurisdiction where the real estate is located
7.2 Are there particular rules that apply to real estate held in your jurisdiction or elsewhere?
According to the Succession Law, the courts in Israel have authority
to judge in matters of the inheritance of every person who resided in
Israel at the time of their death or a person who left property in Israel
at the time of their death.
8. Trusts and Foundations
8.1 Are trusts recognised in your jurisdiction?
Yes. Although there are no rules of equity in Israeli law, trusts are
indeed recognised under the provisions of the Israeli Trust Law (the
8.2 How are trusts taxed in your jurisdiction?
All trusts, including foreign trusts, are subject to taxes in Israel
unless there are no Israel-resident beneficiaries.
The rule is that a trust is subject to tax in Israel on its worldwide
income and it is the trustee, including any foreign trustee, who is
under the obligation to report the trust annually to the Israeli Tax