Taxation For New Olim

1. Income Tax for Olim (New Immigrants)


Israel’s income tax system is progressive, meaning the more you earn, the higher your tax rate. The rates for individuals in Israel are structured as follows:

• Up to 75,480 NIS: 10%
• 75,481 NIS - 108,360 NIS: 14%
• 108,361 NIS - 174,000 NIS: 20%
• 174,001 NIS - 242,000 NIS: 31%
• 242,001 NIS - 501,960 NIS: 35%
• 501,961 NIS and above: 47% (but there's also an additional tax on the highest income bracket)

Special Benefits for Olim:

• Foreign Income Exemption: Olim are entitled to a 10-year tax exemption on foreign income, which is one of the most important benefits. If you earn income outside of Israel (e.g., from investments, property abroad, pensions, or business activities in another country), you don’t need to pay Israeli taxes on that income for the first 10 years of your residency.
• Special Tax Treatment on Foreign Assets: This exemption also applies to foreign assets, such as investments or savings. If you inherit assets or receive dividends from sources outside Israel, you won’t be taxed on them in Israel for up to 10 years.
• Aliyah Package: The Israeli government provides an Aliyah tax package to new immigrants, which includes various benefits and exemptions.

2. National Insurance (Bituach Leumi) Contributions


National Insurance in Israel is similar to social security systems in other countries and covers pensions, healthcare, unemployment benefits, and more.

• General Contributions: National Insurance contributions are mandatory for all Israeli residents. These deductions are made from your salary, and employers also contribute a portion.
• Olim Exemptions: New immigrants who are not employed in their first few years of residency in Israel may be eligible for reduced National Insurance contributions, and in some cases, may be exempt for the first 12 months after arriving.
• Benefits: Once you start paying National Insurance, you'll be eligible for healthcare coverage under Israel’s public health system, social security benefits (e.g., pensions, unemployment support), and other services.

3. Exemption from Property Tax (Arnona)


Arnona is a local property tax that is paid by all residents of Israel. The tax amount depends on the size and location of the property.

• Olim Discount: New immigrants often receive a discount on Arnona for the first year or two (sometimes up to 3 years) after they arrive in Israel. The discount rate can vary by city, but the goal is to reduce the financial burden as Olim settle into their new homes.
• Property Tax for New Immigrants: The discount applies whether you rent or own property, and the municipality will typically inform you about the discount available.

4. Value Added Tax (VAT)


VAT (Value Added Tax) in Israel is levied on most goods and services. The current rate is 17%, which is relatively high compared to other countries.

• Impact on Olim: New immigrants do not receive specific exemptions from VAT, but it’s important to note that for purchases related to your move or setting up your new home (e.g., furniture, appliances), there may be VAT exemptions for certain types of goods or services. You may also be eligible for refunds in certain circumstances.
• Exemptions: Some services like healthcare and education are exempt from VAT.

5. Corporate Taxation and Exemptions for Olim Entrepreneurs


If you're an entrepreneur or plan to start a business in Israel, there are tax breaks for Olim entrepreneurs. These can include exemptions or reduced tax rates for businesses that qualify.

• Starting a Business: New immigrants can benefit from reduced corporate tax rates for the first few years. In some cases, businesses owned by Olim in specific regions (e.g., development areas) may also qualify for additional tax incentives.

6. Olim Allowances and Special Tax Programs


In addition to tax exemptions, new immigrants may be eligible for specific allowances and grants. These programs are designed to help Olim integrate into Israeli society and provide financial assistance during their first few years.

• Olim Tax Exemption Program: Olim can apply for a tax exemption for a set period (typically 3-5 years) for their salaries, which helps offset the cost of living and starting a new life in Israel.
• Special Israeli Tax Benefits: If you move to specific geographic areas in Israel (e.g., Negev, Galilee), there may be additional tax incentives for Olim to encourage settlement in those regions.

7. Exemption from Israeli Tax for Non-Residents


If you spend significant time outside Israel after making Aliyah (e.g., due to business commitments), you may be eligible for tax exemptions under Israel’s rules for non-residents. In some cases, if you do not spend more than a set number of days in Israel, your foreign income may still be exempt from Israeli taxes.


8. Inheritance and Gift Taxes


Inheritance and gift taxes in Israel are relatively low compared to many other countries.

• Tax-free Inheritance: There is no inheritance tax in Israel. However, if the inherited assets generate income (e.g., rental income or dividends), that income will be taxed under the normal income tax rates.
• Gift Tax: There is no gift tax for gifts between family members, but gifts of substantial value may be subject to reporting requirements.

9. Tax Filing and Reporting for Olim


New immigrants are required to file taxes in Israel just like other residents. However, the process may be different in your first few years due to the special tax benefits you’re entitled to.

• Income Reporting: You will need to report your global income (including foreign income) for tax purposes. If you qualify for exemptions, you must submit the appropriate forms to the tax authorities.
• Tax Consultant: It is highly recommended to work with a tax consultant or accountant who specializes in the needs of Olim, as they can help you navigate the complex Israeli tax system and ensure that you’re taking full advantage of the available benefits.

Conclusion


The Israeli tax system offers several significant benefits to new immigrants, especially in terms of foreign income exemptions and discounts on certain local taxes. However, it’s important to understand the nuances of the system and to seek professional guidance to maximize these benefits during your first few years in Israel. This can make a big difference in terms of the financial impact of your move and help you establish yourself more comfortably in the country.