Israel: Private Client (2nd edition)

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This country-specific Q&A provides an overview to tax laws and regulations that may occur in Israel.

This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit

  1. Which factors bring an individual within the scope of tax on income and capital gains?

    Under the Israeli Income Tax Ordinance [New Version], 5721- 1961 (the "Ordinance"), Israeli income tax is imposed on the world-wide income and gains of Israeli residents and on the income and gains of non-residents of Israel from Israeli source. The Ordinance does not imposed tax based no habitual residence, domicile, nationality, citizenship, but rather based on residency and location of assets and/or location of economic activity, as applicable. In addition, determination of residency in the case of corporate entities is made by the place of their "management and control" or place of formation (if in Israel). For individuals, they will be regarded as residents of Israel based on their "center of life".

  2. What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?

    With respect to ordinary income, the Israeli income tax system is progressive. For 2018, the highest income tax rate is 47% (national insurance and health tax and additional 3% surtax may also apply), passive income (such as capital gains, dividend and interest) is subject to reduced rates of 15–30%, with the possible imposition of an additional 3% surtax (with respect to income exceeds NIS 641,880 for 2018).

    The tax year is the calendar year, except in special circumstances (for example, if a special assessment period was set and approved by the assessing officer). An income tax return should be submitted until April 30 of each year (with respect to the preceding year), with certain exceptions. Tax should be paid with the submission of the annual tax return. Taxpayers with an active income tax file are generally paying advance taxes throughout the year. In addition, interest and linkage differences are added to any tax liability in respect of a given year that is not paid by January 31st of the following year.

    An Israeli tax resident that ceases to be a resident of Israel for tax purposes is deemed to have sold their assets on the date preceding the date of termination of their tax residency (i.e. exit tax). However, the obligation to pay tax arising from this deemed disposition event can be deferred to the actual realisation date of the asset.

  3. Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?

    Any payment of income made to Israeli individual is subject to withholding. The rates vary in accordance with the type of income. In addition, any Israeli person making a payment to a non-Israeli resident must withhold tax at the rate of 25% from any income chargeable with tax under the Ordinance, unless it is subject to tax withholding under other provisions of the Ordinance. The tax rates are subject to the applicable double tax treaty, if any, signed between Israel and the state of residency of the individual. It is necessary to apply upfront to the Israeli tax authorities for a tax withholding exemption in accordance with the provisions of the relevant double tax treaty or Israeli tax laws.

  4. Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?

    There is no wealth tax in Israel.

  5. Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?

    There is no inheritance tax or gift tax regime in Israel. With respect to a transfer of an asset as a gift, the transfer may be considered as a taxable sale generating capital gain in certain circumstances.

  6. Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?


  7. Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?

    Under the Ordinance, an individual or a company who donate to an authorized organization is entitled to a tax credit of 35% in the case of individual donor, or 23% in the case of a company donor of the value of the contribution. The annual amount of tax credit will not exceed the lesser of (i) 30% of the taxable income or (ii) NIS 9,211,000 (for 2018). An Israeli resident may also be entitled to credit in case of a donation made abroad, subject to applicable double tax treaty.

  8. How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?

    The purchase of Israeli real estate (directly or indirectly through a company) is generally subject to purchase tax (at the rate of 6% for commercial Israeli real estate, and at the rate of 8% or 10% for residential assets). The sale is subject to capital gains tax (generally at a rate of 25%) or a corporate tax rate in case of a sale of real estate by a company (at a rate of 23%). For this purpose, the term real estate may include interests in entities holding real estate.

    Betterment tax ("hetel hashbach") of 50% of the increase in value of the property created by re-zoning (for example, additional building rights were granted or other benefits affecting the value of the apartment by the planning authorities) may apply by the local zoning municipal authority at the sale of real property.

  9. Are taxes other than those described above imposed on individuals and, if so, how do they apply?

    The provision of services and the sale of assets might be subject to value added tax (17%) in Israel, subject to the condition of the Israeli Value Added Tax Law and the circumstances of the services or sale.

  10. Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?

    The Israeli tax system provides a 10–year tax holiday to new residents and veteran returning residents (persons that were not residents of Israel for more than 10 years) on their foreign source income, as follows:

    1. Ten Year Tax Holiday – 10-year tax exemption to a first time Israeli resident and to a veteran returning resident in respect of all types of foreign source income, including capital gains on assets situated abroad, interest, dividends, allowance, royalties, or rentals; and business and professional income as well as salaries, irrespective of when the assets generating such income were acquired. The exemption also applies to income attributable to the first time Israeli resident under the "Foreign Vocation" rules of "Controlled Foreign Corporation" rules.
    2. During the 10-years period, a tax exemption otherwise applicable to non–residents on capital gains derived from the sale of securities of Israeli companies and from selling rights in an entity most of which assets, directly or indirectly, are located in Israel provided those securities were purchased before such person became a resident.
    3. Reporting Exemption – the Ordinance provides a 10-year exemption from reporting on foreign source income to a first time Israeli resident and to a veteran returning resident. Thus, only income from activities in Israel and from Israeli source would be subject to reporting and taxed according to regular Israeli tax laws.

    Other Israeli returning residents (persons that were not residents of Israel for more than 6 years but less than 10 years) are entitled to a 10-year tax exemption in respect to capital gains on assets situated abroad, which were purchased when the returning resident was not an Israeli tax resident. Also, such Israeli returning residents are entitled to a 5-years tax exemption in respect of certain types of foreign source income (excluding business income), as follows:

    • Income from allowance, royalties, or rentals, interests and dividends which were derived from assets situated abroad, which were purchased when the returning resident was not an Israeli tax resident;
    • Income from interests and dividends which were derived from certain types of securities.

    With respect to individuals that partially connected with regulations can apply to a temporary presence in Israel. In addition, most double tax treaties of Israel include certain provisions aimed to exempt individuals from tax in Israel, if their presence in Israel is limited to less than 183 days in a tax year. Non-residents with nexus to Israel may benefit from certain deductions not otherwise available to regular residents.

  11. What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?

    An individual may elect (within 90 days form his arrival) an adjustment year under which he would still be considered as a non-Israeli tax resident during the first year of arrival. Also, certain individuals that came for Israel as students or lecturers, for a certain period, may still be considered as a non-Israeli tax resident, under certain terms. Foreign individual may also restructure their holdings prior to their arrival to Israel and in particular engage in planning for their compensation.

  12. What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?

    There is no forced heirship regime. However, if individuals do not leave a will, their estate will be distributed in accordance with the following order of inheritance (Israeli Inheritance Law, 1965):

    1. If a deceased did not leave a will, their assets will be divided between their spouse at the time of death, children and grandchildren, parents and their children, grandparents and their children.
    2. If the deceased left behind their children, grandchildren or parents, their spouse must inherit half of the estate, in addition to chattels that are usually attributed to the household, including the deceased's car, if they had one.
    3. If the deceased left behind their siblings, siblings’ children or grandparents, the spouse must inherit two thirds of the estate, in addition to chattels that are usually attributed to the household, including the deceased's car, if they had one.
    4. If the spouse was married to the deceased for three years or more and lived with the deceased at the time of death in an apartment that forms part of the estate, the spouse will inherit the deceased's rights in the apartment.
    5. If the deceased left no other relatives, the spouse must inherit the whole estate.

    The deceased's children will precede their parents in the order of inheritance and their parents will precede their grandparents.

  13. Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?

    As to matrimonial property - please see Section 12 above.

    Israeli law does not have a uniform definition for civil partnership. However, section 55 of the Israeli Inheritance Law 1965 (the “Inheritance Law”) refers to a man and woman who lead a family life in a common household. This law does not expressly relate to a couple as civil partners, but that is the common interpretation. Other Israeli laws use other definitions for civil partnership. According to said section 55, if a man and a woman who are not married lead a family life in a common household, and neither of them is married to another person, the surviving partner will be seen as if the deceased has left for him or her whatever the surviving partner would have received according to the inheritance law if they were married, unless otherwise stated in the deceased’s last will and testament.

    Any couple, whether married or not, can enter into a pre-nuptial agreement. If such agreement is approved in accordance with the Israeli Property Relations Between Spouses, 1973 (if the couple is married, the agreement should be authenticated by a public notary, otherwise it should be approve by the family court having jurisdiction over their place of residency) it can be enforced by the Israeli courts.

  14. What factors cause the succession law of the jurisdiction to apply on the death of an individual?

    Israeli courts have jurisdiction over the inheritance of any individual who was a resident of Israel at the time of his death or has left real estate and other assets situated in Israel (such as movable assets that are located in Israel and IP that is registered in Israel).

  15. How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?

    A foreign will is recognised as valid if it meets the requirements under any of the following:

    1. Israeli Inheritance Law 1965.
    2. The law of the jurisdiction in which it was made.
    3. The law of the jurisdiction of residency of the testator.
    4. The law of the jurisdiction of the usual place of residency of the testator.
    5. The law of the jurisdiction of residency of the testator at the time of the making of the will or at the time of their death.

    If the will refers to real estate properties, the jurisdiction in which they are situated must be taken into account as well.

    When filing a will which was made in a foreign jurisdiction with the Israeli Registrar of Inheritance, it should be accompanied with, inter alia, a legal opinion as to the law of the jurisdiction of residency of the testator by the time of their death. The purpose of this request is to identify potential conflicts between Israeli and foreign law as to their rules of succession.

    The Israeli courts must apply the doctrine of renvoi (Israeli Inheritance Law, 1965) (that is, if a foreign law refers to another foreign law, the Israeli courts must ignore the referral, and the internal law of the first foreign state must apply, unless the foreign law refers to Israeli law).

  16. In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?

    If an individual does not have a Will, his or her inheritance shall be allocated to his or her successors in accordance with the Inheritance Law, as explained in Section 12 above. If an individual has a real estate in Israel, or any other property which is located In Israel, it is recommended that he or she will create a Will which shall refer to the Israeli property alone.

  17. How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?

    The estate is managed by an executor, or, in the absence of an executor, by the heirs. Prior to the appointment of an executor, the court can take any action it deems fit to preserve the estate or beneficiaries' rights in the estate. Executors are appointed by the court. If a testator named a person as executor in their will, the court will appoint that person, unless they refuse to act as executor or if the court or the Israeli Inheritances Registrar is convinced that there are special reasons not to appoint them.

  18. Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?

    Under Israeli law an individual may create a trust, family company or family partnership. Each of these structures provides for different advantages and disadvantages of reporting, tax payment and succession.

  19. How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?

    A family company is established as any other Israeli company (filing certain forms with the Israeli Companies Registrar, as well as the company’s articles of association), and certain notice is required to submitted to the Israeli Tax Authorities for such company to be classified as such for Israeli income tax purposes. A partnership is established in a very similar manner, with the main difference being that a limited partnership is required to submit a partnership agreement (and not an article of association). A partnership which is not a limited partnership is not required to submit its partnership agreement. A trust is created merely by a contract.

  20. What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?

    A family company, as well as any other company, has to inform the Israeli Companies about the identity of its shareholders and directors, and to file its articles of association. No other information has to be disclosed in connection with a family company. A partnership is required to identify its partners and their addresses. There is no need to register the identity of the ultimate beneficial owners of any of these structures.

  21. How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?


    Under the Ordinance there are six types of trusts for Israeli income tax purposes. Classification of a trust is generally determined by the residency of the beneficiaries. The six types of trusts are (Israeli Income Tax Ordinance):

    1. Israeli residents trust. This trust is subject to tax on its income as an Israeli tax resident and is subject to full reporting and tax in Israel on its worldwide income. An Israeli residents' trust must satisfy one of the following:
      • at the time of its formation, it has at least one settlor and at least one beneficiary who are Israeli residents and during the relevant tax year has either one settlor or one beneficiary who is an Israeli resident;
      • a trust where all the settlors have passed away and has at least one Israeli resident beneficiary;
      • is not classified otherwise.
    2. Israeli beneficiary trust. This is a trust which, from its formation and until the relevant tax year, only has foreign-resident settlors and has at least one Israeli resident beneficiary. An Israeli beneficiary trust is subject to the same tax as an Israeli residents trust (except when it is a Relatives Trust).
    3. Relatives Trust. An Israeli beneficiary trust is a trust where the settlor is the beneficiary's relative (as defined under the Israeli tax Ordinance) and the non-Israeli settlor of the trust (or their spouse) is still alive in the relevant tax year. There are other technical conditions for this trust. Israeli source income of a relatives trust is subject to Israeli income tax. A relatives trusts will be subject to Israeli income tax in accordance with one of the following (irrevocably elected by the beneficiary):
      • a distribution of income (but not principal) to an Israeli resident beneficiary will be taxed in Israel at a flat rate of 30%;
      • the taxation of the trust’s portion of income, which is attributable to the Israeli beneficiary at a tax rate of 25%, on an annual basis after provision of foreign tax credits.
    4. Foreign residents trust. A foreign residents trust is treated for Israeli income tax purposes as a foreign resident and is subject to tax (or exempt) to the same extent as any other foreign resident. This is a trust whereby during a tax year:
      • all the settlors and beneficiaries are foreign residents;
      • all its settlors are foreign residents and all of its beneficiaries are foreign residents or public interest beneficiaries, and the trust never had any Israeli resident beneficiaries since its establishment; or
      • all of its settlors passed away and all of its beneficiaries are foreign residents, and the trust never had any Israeli resident beneficiaries since its establishment.
    5. Foreign beneficiary trust. This is an irrevocable trust whereby during a tax year all its beneficiaries are foreign residents, it has at least one Israeli resident settlor (including a settlor which passed away) and the trust deed forbids any Israeli resident becoming a beneficiary. A foreign beneficiary trust is treated for Israeli income tax purposes as a foreign resident and is subject to tax (or exempt) to the same extent as any other foreign resident.
    6. Trust under a will. This is a trust which is settled by a will and all its settlors are the testators, who were Israel residents at the time of their demise. The trustee's income from the trust will be deemed to be the beneficiary's income. Therefore, if the trust has at least one Israeli resident beneficiary, the trust would be subject to tax on its income as an Israeli tax resident; otherwise it would be subject to tax as a foreign beneficiary trust.

    Trusts are not legal entities for Israeli income tax purposes. The trustee is the one who liable for tax on the trust's income, unless the beneficiary or the settlors elected to be the taxable party in respect to the trust's income. The trustee must open a tax file and report and pay taxes in respect of the trust's taxable income. The determination as to whether a trust's income is subject to reporting and tax in Israel is made based on the classification of the trust for Israeli income tax purposes.

    The residency of the trustee does not affect the taxation of the trustee in respect of the trust's income.

    Family companies like partnerships are not subject to tax on their income. Rather, the income in allocated to the interest holders (in the case of partnerships) or to the representative taxpayer (in the case of family companies). The relevant interest holders will be subject to tax under the rates described above, on the income allocated.

  22. Are foreign trusts, private foundations etc recognised?

    Israeli law does not provide specific rules for foreign trusts. Foreign trusts are recognised as legal entities, but courts are yet to rule on the applicability of foreign laws. The trustees are treated as owning the trust assets themselves, but in certain cases, in particular where the assets are domestic real estate, it is possible to include a notice, according to which the relevant properties are held in trust.

  23. How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?

    Please see Section 21 above.

  24. To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?

    The law does not include specific asset protection rules. However, the following transfers are restricted (Israeli Bankruptcy Ordinance, 1980):

    1. Transfers where the transferor became bankrupt within two years will be considered void towards the trustee of the bankruptcy procedure.
    2. Transfers, which were made less than ten years (but more than two years) before the transferor became bankrupt will be void in respect of the trustee in the bankruptcy proceedings, unless the transferees can prove that the transferor was solvent at the time of the transfer and was able to pay its debt without regard to the transferred assets.

    Transfers to certain types of trusts can shelter assets from creditors or beneficiaries. Israeli law on bankruptcy remoteness in the context of trusts is not entirely clear. Applying general rules of bankruptcy, it appears that a transfer to a trust will be protected from creditors, if it can be established that the donor ceased to control the assets in the trust and met the conditions above. Trusts that are not revocable and are controlled by disinterested trustees, can provide bankruptcy remoteness subject to the general rules of bankruptcy.

  25. What provision can be made to hold and manage assets for minor children and grandchildren?

    A minor can inherit and own assets. However, most of the legal actions of a minor (other than actions that minors of their age usually do or legal actions between a minor and another party who did not know that their co-party is a minor) should be authorised by their legal representative (normally their parents), while certain actions should be authorised by the court, and parental authorisation would not suffice (such as, among other things, the transfer of an apartment, an action, which requires legal registration, the provision of guarantee and certain legal actions between a minor and their parents).

  26. Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?

    The Israeli Legal Capacity and Guardianship Law 1962, provides certain instructions when a person loses capacity, including, the appointment by the court of guardians to individuals who lack legal capacity. The legal actions of these individuals require the authorisation of the guardians or the court (similar to the actions of minors).

    However, an individual can create a power of attorney which shall enter into force upon the occurrence of pre-determined events – such as incapacity of the individual. Such power of attorney may bestow powers in relation to financial matters, to health matters or any other matter, all as defined in the relevant power of attorney. The Israeli Legal Capacity and Guardianship Law 1962 set certain conditions which have to be fulfilled in order for such power of attorney to be valid and enforceable.

  27. What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?

    Israeli law recognizes the creation of NGOs. Such organization may be entitled to tax exemption on certain types of income and may also issue certificate of credit to contributions made to them (please see Section 7 above). Such organizations are normally formed as "Amutot", under the Israeli Association Law 1980. Such law generally requires each Amuta to be held by at least seven persons, and not be controlled by any one person. Israeli corporation law also enables the formation of special companies for the benefit of the public; however, the Taxing Authority requires such entities to have similar governance as Amutot, in order to be entitled to the relevant tax benefits.

  28. What important legislative changes do you anticipate so far as they affect your advice to private clients?

    The authors are not aware of any proposals to reform private client law in Israel.