Israel: Private Client

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Published December 2017

This country-specific Q&A provides an overview to private client law in Israel.

It will cover taxes, succession laws, wills, trusts and their structures.

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 Israel’s tax regime, Israeli residents are generally subject to tax on their worldwide income, and non-Israeli residents are generally taxed on their income derived from Israeli sources (subject to applicable double tax treaties). Special provisions may apply to individuals who are Israeli residents, qualifying as "New Immigrants" or “Veteran Returning Residents”.

    As a general rule, an individual is considered as an Israeli resident if the "centre of his life" is in Israel. In addition, the Israeli tax law provides for two presumptions of Israeli residency based on the number of days that the individual spent in Israel.

    The Israeli Income Tax Ordinance provides a number of indications which can be used to determine where is the centre of an individual’s life. The indications are as follows:

    • The place of his permanent home.
    • The place in which he and his family live.
    • His regular or permanent place of business or his permanent place of employment.
    • The place of his active and substantive economic interests.
    • The place where he maintains memberships in various organizations, unions or institutes.

    In addition, the Israeli legislation stipulates two rebuttable presumptions, by which an individual would be deemed as an Israeli resident (the: "Day Tests"). The first presumption applies when an individual stays in Israel during the relevant tax year for 183 days or more and the second presumption applies when he stays in Israel during the relevant tax year for 30 days or more, and he has stayed in Israel for 425 days or more during the relevant tax year and the preceding two years.

    However, these Day Tests are solely presumptions and are rebuttable by both the Israeli Tax Authority (the: "ITA") and the taxpayer, based on the Centre of Life Test.

  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?

    Individuals are subject to tax on their worldwide income from the following sources: (i) business and vocation; (ii) employment (iii) dividends and interest; (iv) pensions and annuities; (v) rental income; (vi) gains or profits derived from agriculture; (vii) patent and copyright (viii) capital gains; (ix) earnings or profit from gambling, lotteries or prizes; and any other source not excluded under tax law.

    Non-Israeli residents are taxed on specific income derived from Israeli sources. The taxation may vary according to the applicable Tax Treaty.

    While regular income is subject to progressive tax rates depending on the extent of the individual's personal income (i.e., earned income from employment or self-employment are taxable according to tax brackets in the range between 10%–47%), capital gains are generally subject to a fixed rate of 25% or 30% for an individual who is a substantial shareholder (i.e., a shareholder holding 10% or more on one of the means of control of the company paying the dividend) ("Substantial Shareholder").

    An additional 3% will be added for every individual taxpayer whose aggregated income, from all sources, exceeds NIS 640,000, with respect to the part of income exceeding NIS 640,000.

    Israel also imposes indirect municipal taxes which are not imposed on income or gains, but paid directly to the municipal authorities.

    An exit tax is payable by individuals who cease to be Israeli residents based on a deemed sale of their worldwide assets one day before they cease to be a resident. At the taxpayer's discretion, the tax can be paid either when the individual leaves Israel or when the asset is sold, at which time the tax will be calculated on a linear basis on the appreciation while resident in Israel.

    Individuals are not invariably required to file a tax return in Israel; however Individuals receiving income which exceed the amounts under the tax regulations are required to submit an annual return. Other circumstances can subject an individual to filing requirements. For example, holding 10% or more in a corporation, holding foreign bank accounts which exceed a certain balance, or holding foreign securities.

    The tax year is concurrent with the calendar year, commencing on 1 January and ending on 31 December each year. The filing deadline for tax returns is usually:

    • 31 May the following year for individuals filing returns online.
    • 30 April the following year for others.

    Extensions for filing can be requested from the ITA.

    National insurance (social security) rates
are currently as follows:

    • Resident employees: 3.5%-12%.
    • Employers of resident employees: 3.45%-7.5%.
    • Non-resident employees: 0.04%-0.87%.
    • Employers of non-resident employees: 0.49%-2.55%.
  3. Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?

    Any person who pays or is responsible for the payment of certain types of income (for which mandatory withholding tax at source obligation applies) shall, when the payment is made, withhold tax from the amount paid and transfer it to the assessing officer.

    Employers are required to withhold tax at source when paying a salary, and thereafter to transfer the tax amount withheld to the assessing officer. The same withholding process applies to the payment of social security premiums.

    Dividends distributed by resident companies to individuals from regular profit distributions are generally subject to withholding at a rate of 25%, which increases to 30% if at the time of the distribution or at any time during the 12-month period preceding the distribution, the recipient of the dividend is, or was, a “Substantial Shareholder”. A reduced tax rate will apply to dividends distribution made out of preferred enterprise under the Law of encouragement of capital investment.

    Interest payments on government bonds issued to residents are generally subject to withholding tax at a rate of 25%. (25% from 1 December 2012 onwards; 35% before 8 May, 2000, 15% until 2006, 20% from 2006 to 2011).

    Interest payments on private sector traded bonds (debentures) where interest is paid to residents, as well as, interest payments on residents’ foreign currency bank deposits are generally subject to withholding tax at a rate of 15% (for an asset not linked to the consumer price index or to a foreign currency) and 25% (for an asset linked to the consumer price index or to a foreign currency).

    Royalties are generally subject to withholding at a rate of 20% if the recipient is certified as maintaining proper bookkeeping and filing tax returns, and 30% otherwise.

    Rental income on real estate is generally subject to withholding tax at a rate of 35%, and other rental income is generally subject to withholding tax at a rate of 20% if the recipient is certified as maintaining proper bookkeeping and filing tax returns, and 30% otherwise.

    Payments to non-Israeli residents when no other rules applies, such payments are generally subject to 25% withholding tax, but may be eligible for reduced rates of withholding under a tax treaty.

  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?

    Inheritance: There is currently no inheritance or estate tax in Israel and death is not a taxable event.

    Gifts: Cash gifts to Israeli individuals are not subject to gift tax. Gifts of other assets to family members or to others in good faith are not taxable, provided that the recipient is not a foreign resident in which case, there is liability to capital gains tax.

  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 (eg business or agricultural assets), and how do any such reliefs apply?

    See Question 5 above.

  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?

    Yes. A person who makes a donation to non-profit organisations is eligible to receive a tax credit under section 46 of the Income Tax Ordinance, provided certain conditions are met.

    The tax credit is equal to 35% of the donation. However, in any tax year the credit granted must not exceed the lower of 30% of the assessee's chargeable income in that particular year or NIS 9,184,000 (for 2017).

  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?

    Capital gains arising on the sale of real property in Israel are taxable under the Land Appreciation Tax Law, unless income tax is payable on the sale as business income.

    A foreign resident who does not have a residential property in his country of residency (supported by a specific approval from the tax authorities) may be entitled to a complete exemption from tax on the sale of residential property, where the value is not more than ILS4.443 million (for 2017).

    In case a non-Israeli resident is not entitled to the tax exemption, the sale will generally be taxed at 25% plus 3% surtax (different rates will apply to assets that were purchased prior to January 1, 2012).

    There is no annual tax on the value of real estate. However, municipalities levy local taxes (arnona) on dwellings or business premises in accordance with certain criteria and based on the size of the surface area.

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

    VAT: In the case of an individual who is considered a "dealer" for VAT purposes, VAT will be applied (2017 – 17%). An individual who sells an asset or provides a service in the course of his business may be regarded as a 'dealer' for tax purposes.

    Customs: Israel imposes customs duties on certain imported goods and sales tax on certain imported.

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

    New Immigrants and Veteran Returning Residents (individuals who have returned to Israel after being foreign residents for at least 10 years) are entitled to a 10-year tax exemption on their foreign sourced income (passive income and capital gains arising from the transfer of assets located outside of Israel) and certain foreign earned income (such as employment and business income), while residents returning to Israel after having lived at least 6 years and less than 10 years abroad, may also be eligible to a 5-year tax exemption on certain foreign source income and capital gains on their assets located outside of Israel.

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

    Israeli tax law provides new immigrants with 10 year exemption on their foreign income see Question 10. The regime is quite simple and there are no special steps that should be taken in order to be entitled to the benefits.

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

    The law that governs succession in Israel is the Succession Law 5725-1965 (the Succession Law), which determines two ways of bequeathing: by will or intestate in accordance with the law. There are no forced heirship rules in Israel, and each competent adult can bequeath his estate in a valid will as he wishes. Maintenance from the estate can be claimed by specific persons defined by law.

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

    For couples who married prior to January 1974, the assumption of joint property applies. For couples who married after that date, the Balance of Resources according to the Property Relations Law between Spouses applies. Generally, if the deceased died intestate, the decedent’s spouse (including a common-law spouse) is entitled to all movable property, including a car that was part of the common household regime. Any additional share of the estate depends on the other surviving heirs. The Succession law does not derogate from a spouse's rights under matrimonial law.

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

    The Succession Law provides that the law applying to an estate is the law of the place of residence of the deceased at the time of death.

  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?

    The Israeli courts have jurisdiction to deal with an estate when the deceased was an Israeli resident or if he left assets in Israel. Israeli law applies the law of the place of residence of the deceased on the estate. If the residency law refers to another law other than the Israeli law, then such reference will not be accepted and Israeli law will apply. Reference to the Israeli law will be accepted.

  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?

    A) Circumstances:
    In any situation in which a person wants to change the distribution determined by the succession law he should make a will. If a person dies intestate his heirs will be as follows: (i) the spouse, (ii) the children of the decedent and their issues, the parents of the decedent and their issues, the grandparents of the decedent and their issues.

    In addition, a foreign resident who holds assets in Israel should consider making an Israeli will regard the Israeli estate.

    B) The consequences of dying without having made a Will:
    After payment of debts and funeral expenses, the remainder of the estate will be distributed as follows:

    • If the deceased is survived by a spouse or partner and by children or remoter issue, the surviving spouse is entitled to half of the estate and the remainder is shared between the children and remoter issue, in equal shares per stripes.
    • Similarly, if the deceased is survived by a spouse or partner and by parents, the surviving spouse is entitled to half the estate and the remainder is shared by the parents, in equal shares.
    • If the deceased is survived by a spouse or partner and by siblings, or their issue, or by grandparents, the surviving spouse's share shall be two-thirds of the estate. However, if the surviving spouse and the deceased have been married for at least three years before the demise of the deceased and lived together in the matrimonial home, then the surviving spouse is entitled to all of the deceased’s rights in that residence and two-thirds of the remainder of the estate.
    • Children of the deceased and their issue take precedence over the parents of the deceased, and the parents of the deceased and their issue take precedence over the grandparents of the deceased.
    • Beneficiaries of the same class are entitled to equal shares in the estate.
    • In the absence of an heir as described above, the State of Israel shall be entitled to inherit by law.

    C) The formal requirements for making a Will:
    Four forms of wills are recognised as valid, provided they comply with the requirements of the Succession Law: handwritten will, will executed in the presence of witnesses, will executed before an authority, and oral will. The execution of a will is a personal act by the testator personally, who must be an adult and legally competent.

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

    In Israel an estate can be administrated by the heirs or by an executor. There is no mandatory requirement to appoint an executor and if such appointment is required an application to the Family court or the Registrar of Inheritance for the appointment of an executor should be made.

  18. Do the laws 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?

    The Israeli Succession law determines that there are only two ways to leave assets after the demise – by way of making a will or according to the law (intestate). Accordingly, although it is possible to establish trusts or companies, such structures do not necessarily override succession rights.

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

    See Question 18.

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

    Trusts have been taxable in Israel since 2006. Under the Israeli tax law trusts there are different types of trusts, as follow:

    Israeli Residents Trust:
    An Israeli Resident Trust is defined as a trust in which either (a) in the year it was formed it had at least one Israeli resident settlor and one Israeli resident beneficiary and in the tax year at least one beneficiary is an Israeli resident; or (b) all its settlors died and it has at least one Israeli beneficiary. In addition trusts that do not fall into one of the other existing categories are treated as Israeli resident trusts.

    Taxation: An Israeli Resident Trust is subject to tax and reporting on its entire worldwide income. The transfer of assets to an Israeli Resident Trust for no consideration is generally not considered a tax event in Israel. Distributions from an Israeli Resident Trust are viewed as having been transferred from the settlor directly to the beneficiaries. Distributions for no consideration will be treated as was gifted to the beneficiaries by the settlor. If the beneficiary is an Israeli resident then the distribution should be tax exempt, since gifts between Israeli residents are generally tax free. If the distribution is a non-cash gift to a foreign resident, it is generally treated as a taxable deemed sale at the fair market value of the asset.

    Israeli beneficiary trust
    An Israeli Beneficiary Trust is a trust which:

    (i) all of it settlers were non-Israeli residents who continued to be foreign residents from the day on which the trust was established until the relevant tax year; and

    (ii) has at least one Israeli beneficiary. In addition, if all Israeli resident beneficiaries are close relatives of the living settlor(s) and the required notification is given to the ITA, the trust is classified as a relatives trust.

    Taxation: If an Israeli Beneficiary Trust does not comply with the above conditions, it will be considered to be an Israeli Resident Trust and subject to tax on its worldwide income.
    If the trust complies with the above conditions and classified as a relatives trust, it will be taxed at a rate of 30% on the income proportion of the distributions to Israeli beneficiaries. The trustee may elect to be taxed at a rate of 25% on its current income and gains with respect to the portion of the income attributable to Israeli beneficiaries. The election is irrevocable.

    Foreign Resident Trust
    A Foreign Resident Trust is defined as a trust in which:

    (a) all the settlors are either non-Israeli residents or are deceased; and

    (b) all its beneficiaries are non-Israeli residents or Public Interest Beneficiaries.

    Taxation: A Foreign Resident Trust is treated as a foreign resident for tax purposes and therefore subject to tax and reporting obligations only to the extent that it recognised Israeli sourced income.

    Foreign Beneficiary Trust
    This is an irrevocable trust that is not an Israeli resident trust, where the beneficiaries are all identifiable foreign residents and at least one settlor is, or was at the date of death, an Israeli tax resident.

    Taxation: A Foreign Beneficiary Trust is treated as a foreign resident for tax purposes and therefore subject to tax and reporting obligations only to the extent that it realises Israeli sourced income. However, if the trust is not obligated to reporting in Israel, the trustee must submit a declaration to the ITA each year confirming its status as such.

    Testamentary Trust
    A Testamentary Trust is defined as a trust that meets the following two conditions:

    (a) The trust was settled under a last will and testament;

    (b) All of the settlors were testators who were Israeli residents at the time of their death.

    If all the beneficiaries of a Testamentary Trust are non-Israeli residents, the trust will become a Foreign Resident Testamentary Trust.

    A Foreign Resident Testamentary Trust is considered a foreign tax resident in Israel and subject to tax and reporting only to the extent that it realises Israeli sourced income. If there is even one Israeli beneficiary in the trust, it will become an Israeli Resident Testamentary Trust and remain subject to tax and reporting on all of its worldwide income.

  21. Are foreign trusts, private foundations, etc recognised?

    Yes. Under Israeli tax law the following entities are considered 'Trust' for the Israeli tax law:

    • Foundation established under the law of Netherlands, Lichtenstein, Panama, Bahamas Islands or Netherlands Antilles;
    • Establishment under the Lichtenstein's laws;
    • Registered Trust under the Lichtenstein's laws.

    For the legal and tax treatment of foreign trusts, see Question 18 and 20.

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

    See Question 18 and 20.

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

    Under Israel’s Bankruptcy Law, the transfer of assets to a trust can be ignored in certain circumstances.

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

    The assets of minors are usually managed by their parents who are the natural guardians. If necessary, trusts may be created for minors under a will.

  25. 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?

    Yes. According to a new amendment that was enacted to the Legal Competence and Guardianship Law 5722-1962, it is now possible for a person to sign a lasting power of attorney that will remain in force even in case of incapacity. Such power of attorney should be signed in accordance with the requirements of the law and should be deposited with the General Custodian.

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

    • Amuta - It is a legal entity established under the Amutot Law 1980. There must be a minimum of two founders, the founders must be at least 18 years old and the Amuta is prohibited from distributing any profits to its members. In addition, an Amuta cannot be registered if any of its objects negates the existence or democratic nature of the State of Israel, or if there are reasonable grounds for concluding that the Amuta will be used as cover for illegal activities.
    • Non-profit corporation (a charitable company) - This is a corporation incorporated under the Companies Law 1999 for one of the "public purposes" specified in the applicable schedule to the Companies Law. For example, protection of the environment, education, sport, charity or welfare. Its articles of association must prohibit any distribution of dividends to its shareholders.
    • Public endowment - This is established as a trust in relation to assets to be used for public purposes and governed by the Trusts Law 1979. A public endowment can be established in accordance with one of the following alternatives: (1) a trust agreement; (2) by an endowment deed signed in the presence of a notary; (3) by will; (4) under the Inheritance Law 1965. A public endowment must be for the benefit of the public.
  27. What important legislative changes do you anticipate so far as they affect your advice to private clients?

    The followings are recent legislation amendments enacted under the tax law:

    "Wallet" companies
    The taxable income of a close-held corporation (a company which is controlled by up to 5 people), which results from the activity of its individual Substantial Shareholder (whether directly or indirectly, including through a relative), will be considered as the individual's personal earned income, under certain conditions

    Withdrawals by substantial shareholders
    A withdrawal of more than NIS 100,000 from a company, including by way of a loan or by way of providing security for a loan, and the constant use of company's assets, by a Substantial Shareholder, shall be regarded as an income of such an individual shareholder. Where the company has “accumulated profits” this income shall be deemed to be a dividend income, and where the company does not have “accumulated profits” and employer-employee relationship exists between the individual and the company, this income shall be deemed to be an employment income. Otherwise, the income shall be regarded as income from business or occupation.