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58 The US-Israel Legal Review 2019
ISRAEL: TAX
CORPORATE TAX
Corporate Residency in Israel:
A corporation
is defined as an Israeli resident if one of two
conditions are met: (i) its incorporation is in
Israel; or (ii) its “management and control” is in
Israel. Consequently, a foreign resident company is
defined as a body of persons who is not an Israeli
resident, as defined above (residual definition).
Worldwide Taxation:
Israeli resident corporations
are subject to tax in Israel on their worldwide
income, whether it was produced or accrued in Israel
or outside of Israel. Non-resident corporations are
subject to tax in Israel only on the income produced
or accrued in Israel (subject to relevant domestic
laws and applicable tax treaties). In this respect,
the Israeli Tax Ordinance
(“ITO”)
stipulates that
business income shall be taxed in the jurisdiction
in which the business activity took place; passive
income (i.e., interest, royalties, dividends, etc.) shall
be taxed based on the payor’s place of residence; and
capital gains shall be taxed inprincipal inaccordance
with the location of the sold asset.
Computation of Corporate Tax in Israel:
The current
corporate tax rate as of January 1, 2018 is 23%, and
itmaybe reducedunder certain specific tax regimes
and reliefs (see below). The income on which
the corporate tax shall be imposed is generally
computed as income after deductions, set-offs, and
exemptions; and subject to various adjustments
stipulated in the ITO. Tax credits, if available,
may be used against the computed tax amount. In
general, the computation for tax purposes in Israel
is generally based on the accepted accounting
principles, unless specified otherwise within the
ITO.
OFFSET OF LOSSES
Losses generally fall into one of three categories:
(i) business losses; (ii) passive losses (e.g., losses in
relation to interest, dividend, etc.); or (iii) capital
losses. In general, the ITO allows to offset loss
only if it would have been classified as profit and
subjected to tax in Israel.
Israeli-Sourced Losses:
Business losses accrued in
Israel in any given tax year can be offset against
income from any category generated in the same
year. Such losses canbe carried forward indefinitely
against business income and capital gains which
CorporateTax: Doing
Business in Israel in2019
Daniel Paserman looks at the current corporate tax law in
Israel and the US-Israel Tax Treaty.
The current corporate tax rate is
23%, and it may be reduced under
certain specific tax regimes and
reliefs.