In Israel, an individual is subject to tax based on residency, which is determined by:

• Objective Test: Spending more than 183 days in Israel in a tax year, or 30 days in the current year and a total of 425 days over the current and two preceding years.
• Subjective Test: Determined by the ‘center of life’ criteria, including economic, social, and familial ties.

It is important to note that the Income Tax Ordinance [New Version], 5721-1961 (“the Tax Ordinance”) expressly states that the test which determines a person’s tax residence is the ‘center-of-life’ test. This, in effect, is the only test envisaged by the Tax Ordinance. The presumptions based on the number of days an individual stays in Israel are not conclusive tests in and of themselves, but simply aids or tools to assist in determining the ‘center-of-life’. As such, they are refutable and may be defeated or strengthened with the help of the criteria listed in the Tax Ordinance and/or other criteria.

Nevertheless, some of the definitions and rules regarding residency are to change in the near future. The currently rebuttable presumptions in respect of the number of days an individual stays in Israel, for both Israeli residency and non-residency will become irrebuttable, and the ‘center of life’ determination will be maintained solely for circumstances where the irrebuttable presumptions do not apply. Thus, for example: An individual who stayed in Israel 183 days in each of two consecutive tax years will be deemed resident as of the first year; an individual who stayed in Israel less than 30 days in each of four consecutive tax years will be deemed non-resident as of the first year.

Legal entities (i.e., bodies of persons whether or not incorporated) incorporated/registered in Israel are deemed resident by the mere act of incorporation/registration in Israel. In addition, foreign entities are also deemed resident in Israel if the control and management of their business are carried out from Israel.

Israeli Residents, individual or corporate, are liable for Israeli taxation on a worldwide basis in respect of their active and passive income from any source.

Citizenship or nationality, as such, is irrelevant for tax purposes, although it may be a factor in determining the ‘center of life’.

Non-residents, individual or corporate, are liable for Israeli taxation only on income and assets sourced in Israel. Non-resident individuals are taxable on income arising in Israel and are effectively subject to a withholding tax of 25 percent on dividends paid to them or 30 percent in case they are ‘Substantial Shareholders’, meaning holders of more than 10 percent of any of the ‘means of control’ (see definition below under “Income from Dividends”) of the corporation distributing the dividends; such rates are normally reduced if there is a double-tax treaty between Israel and the country of residence.

Individuals – The applicable tax for an Israeli individual resident varies in accordance with the type of income and whether the income is sourced in Israel or abroad. The applicable rates may change due to personal circumstances.

Individuals are taxed on their taxable income from personal endeavor (e.g., employment) derived from Israel, in progressive rates according to tax brackets. Taxpayers are allowed specified deductions (reduction of taxable income) and credits (reduction of tax), the value of each credit point in 2024 being ILS 544.5 per month, based on personal circumstances. Every resident is allowed a standard number of credit points.

The following rates apply to annual taxable income from personal endeavors (updated to year 2024):

On each ILS                                                           up to      84,120 –          10%

On each ILS from           84,121                          to          120,720 –          14%

On each ILS from         120,721                          to          193,800 –          20%

On each ILS from         193,801                          to          269,280 –          31%

On each ILS from         269,281                          to          560,280 –          35%

On each additional ILS –                                                                              47%

On each additional ILS exceeding 721,561 (app. USD 198,000 as of December 31, 2024) a Surtax, directed to high incomes, will be imposed at a flat rate of 3%.

The abovementioned tax brackets and credit points are usually adjusted once a year, on January, in accordance with the increase of the Consumer Prices Index, however, due to the political crisis in the country the government resolved to unlink the rates from the index between years 2025-2027.

As of January 1 2025, an additional Surtax of 2% on each additional ILS exceeding 721,561 for any passive income not deriving from personal endeavors. The basic surtax of 3% applies both to active business income and passive income.

Individuals are also liable for Health Tax and Social Security payments, which are imposed on a monthly basis and calculated in accordance with the individual’s income from personal endeavors. An individual who does not have such income will be liable for monthly minimum charges of ILS 116 for Health Tax and ILS 87 for Social Security payments. For an income of up to ILS 7,522 (which reflects 60% of the average wages in Israel), Health Tax is imposed at a rate of 3.1% and Social Security payments are imposed at a rate of 2.87%. For each ILS exceeding the said threshold Health Tax is imposed at a rate of 5% and Social Security payments are imposed at a rate of 12.83%.

Corporations – are liable for Corporations Tax imposed on all types of income at a flat rate of 23%.

Income from interest – including interest and profits from deposits and saving plans, discounting fees and listed securities, is generally subject to a rate of 25%. If the asset bearing the interest is unlinked to the Cost-of-Living Index or a foreign currency, the rate is 15%. If the interest income is generated by a business, it will be taxed at the regular marginal tax brackets. Interest income paid to a non-resident company is generally subject to tax at the rate of 23% or subject to a reduced rate of tax under an applicable tax treaty. Interest received by a non-resident from deposits of foreign currency with an Israeli bank is exempt from tax, subject to certain conditions. Carried interest is currently taxed as ordinary business income (i.e. at the regular marginal tax brackets) but see below in question 33 regarding proposed reductions.

Income from dividends – dividends received by individuals from a resident or non-resident company or from domestic or foreign traded securities are taxed at 25% or at 30% if the shareholder is a “substantial shareholder” holding directly or indirectly, alone or with another, at least 10% of the “means of control” of the corporation.

‘Alone or with another’ includes another who is a ‘relative’ of the shareholder or anyone who is not a relative of the shareholder if the two have an agreement to collaborate on essential affairs concerning the said corporation, directly or indirectly. A ‘relative’ includes any of the following: spouse, sibling, parent, grandparent, descendant and descendant of a spouse, and spouses of any of the foregoing; descendant of a sibling and sibling of a parent, a corporation held by a person or his relative, a person who holds a corporation, and a corporation held by that person.

‘Holding’ refers to at least 25% of one or more ‘means of control’, directly or indirectly, alone or with another; a trustee in certain cases.

‘Means of control’ of a corporation are defined as any of the following: right to receive profits; right to appoint a director or general manager in case of a company, or other similar office holders for other types of corporations; voting right in the general shareholders meeting of a company, or a similar organ for other types of corporations; right to receive portion of the remining assets after debts repayment upon dissolution; right to instruct the course of action of a person who has any of the above rights as to the way of using the rights – in any of the above: whether the rights derive from shares, rights to shares or other rights, and in any other means, including voting agreement or trusts.

Dividends paid by one resident company to another are tax-exempt.

Income from capital gains – provided it is not characterized as business income, in which case it would be subject to normal progressive tax rates, is taxed at the rate of 25% if the asset was acquired after the coming into force of the tax reform (January 1, 2003), and if acquired before, there are different rates which apply for the period between date of acquisition and January 1, 2003.

Deemed Disposal upon Expatriation: See Exit Tax – question 15 below.

Tax Year: Calendar year (January 1 to December 31).

Tax Return Deadline: Typically, by April 30 of the following year, with extensions available in some cases.

Participation Exemption

Non-resident shareholders of an ‘Israeli Holding Company’, i.e., a non-listed Israeli company with a minimum share/loan capital of ILS 50 million invested in treaty-country companies or in companies subject to a tax rate of at least 15% (‘Participating Companies’), with 75% business income outside of Israel, will be subject to a reduced withholding tax on dividends of 5% (instead of the normal non-treaty rate of 25%).

Under certain conditions, the Holding Company will be entitled also to exemption from tax on dividends received from Participating Companies, exemption from capital gains tax on the sale of shares of the Participating Companies, and exemption from tax on income from financial investments in capital markets in Israel.

Encouragement of Capital Investments

The principal law granting incentives for tourist and industrial enterprises is the Law for the Encouragement of Capital Investments, 5719-1959 (‘ECI Law’), which envisages grants and low tax packages for an ‘Approved Enterprise’ — being a company that is granted an approval by the Investment Center upon the fulfillment of certain conditions; or a tax holiday package (tax exemption/low tax), for a ‘Preferred Enterprise’ — being a company that is eligible for such package without an approval from the Investment Center, provided it fulfills certain conditions.

Zones and Criteria

The ECI Law divides Israel into two zones: Development Zone A, and Development Zone B, in accordance with level of social and economic development and unemployment rate.

Preferred Enterprises and Approved Enterprises must be competitive and contribute to gross domestic product (GDP) and the economic independency of the country. In order to be considered as such, an industrial enterprise must meet certain conditions specified by the law.

Investment in Approved or Preferred Enterprise

Investment projects approved by the Investment Center will benefit from a grant provided on fixed assets included in the project, as approved by the Investment Center. Such grants vary between investment projects in respect to the Development Zone they belong to, and the field in which they are active in (e.g. industrial enterprises, hotels, or other tourist enterprises).

The ECI Law provides a fix set of tax rates applicable to the entire industrial activity in Israel of a Preferred Enterprise, depending on the Zone in which the Preferred Enterprise is located. Subsequent to Amendment Number 68, there is no limitation of time for the tax exemption provided to the ‘Preferred Enterprise’, thus such enterprise shall be eligible to the reduced tax rates as long as it meets the criteria in each tax year.

According to the ECI Law, dividends derived from profits of a ‘Preferred Enterprise’ will be subject to a reduced tax rate.

Sale of Securities

Non-residents are exempted from capital gains on the sale of the shares of every Israeli company, traded or non-traded, provided that the shares were purchased after January 1, 2009, even if those shares were purchased and sold by a resident of a country with which Israeli does not have a tax treaty, and provided they are not connected to his permanent establishment in Israel.

Sale of securities traded on foreign markets – A non-resident is exempt from capital gains tax on the sale of securities of an Israeli resident company traded on foreign stock markets, provided the securities were purchased after they were listed.

Futures transactions traded on markets – A non-resident is exempt from capital gains tax on futures transactions traded on stock markets, subject to the fulfillment of certain conditions.

Investment in start-up companies

The Law for the Encouragement of Knowledge-Intensive Industry (Temporary Provision), 5783-2023 provides investors with certain tax benefits for their investment in start-up companies at the stages of seed and pre-seed. The law is temporary and will terminate at the end of the year 2026 unless renewed. Among the granted benefits, individual investors are entitled to tax credit of their investment amount multiplied by the capital gains tax rate applicable to the investor, and postponement of the tax on capital gains from the sale of a technology company for those shareholders who invest part of the received consideration in a start-up company.

Withholding taxes

Any payment made by a resident to a non-resident is in principle subject to withholding tax, generally at the rate of 25%. This applies whether the payment is made through an Israeli institution (e.g. bank), or from the foreign account of an Israeli resident. In the first case, the obligation to withhold is on the institution, and in the latter case, the obligation is on the individual who must declare it. The foregoing applies, among other, to dividends, royalties, and interest payments at varying rates (25%-30%), subject to reduction under tax treaties.

There are procedures available to reduce, or in certain cases eliminate, this withholding tax, based on applicable tax treaty, or certain type of payments (e.g. investment in foreign assets).

Israel is a party to numerous double-taxation treaties, designed to avoid double taxation, most of these treaties are patterned after the Organization for Economic Cooperation and Development (OECD) model treaty.

General double taxation treaties have been signed with Albania, Armenia, Austria, Australia, Azerbaijan, Belarus, Belgium, Brazil, Bulgaria, Canada, China, Croatia, the Czech Republic, Denmark, Estonia, Ethiopia, Finland, France, Germany, Georgia, Greece, Hungary, India, Ireland, Italy, Jamaica, Japan, Latvia, Lithuania, Luxembourg, Malta, Macedonia, Mexico, Moldova, the Netherlands, Norway, Panama, the Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Ukraine, the United Arab Emirates, the United Kingdom of Great Britain and northern Ireland, the United States, Uzbekistan, and Vietnam.

Where treaty relief is not available, Israel will grant unilateral relief by way of tax credits or, if the credit exceeds the Israeli tax payable, by way of a tax deduction.

In 2018, Israel signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

The treaties usually reduce the withholding tax rates on dividends, interest, and royalties paid from Israel to a foreign shareholder or lender, to a range of five to 15% instead of the normal 25% to 30%. In most cases, the reduction is reciprocal and applies to dividends and interest paid into Israel. Furthermore, most of the treaties reduce royalty payments from Israel to 10% or 5%.

In accordance with most of the treaties, the liability of tax in a certain country generally does not attach to the profits from a business carried on in that country by a resident of another country, unless the business is carried on through a ‘permanent establishment^’ (a fixed place of business through which the business of an enterprise is wholly or partly carried on) by the resident of the other country. Profits derived from the operation of ships or aircraft in international traffic and income from real estate normally have special tax liability rules. Independent self-employed entrepreneurs providing services are only taxed in the country of residence, unless they have an established base in the source country. However, income from employment is usually taxed in the country where the person is employed, unless it is for a short term.

There are no wealth taxes in Israel. Except for local (municipal) taxes (‘Arnona’) relating to occupied residential or business properties, there are no property taxes in Israel.

Inheritance Tax

Israel does not levy inheritance taxes or succession duties of any kind, but neither is there a “step-up” of the cost of the assets inherited because of the death. Thus, if the heirs dispose of the assets they inherited, the cost of the assets for the purpose of calculating capital gains, will be the historical cost to the deceased.

Gift Tax

While there is no gift tax as such in Israel, capital gains tax may apply since “gift” is included in the definition of “sale” under the Tax Ordinance, save in the case where the gift is made to a relative, or to another person in “good faith”. Therefore, if a disposition of non-cash assets without any consideration is made by a resident to another non-related resident and is deemed not to have been made in good faith, capital gains tax may apply, and conversely, the donor may be entitled to a capital loss set-off if the value of the gift on the day of donation was less than at the time of acquisition.

The above applies to movables only. In the case of immovables, the Taxation of Land Law (Appreciation, Sale and Purchase), 5723-1963  (“the Land Tax Law”) imposes a tax on any disposition of an immovable, with or without consideration, (Land Appreciation Tax – see question 10), save for an exemption in the case of a gift to a relative (spouse, parents, grandparents and their descendants and spouses; siblings and their spouses; a company or partnership under control of the donor) who is not under the control of the donor.

Gifts of non-cash assets, moveable or immoveable, by Israeli residents to non-residents, related or not, are always subject to capital gains tax.

As addressed above, there is no taxes imposed on gifts or inheritance of movables. Transfers of immovables between spouses and some familial relations are partially or fully exempt from tax, depending on the familial relation and the applicable tax.

In general, donors to specific charities are entitled to deduct donations as expenses, subject to certain conditions. For a donation to be deductible as an expense, it must be donated to a “public institution” which is a non-profit entity that has obtained a specific certification from the Israel Tax Administration (“ITA”) (see full definition in answer 30 below).

Donations by a taxpayer in any tax year to “public institutions” or to a “national fund” (The Jewish Agency, The World Zionist Organization, The United Israel Appeal, and The Jewish National Fund) may be credited against tax owed by the taxpayer in that tax year, subject to the following conditions:

1. the donation must be in excess of ILS 207;
2. only 35% of the donation may be credited against tax owed in the particular tax year;
3. total donations in any tax year cannot exceed 30% of the taxpayer’s chargeable income in that year, or in excess of ILS 10,354,816, whichever is less. Excess donations may be credited consecutively during following three tax years, subject, in each year, to the foregoing ceiling;

All the above amounts are adjustable in accordance with the consumer price index (CPI).  The above amounts are valid for the tax year 2024.

Save for Municipal Tax (see below), there is no property tax on any type of real property, which is not the subject of a transaction.

Land Appreciation Tax

Gains from the sale of Israeli real estate are subject to Land Appreciation Tax in accordance with the Land Tax Law and imposed on the vendor. The tax is levied on the difference between the price of acquisition and the price of sale. Various exemptions apply to residential homes. The Land Tax Law does not apply to persons who deal in real estate such as contractors, developers, brokers, etc., unless these persons purchase immovables as a long-term investment rather than as inventory.

A sale of shares, or any change in the rights of shareholders, in a “real estate company” – a company that substantially all its assets are rights to immovables, directly or indirectly – is deemed a sale of the immovable assets, in proportion to the number of shares sold, and is taxed accordingly.

Resident individuals may be exempt in Israel upon the sale of a qualifying residential dwelling if 18 months have elapsed since any previous sale. This period is increased to four years if more than one home was owned in Israel.

Purchase Tax

The Land Tax Law imposes on the purchaser a Purchase Tax of varying rates calculated from the purchase value of a real-estate asset. The rates are determined by tax brackets applicable on any kind of real-estate assets. In case of residential dwellings, the rates vary between full exemption in case of a single residential dwelling purchased for less than ILS 1,978,745 (updated to 2024) to a rate of 10% for a second (or more) residential dwelling purchased for ILS 6,055,070 and above.

Both the Land Appreciation Tax and the Purchase Tax are paid on the basis of a self-assessment by the tax payer. No appraisal is required except in the case where the tax authorities dispute the self-assessment and no agreement is reached.

Municipality Taxes

There are monthly taxes to the municipality where the real-estate is situated (‘Arnona’), at different rates for each municipality, which are levied in accordance with the area of the property. These taxes are usually paid by the occupier rather than the owner of the real-estate.

Betterment Levy

Betterment Levy is a levy imposed on a land owner by the Municipality or Local District due to the increase of the land value resulting from the approval of an applicable zoning plan.

Income from rent

Taxable income from rent of a building or an apartment is calculated after deducting all expenses (taxes, repairs, depreciation, including revalued depreciation, lawyer’s fees, etc.).

In order to encourage residential rentals in Israel, the tax rate on such rentals is 10% above a fixed level of rent (in 2024 – ILS 5,654 per month). Rent up to that level is exempt. The 10% rate is calculated on the gross income and no deductions of any kind (including depreciation) are allowed. All other rental income is taxed at the normal progressive rates (10% to 50%).

In order to benefit from the reduced tax rate of 10%, two pre-requisites must be fulfilled – the individual’s rental income is not classified as a ‘business income’; and the individual pays the tax on his rental income within 30 days of its receipt, or pays advances during the tax year.

Israel taxes digital assets as financial assets, subject to capital gains tax or regular income tax if classified as business activity. Nevertheless, there is pending legislation on this matter which was not yet brought to discussions in the Knesset (Israeli Parliament).

Value Added Tax

VAT is collected by each supplier (vendor) of goods and services on the total costs at that stage. The VAT collected is paid over to the Customs and Excise Authorities monthly after deducting any VAT inputs paid to previous suppliers in the chain. The rate of VAT was consistent for almost 10 years at 17%. As of January 1, 2025 it is 18%.

Sales Tax

Sales tax is imposed at various rates on a large number of products; the tax is imposed at varying rates (generally 5% to 25%) on local production and on imports, and is calculated as a percentage of the wholesale price.

Custom Duties

The customs duties are a tax imposed only on imports and their main object is to protect local production from competing imports. These are mitigated by international trade agreements that Israel has entered into with other countries.

Sales Tax on Cigarettes

The Sales tax imposed on cigarettes is approximately 70% of the consumer price. The high tax is intended to underscore, and partially compensate for, inter alia, the damages caused to the economy as a result of active or passive smoking.

Excise Tax on Fuel

This is a fixed tax imposed on all fuel products – gasoline, diesel oil, kerosene, gas and coal, whether produced locally or imported.

New Residents and Veteran Returning Residents (returning residents, who have been non-residents for at least 10 years) enjoy tax exemptions on every type of income, both ordinary (passive and active) and capital gains, which is not sourced in Israel, for a period of 10 years following the date of their arrival to Israel. This is an automatic exemption which may be waived. The capital gains exemption applies to the sale of foreign assets, whether such assets were owned by the individuals prior to becoming resident or during the period of non-residency, as the case may be. Where the sale will be made after the expiry of the ten years, the calculation of the gain will be made from date of original purchase to date of sale, on a proportional basis.

Currently, there is an exemption on reporting of all of such income as well. However, the law was changed to revoke the reporting exemption only, amongst other reasons, in order to satisfy the OECD requirements for transparency. The new law revoking the reporting exemption will apply to anyone who enters Israel as of 2026.

Returning Residents, who do not qualify as Veteran Returning Residents, but who lived more than six but less than ten years out of the country (“ordinary Returning Residents”), will enjoy five-year tax holiday as detailed above.

In their first year as residents, New Residents and Veteran Returning Residents will be entitled to a tax-free “adaptation year”, subject to the filing of an adaptation-year form. They will be deemed non-resident during that year.

A non-resident company, which is controlled by a New Resident or Veteran Returning Resident, will not be deemed resident even if its business is managed and controlled by the New Resident, or Veteran Returning Resident, from Israel, and consequently, any income derived by them from such company, during the first ten years of residence in Israel, will be tax exempt.

These benefits apply, subject to certain restrictions, also to a trust settled by, and for the benefit of, New and ordinary Returning Residents in accordance with their respective personal benefits.

Law of Return

According to Israel’s Law of Return, 5710-1950, any Jew is entitled by right to immigrate to Israel (Right of Return). This also applies to the spouse, children and grandchildren of a Jew, and to the spouse of such children or grandchildren, even if they themselves are not Jewish. The Jewish person, by virtue of whom the Right of Return is being claimed, need not be alive at the time of immigration and need not immigrate himself.

For the purpose of applying for the Right of Return, a “Jew” is defined as anyone who was born to a Jewish mother or has been converted to Judaism, and is not a member of another faith.

Thus, anyone who is of the Jewish faith automatically is entitled to a permanent resident visa. If he does not declare his intention to the contrary, such Jewish permanent Resident becomes an Israeli citizen automatically within 90 days of becoming a permanent resident.

Permanent resident visas are granted to individuals who are not of the Jewish faith only for very special reasons, (e.g. clergy, recognized refugees, special experts – all very rarely), as there is no specific legislation allowing for this. Foreign citizens who are permanent residents in Israel may become citizens of Israel by way of naturalization. There are several preconditions for naturalization in Israel including, inter alia, a requirement for a number of years of stay in Israel with the intention of settling a permanent residency, prior to applying for citizenship, and renouncement of prior citizenships.

Tax holidays

Israel offers substantial tax holidays which are granted to a new resident and a veteran returning resident, and these are definite considerations for immigrating to Israel (see details in answer 13).

The ten-year tax holiday is applicable also to trusts settled by the new resident prior to immigration and, under certain circumstances, subsequent to immigration during the holiday period. Therefore, depending on the circumstances, tax planning may take the form of creating a suitable non-resident trust and settling foreign assets into it – or into an underlying company of a trust.

Civic duties

Israeli citizens and permanent residents, regardless of gender, are required to fulfill obligatory army duty between two to three years, and reserve army duties if not exempt.

Cost of living

According to comparative reports issued by international sources, the ratios of purchasing power parities to market exchange rates in Israel are among the highest in the world.

Leaving Israel and giving up Israeli residency for residency of another country requires some careful planning. Becoming a non-resident of Israel for tax purposes as a result of relocation to another country is not a simple overnight process, but rather a process that may take a long while before it crystallizes into the non-residency status.

The tax authorities will carefully examine and interpret all the facts and factors involved in the process of relocating one’s ‘center of life from Israel’ abroad on the strictest level. Since, from a logistic and practical point of view, it is virtually impossible to determine that a person, who has physically left Israel with intent to relocate, has, in fact overnight dissociated himself from all connections to Israel and has shifted his center-of-life abroad, the Tax Ordinance offers, therefore, a more definitive test for qualifying as a non-resident, by providing a separate definition for “non-resident”: (i) physical absence during at least two years; and (ii) evidence that during the two subsequent years the ‘center of his life’ (as per the criteria in the Tax Ordinance – see answer 1 above) has not been in Israel (“2+2 Rule”). If the individual passes this test, then he will be deemed a non-resident retroactively for the tax year in which he departed physically (or the relevant tax year) and the subsequent three years.

“Exit Tax” -A person ceasing to be a resident is deemed to have sold his capital assets on the day he ceased to be a resident. Payment of the capital gains tax due as a result of such ‘sale’ may be postponed to the date of actual sale. In such a case, the taxable gain will be the real gain at the date of actual sale proportionate to the period from the date the asset was purchased to the date the residency ceased. Currently there is pending legislation aiming to fine-tune the deferred payment option (see below question 33).

Succession in Israel is governed by the Inheritance Law, 5725-1965 (“The Inheritance Law”) and related subsidiary legislation: Inheritance Regulations 5758-1998.

There are no forced heirship rules in Israel and a testator is free to will in full as he wishes. If the deceased left a spouse, children or parents who are in need of support, they are entitled to maintenance out of the estate.

Where a deceased has left no will, the legal heirs are the deceased’s: spouse at the time of death, children and their offspring, parents and their offspring, grandparents and their offspring, the whole in accordance with the rights to shares of the estate detailed in the Inheritance Law. The spouse is entitled to half of the estate if the deceased left living issue or parents, two thirds of the estate if the deceased left living siblings or their offsprings, or grandparents; otherwise, the spouse is entitled to the entire estate. Additionally, the spouse is entitled to any movables, including the automobile, that are typically considered as part of the shared household and the shared home subject to certain limitations. Each entitled relative will inherit his share equally per stripes with the rest of the entitled relatives within the same relatives’ group.

Property Relations between Spouses Law, 5733-1973 (“the Property Law”) was enacted to settle conflicting jurisprudence regarding the presumed community of property regime which was the common law in Israel prior to the enactment of the Property Law. Essentially, the Law provides for a regime of separation of property during the marriage. Upon termination of the marriage, however, there arises a right of equalization whereby each spouse is entitled to half the value of the assets which the spouses acquired during the marriage.

Nevertheless, the above regime only applies to the extent that it is not varied or discarded altogether by a Property Agreement which the spouses have entered either before or during the marriage. Civil common law partnerships are recognized and the partners may enter an agreement like the Property Agreement.

There is conflicting jurisprudence whether the provisions of a will, or the rules in the Inheritance Law in case of an intestate succession, can overcome the provisions of a Property Agreement and/or that of the Property Law. The best opinion is in favor of the will and the Inheritance Law based on the reasoning that the Property Law determines the extent of the estate of the deceased, and a will, or the rules of the Inheritance Law, as the case may be, determine how the estate is to be divided.

The Inheritance Law provides that the courts in Israel have jurisdiction and shall apply the Inheritance Law in cases where the deceased was resident in Israel or left assets situated in Israel. “Residence” is defined as the place where a person has the center of his life, i.e., the place to which he is bound with the majority of his affinities. Citizenship, or nationality, in itself is irrelevant.

The rules of conflict of laws in the Inheritance Law determine that the law applicable to an inheritance shall be the law of the place of residence of the deceased at the time of his death, except that the law of the place where assets are located shall apply to assets that can only be transferred according to that law.

Renvoi – Where the law of a certain jurisdiction applies and that law refers to another foreign law, that reference shall be disregarded and the domestic law of that state shall apply; however, if the law of that state refers to Israel law, the reference shall be followed and domestic Israel law shall apply.

Notwithstanding the above, when foreign law applies it shall not be followed to the extent that it discriminates on the grounds of race, religion, sex or nationality or that it is contrary to public policy in Israel, and if foreign law confers rights of inheritance on a person who is not related to the deceased by blood or marriage, as an in-law or by adoption, then that law shall be followed only to the extent that the foreign law recognizes the rights of inheritance conferred by Israel Law.

An intestate succession conveys the same legal rights on those that are entitled to it in accordance with the rules of the Inheritance Law (see answer to 16 above), as would be the case had they been designated as heirs or legatees in a will. Thus, for example, if a person wanted to leave half of his estate to his children and half to his wife, it would make no difference if he had a will that stipulated as such, or not.

A will is needed when a person wants his estate to devolve to heirs other than those designated by law. This he can freely do by writing a will. The foregoing applies equally to moveable and immoveable assets.

Mutual Will – The Inheritance Law provides for a special type of will when spouses wish to ensure the continuation of their quality of life, property and fortune after the death of one of them – a “mutual will”. This is a joint mutual will, in which they commit to bequeath to each other their common property or the things agreed upon between them, without the ability to violate the terms of this will later on. For example, a mutual will is one in which the spouses bequeath their entire estate to each other and thereafter to their joint children. Unlike the case of an ordinary will which can be revised or cancelled freely at any time, a mutual will can only be cancelled by giving notice to the other spouse in which case both wills are cancelled automatically. Upon the death of the first spouse, a mutual will may be cancelled or revised by the surviving spouse either (i) by the renunciation of his or her share of the predeceased spouse’s estate, as long as the renunciation is not in favour of the surviving spouse, his or her child, or the predeceased spouse’s sibling; or (ii) by the return of the assets inherited or the cash value thereof from the surviving spouse to the estate of the predeceased spouse and thereafter revising the surviving spouse’s will.

Regarding the form of the will, wills may be:

• In handwriting – a holograph will, which must be wholly handwritten, signed and dated;
• In a written document – signed in the presence of two witnesses who can be any persons over the age of 18 and not incapacitated legally;
• In the presence of an authority – before a judge or certain court officials, either orally or in writing;
• Orally – this only applies to an individual who is on his deathbed, or believes, justifiably in light of the circumstances, that he is facing death; it must be made before two witnesses who have to write down the words of the testator and deposit it in court. This form of will is void if the testator remains alive for one month following the time that the circumstances that led to the making of this will were resolved.

In the event of a deceased foreign resident who had assets in Israel, whether movables or immovables, an Israeli will is not necessarily required. If there is a foreign will, it may be submitted for a probate order to the Israeli Court which will recognize the foreign will subject to an opinion of an expert of the law of the jurisdiction which governs the form of the will and the substance of the estate. The same applies, mutatis mutandis, in case of an intestate succession where the application is for a succession order.

The estate of a deceased is administered by an appointed executor (“the estate administrator”), or by the heirs, if no executor is appointed.

An executor is appointed by the Registrar for Inheritance Matters upon the application of any interested party. The Registrar is not bound to appoint an executor named in the will, and normally only a resident of Israel will be appointed as a sole executor.

Subject to the directions of the Court, the duties of the executor are: to collect the estate’s assets, administer the estate, discharge the estate’s debts, distribute the residue of the estate among the heirs according to the inheritance order or the probated will and do anything else necessary to implement the inheritance order or the probated will.

In the absence of an executor, the estate is to be administered by the heirs, who basically have the same duties as an executor. Heirs must act unanimously, and if there is no agreement, they need to apply to the Court. In a matter which cannot be delayed, each of the heirs may act of his own accord.

Various Israeli laws provide for trusts, family companies, partnerships which may be structured as a partnership for family purposes, and life insurance structures.

Generally, in respect of private family assets exceeding USD 2 million, trusts, both under Israeli law and foreign laws, have proved the most popular vehicle for structuring and holding private family wealth, because of their flexibility, sophisticated planning possibilities and asset protection features.

Trusts

The Israeli Trust Law, 5739-1979 (“the Trust Law”), defines a trust as a relationship (affinity) which imposes a duty on one party (trustee) to hold or deal with assets under its control for the benefit of another party (beneficiary) or for another purpose. Trusts have existed in Israel since 1923, when the Charitable Trusts Ordinance established public trusts for charitable purposes, and by virtue of the Common Law doctrine of equity introduced by the British Mandate which ended with the formation of the State of Israel in 1948. Private trusts were not regulated by statute until the said Law, although the Courts had recognized implied trusts previously.

Israeli trusts may be created in three different ways: by Contract, by Endowment, and by a law.

A Contractual Trust is created as any other contract under the general law governing contracts, Contracts (General Part), 5733-1973, by way of contract between the creator (settlor) and the trustee outlining the duties of the trustee and the rights of the beneficiaries. It is governed primarily by the provisions of the Trust Law, and in all matters not governed by the Trust Law, by the provisions of the Contracts Law. As in the case of all contracts, a Contractual Trust need not be in writing.

A trust by way of Endowment (“Hekdesh” in Hebrew) is created in writing, either in a notarized deed or in a last will and testament, and is similar to a trust settlement under the Common Law. In addition to the general provisions of the Trust Law which govern all trusts, there are special provisions which apply to Endowment Trusts and which allow for some interference by the Courts, more than in the case of Contractual Trusts.

The Israeli Courts also recognize implied trusts and may declare the existence of a trust when they determine that a trust relationship exists, even if the settlor never expressed a specific intention to create one. Thus, the three methods of creating trusts stated in the Trust Law are not exhaustive, and trusts, therefore, may also be created by a unilateral Declaration of Trust by a trustee.

In a trust relationship, much as in trusts under laws sourced in the Common Law, the trustee is endowed with control over the trust assets, and can determine how the assets will be distributed, invested, or exchanged. As the Trust Law is silent regarding the transfer of the title of ownership of the trust assets to the trustee, this must be stated in the instrument creating the trust, both in case of a Contractual Trust and a Trust Endowment, if this is the intention of the settlor. Any person over the age of 18, who can carry out the duties incumbent in the administration of a trust, may be a trustee, including a corporation, or any other legal entity.

In general, creditors cannot repossess trust funds to pay the debts of the beneficiary or the settlor, unless the Court so permits. If not stated otherwise, the beneficiaries have no proprietary right to the trust assets, but only to the benefits due them.

Under Israeli law a trust is not a legal entity, and there is no special law for creating trust-like foundations. A company formed, and wholly owned, by a trustee for the sole purpose of holding the trust assets is tax transparent under the provisions of the Tax Ordinance, and as such, effectively, provides a foundation-like structure.

Family Companies

Under the provisions of the Tax Ordinance, a limited company formed under the Companies Law, 5759-1999 (an ordinary company limited by shares), all the shareholders of which are related family members (essentially: spouse, parents, grandparents, siblings the offsprings of all these, companies in relation to a 25% shareholder; trustee in relation to the settlor of certain trusts), and the company is managed and directed by these shareholders, may declare within three months after its incorporation that it elects to be a Family Company. In such case, the income of the company will be attributed to the largest shareholder, of if there are equal largest shareholders then to the one who is appointed in the declaration, and such shareholder will be taxed personally as though the company’s income were his own personal income. Distributed profits will be deemed as not having been distributed.

(Family) Partnerships

Under the Partnership Ordinance (New Version), 5735 – 1975, a partnership is created by any two persons or more. A partnership may be formed for a business or professional purpose which will oblige its registration with the Registrar of Partnerships. Unlike a company, however, the liability of the partners for the debts of the partnership is not limited, save in the case of a limited partnership where the liability of each limited partner is limited to the amount of his investment and only the general partner has unlimited liability. Under the provisions of the Tax Ordinance the share of the income of the partnership to which a partner is entitled is taxed to him personally and the partnership is not taxed as such.

There are no special provisions regarding a partnership whose partners are family members, and family members, of course, are free to form partnership to promote a common business or professional goal. Moreover, any two persons, including family members, may also create an unregistered partnership which need not have business or professional purposes.

Life Insurance

Life insurance “wrappers”, technically: Private Placement Life Insurance (“PPLI”), are gaining popularity in Israel as a structure to hold and administer private wealth. Typically, A PPLI is an investment-linked insurance policy, tailored to grow tax preferred in compliance with Israeli tax laws.

Rather than owning the investments in his own name, an individual signs up for a life insurance policy and the premium is invested by the insurance company. The insurance company becomes the ultimate beneficial owner of the policy account and the respective underlying investments, so that the investments are protected from the individual’s creditors. The individual owns an investment-linked insurance policy.

The one-time premium is invested in a designated account which may be managed by the individual or by someone on his behalf. During the lifetime of the policy, there is no tax due by the individual. When the insurable event (normally death) takes place, the net profit yielded by the premium is taxed in the same way as interest in a regular savings plan. Thus, the annual tax on the profits yielded by the investments has been deferred to the death of the individual. If any part of the premium is paid solely on account of life insurance (risk element), and not for saving purposes, the benefit payment upon death in respect of this risk element is free of tax, provided the beneficiaries of the policy are related to the deceased insured.

The above structure is usually implemented with a foreign insurance company, but there is also at least one Israeli insurance company which offers a similar structure with the same general tax benefits.

In general, main source of beneficial ownership information are banks and other AML-obliged persons. All active legal entities and arrangements that are taxpayers in Israel are obliged to have a local bank account, with some exceptions. Not all legal entities and arrangements are obliged to engage with an AML regulated business service provider. Consequently, beneficial ownership information may not be available for all legal entities and arrangements.

Trusts – No registration of any kind is required. A trust deed is strictly a private document which need never come to the knowledge of any third parties, save the taxing authorities. If the deed is notarized in case of an Endowment Trust, it is kept by the notary on a confidential basis, and requires no further registration. Trustees, whether individual or corporate do not require any kind of registration even when they administer several trusts on a professional basis. Thus, any company incorporated in Israel may carry on trust business as a private or public trust company without being subject to any special regulation as such.

Family Companies – As in the case of any other private company incorporated in Israel, the names of shareholders, or their trustees, and directors must be registered and updated pursuant to changes, with the Registrar of Companies, the records of which are open to the public. If the registered shareholders are trustees of the ultimate beneficial shareholders, this must be indicated, but the identity and any information regarding the beneficial owners is not recorded, save with the tax authorities, and therefore is not open to the public.

Partnerships – Upon registration, the partnership is required to provide the details of the partners, all of which are open to the public, but if the registered partner is a trustee of the ultimate beneficial partner, the identity of the ultimate beneficial partner is not indicated. If the partnership is not registered, then the document is strictly private among the partners and not open to the public.

Life Insurance – If the policy is with a foreign insurance company, the jurisdiction of that company and the law which governs it will determine the issue of confidentiality. In case of an Israeli insurance company, the insurance company must acquire all details of the insured and the beneficiaries in accordance with anti-money laundering legislation. There is no public register for life insurance policies.

The common tax feature of trusts, family companies and partnerships is transparency for tax purposes. By using an entity that is transparent for tax purposes, taxpayers can generally benefit from one level of taxation, i.e. avoid the individual beneficial owner tax level, which is applicable when utilizing a limited company.

Trusts – In general the trustee is liable for the payment of the tax and he is the assessed person, but the income is deemed the income of the settlor, with some exceptions. The liability for the tax depends on the classification of the trust. There are six classifications: Israeli Residents Trust, Israeli Resident Beneficiary Trust, Relatives Trust, Foreign Residents Trust, Foreign Resident Beneficiary Trust, Testamentary Trust. Each classification is defined according to the Israeli residence or non-residence of the settlor and/or beneficiaries, and the accrued income of the trust is taxed accordingly. Except in respect of real-estate situated in Israel, the creation of a trust is not taxable, save in the case of creation of a Foreign Resident Beneficiary Trust. In general, distributions of cash are not taxable, but distributions of non-cash assets are taxable, or not, as would have been the case if the asset were transferred directly from the settlor to the beneficiary.

Where a trust is liable to tax on its income, the trust (i.e., the trustee, whether resident or foreign) is taxed in the same manner as an individual tax payer, but at the highest progressive tax bracket. If a special tax rate is prescribed for a certain category of an individual’s income, the same rate will apply to the same category of the trust income. All trust classifications are always liable to tax in respect of Israeli income and assets. Subject to certain conditions, exemptions from tax in respect of foreign-sourced income and assets are applicable in case of Relatives Trust, Foreign Residents Trust, Foreign Resident Beneficiary Trust, and Testamentary Trust (where all heirs are non-resident). The residence of the trustee is irrelevant in respect of the tax liability, so that no classification of trust is liable for tax solely because the trustee is a resident of Israel. Where the assets of the trust are held by a company owned by the trustee (“company for holding trust assets” – see question 23 above), and regardless of the jurisdiction of incorporation, such company is transparent for tax purposes and its income is deemed the income of the trust and not of the company.

Family Companies – See question 23 above.

Partnerships – See question 23 above.

Life Insurance – See question 23 above.

Trusts and foundations under foreign laws are recognized by the Israeli courts, and if proof is made by an expert regarding the foreign law, the Courts will rule accordingly, subject to rules of public policy. Drafting trusts/foundations under foreign laws, especially those based on the common law (e.g. Jersey, Guernsey, Gibraltar, Cyprus, etc.), are very popular among Israeli professionals and quite likely outnumber those drafted under the Israeli Trust Law.

The Tax Ordinance in defining the term “trustee” specifies that a foundation under the laws of the Netherlands, Liechtenstein, Panama, the Bahamas, and the Dutch Antilles is a “trustee.”

Regardless of the law applicable to any such foreign structure, if any Israeli residents are involved, Israel tax laws and the provisions of the Tax Ordinance will apply. As pointed out above in question 25, the Tax Ordinance determines the tax liability of a trust according to the particular classification of the trust and the definitions of these classifications are determined by the residence or non-residence of settlor, founder and/or beneficiary. The residence of the trustee, be it Israeli or foreign, is ignored. In the case of directors, if these are directors of a transparent underlying company of a trust – a “company for holding trust assets” (see above in question 25), their residence is irrelevant since the company is not taxed as such.

Where there is an independent foreign company, it will be liable to tax only if its management and control are carried out in Israel, regardless of the residence status of its directors. In other words, if the company is managed and controlled in Israel, and even if its directors or majority of them, are foreign, it will be taxed in Israel. Conversely, where Israeli resident directors carry on the management and business of a foreign company from abroad, it will not be liable to Israel tax.

While the Trust Law specifies that “A trust has effect vis-a-vis any person who knows or should know of it, and – when notice (of the trust existence in respect of acts concerning assets which require registration by law) has been entered – vis-a-vis the whole world”, and while the Courts have quite consistently guarded the rights of beneficiaries, especially against the trustee’s creditors, nevertheless the ability of trusts to defend settlors and/or beneficiaries against creditors depends largely on the amount of control left in the hands of the settlor in accordance with the provision of the trust instrument.

Israel is not yet a “classical” trust jurisdiction in the tradition of the Common Law, and aside from the above provision in the Trust Law there is no specific legislation regarding this matter, so the Courts have an open hand in examining the provisions of the trust and determining if in fact it is strong enough or “real enough” to withstand challenges by creditors. Certainly, to be so, the ownership title of the assets will need to have been transferred to the trustee.

In the case of life-insurance policies, once the assets, cash or non-cash, comprising the premium are paid to the insurance company, they become the legal property of the company, and are, therefore, protected from the creditors of the policy owner, subject to applicable insolvency laws.

According to the Insolvency and Financial Rehabilitation Law 5778-2018, if the settlor was insolvent at the time of the contribution of the assets to the trust, the beneficiaries of which are relatives of the settlor, the Court may void the contribution if it occurred in a period that commenced four years prior to the filing date of the application for bankruptcy. The Court may also void a contribution to any trust if it is deemed to be an “action aimed at dissipating an asset” from the insolvency estate, and which was performed for the purpose of concealing the asset from the creditors, even if at the time of performing the action the debtor was not in a state of insolvency, provided that the date of performance of the action occurred in a period commencing seven years prior to the filing date of the application for bankruptcy. The foregoing applies, mutatis mutandis, in the case of premiums in a life-insurance policy.

Typically, the provisions of the trust instrument, whether by Contract or Endowment, bestow wide powers on the trustee, which, among other, enable the trustee to manage assets on behalf of children and grandchildren, but for better certainty, this should be specified in the instrument. The trustee will be able to interact with the guardian of the minor, whether such guardian is a natural one (e.g. parent), or one appointed by the court. The existence of minor beneficiaries in a trust has no impact on taxation.

While the Inheritance Law restricts heirs to those who are born at the time of death of the deceased (except those born within 300 days from date of death), in a trust there is no such limitation.

Moreover, whilst succession in Israel is limited to issue who are living on the time of death of the deceased or born no more than 300 days following his death, trusts have no such restrictions and therefore offer a solution which is widely used in Israel.

As of 2016, an amendment of the Legal Capacity and Guardianship Law, 5722 -1962 provides that by way of an “Enduring Power of Attorney,” a person may appoint another person, or several persons, to act and decide on all, or any part of, his personal (including medical) and property/financial affairs and to represent him in connection with them, when he reaches a situation in which he will no longer be able to make decisions due to his mental or cognitive state. In effect, this is an alternative solution to appointing a Guardian by an application to the Court, as the Enduring Power of Attorney may be activated swiftly without delay once the appointer loses his legal capacity. The Enduring Power of Attorney enables flexibility in such way that the appointer may elect to give detailed instructions or full discretion to the appointed person(s), for any of his affairs. The Enduring Power of Attorney requires no judicial approval, but must be prepared by an attorney who has been trained in this matter and certified by the Israeli Bar Association and registered with the Geneal Guardian. The Enduring Power of Attorney may be amended and revoked at any time, except in case that the person is legally incapacitated.

The following matters among other, may not be included in an enduring power of attorney: change of religion; acts that the appointer was empowered to do in the name of another person; voting in an election; giving up a child to be adopted; making of a will. The following matters, among other, require judicial approval before being carried out by the appointed person: loans or gifts over a certain amount; disposition of real estate.

Apart from an Enduring Power of Attorney, it is possible to enact specific instructions concerning medical treatments in accordance with the Terminally Ill Patient Law, 5766-2005 to a medical practitioner certified in this matter. The instructions may be detailed for any treatment or avoidance of treatment and are recorded in a manner allowing direct access for hospitals and paramedics of the patient’s wishes. These instructions are limited for five years period but may be renewed or amended at any time.

An arrangement regarding the future of all property/financial affairs matters, but not personal ones, can also be made by a person who is not incapacitated mentally by creating a trust, and empowering the trustee accordingly.

The legal structure of non-profit charitable entities may take the form of any of the following:

Non-profit society/organization (“Amuta” in Hebrew). Incorporated as a legal entity with legal personality and is governed by the Amutot Law, 5740-1980 (“the Amutot Law”).

Charitable company (“Public Benefit Company”). Incorporated as a legal entity governed by the Companies Law, and the Amutot Law with modified changes, and if it meets certain additional criteria, may also be registered as a “Charitable Fund”.

Public Endowment. Created and regulated as an Endowment Trust under the specific provisions in the Trust Law in respect of Public Endowments.

The income of all the above entities is tax exempt if the entity meets the definition of a “public institution”, unless the income is categorized as business income under the provisions of the Tax Ordinance. For an entity to be recognized as a public institution, it must have two characteristics: (i) it must have at least seven shareholders or members, of whom a majority are not related to one another; and (ii) it must act for a ‘public purpose’, to wit: A purpose concerning religion, culture, education, science, health, welfare or sport, and any other purpose approved by the Minister of Finance. The exemption is not absolute and depends on the classification of the public institution’s income. The following income does not qualify for this exemption:  Income obtained from a business; income obtained from a dividend or interest; income obtained from a body of persons controlled by the public institution, which engages in a business.

Israel is a signatory of the OECD Agreement on Exchange of Information in Tax Matters, as well as the OECD Convention on Mutual Administrative Assistance in Tax Matters. According to an OECD report on Israel in 2022 regarding the Exchange of Information Agreement, Israel has a significant experience in implementing this Agreement, especially with France, United States, Germany, Latvia, and Belgium. In the years 2018 to 2020, Israel sent 252 requests and received 372 requests for information from its Agreement partners.

Israel also conveys KYC information within the framework of the FATCA agreement with the United Sates and the CRS agreement with the European Union.

Israel is a party to over 60 Conventions for the Avoidance of Double Taxation, which typically contain provisions for exchange of information in tax matters (see answer to question 5 above).

The Transfer Regulations (Subordinate legislation adopted in 2001 under the Protection of Privacy Law, 5741-1981), prohibit the transfer of data from a database in Israel to a database located abroad, unless the receiving country ensures a level of protection of data that equals or exceeds the level of protection provided for under Israeli law.

Transfers of personal data to third countries are permissible only, if there is a legal basis for the processing/transfer and one of specified conditions applies (e.g., approved adequate/whitelisted jurisdictions).

The Transfer Regulations do not specifically whitelist third countries to which personal data can be transferred, but they determine categories of countries to which personal data can be transferred. The Transfer Regulations lay down a number of principles that help determine whether a country provides an adequate level of protection.

Budget Legislation – On December 31, 2024 new controversial tax legislation, in the form of an amendment of the Tax Ordinance, which would impact private clients, was adopted:

• Undistributed Profits – In order to close the tax leakage in “closely-held companies” (non-traded companies controlled by five persons or less) that have accumulated (“trapped”) dividends exceeding ILS 750,000 (app. USD 205,000) and have not distributed them, thereby avoiding the “second-level” of taxation which is imposed on distributed dividends (25% or 30% (substantial holder) + Surtax – see question 2). These companies will now be forced to distribute annually 6% of accumulated profits subject to certain exemptions, or pay a fine of 2% of the accumulated profits subject to certain exemptions.
• Self-Employed Companies (also known as “pocketbook” companies) – Prior to this amendment, the existing provision in the Tax Ordinance deemed the income of a closely-held company that rendered services to its substantial (10%) shareholder, who carried on certain specified activities on behalf of the company, to be the income of the shareholder. It has now been amended so that the deeming provision relates to a person who holds 25% of the “means of control” (see question 2 above) of the company.
• Intensive Personal Endeavor Companies – A new taxation regime for closely-held companies with intensive personal endeavor (i.e., companies the income of which is other than: interest, linkage differences, dividends, rentals, capital gains) is introduced. In accordance with the new regime, a single shareholder who is active in such a company, with a profitability rate of more than 25% and a turnover of less than ILS 30 million, will be subject to marginal tax personally, in proportion to his shareholdings, in respect of the company’s profits exceeding 25%. This provision applies only in the cases where the provisions under Self-Employment Companies (above) do not apply.

“Residence” Presumptions – There is a proposed pending law regarding the presumptions related to the number of days that determine an individual’s “residence” under the provisions of the Tax Ordinance (see answer to question 1 above). Promulgation date unknown.

Tax Reporting by New/Returning Residents – New Residents or Returning Residents are currently exempt from reporting and from taxation of foreign source income for a period of either ten years (New Residents and Veteran Returning Residents who return to Israel after ten years as non-residents), or five years (Returning Residents who return to Israel after six years as non-residents). As of 2026, the reporting will no longer be exempt, although the tax exemption will continue (see answer to question 13 above). Promulgation date unknown.

Exit Tax – Pending legislation aiming to fine-tune the deferred payment option (see question 15 above) in order to facilitate its enforcement by requiring reporting of the value, even if no tax is paid, depositing securities for certain type of assets if the value is over a certain amount, and forfeiting the tax deferment if certain specified events occur. Promulgation date unknown.

Foreign Investments – A memorandum to amend the Tax Ordinance has been published, which addresses, among others, the provision of relief for foreign residents’ investments in Israel and the activities of investment funds with foreign investors operating in Israel. It is aimed at the high-tech sector to the Israeli economy, by applying the existing tax exemption that non-residents have in respect of the sale and dividends of Israeli securities also to the case where such exemptions currently are not applicable because the non-resident has a permanent establishment in Israel, or is a passive investor in a fund, the income of which may be categorized as business income. The memorandum also proposes reduced tax rate on carried interest and eliminating VAT on such interest and management fees. All of these benefits will apply to certain investments which will be specified in the regulations of the proposed law. At the moment the memorandum has not yet realized the proposed-law level of legislation.

VAT – Value Added Tax, which for many years was fixed at 17% is increased to 18% as of January 1, 2025.

Subject to changes in all the above proposed legislation, none of it is retroactive. In general, tax legislation in Israel is not retroactive. New legislation, such as the Budget Legislation, include special transitional provisions which, in some cases may have a retroactive effect.

Currently, there is much volatility in Israel regarding the legislation of tax law, because of the deficit created by Israel’s war conflict with the Hamas and the Hizballah.