Nefesh B`Nefesh Aliyah Fair

Nefesh B'Nefesh
Aliyah Fair
“Israeli Tax Perspectives”
Presented by: Eitan Caspy, CPA
The Data refers to year 2014
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Income Tax
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Since 2003, there has been personal taxation instead of territorial taxation
Progressive tax method
In Israel, an individual’s income is taxed after exceeding certain minimum thresholds - start
to pay income tax when yearly income exceeds approx. $15,000.
2014 Tax brackets
Salary
($)
Incremental
tax ($)
Cumulative
tax ($)
Effective tax
rate
10% tax rate ceiling
18,103
1,810
1,810
10.0%
14% tax rate ceiling
30,891
1,790
3,600
11.7%
21% tax rate ceiling
48,000
3,593
7,193
15.0%
31% tax rate ceiling
68,571
6,377
13,570
19.8%
34% tax rate ceiling
143,417
25,448
39,018
27.2%
48% tax rate ceiling
231,874
42,459
81,477
35.1%
Marginal rate
50% on every additional $ *
A 2% surcharge tax will be added to revenues in excess of $231,874
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Income Tax (cont’d)
• Tax deductions (reduction of taxable income) –
contributions to pension funds, disability insurance,
national insurance
• Tax credits (reduction of tax liability) - communities, Oleh status,
charitable contributions
• Separate/joint tax calculation
• Who is required to file a full tax return?
– Salaried workers with annual income exceeding $185,714
– Self-employed individuals
– Company owners
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Income Tax (cont’d)
• Withholding tax and tax adjustment
• Exempt income: social security benefits, rental
income up to NIS 5,080 ($1,451), sale of residential
property subject to certain restrictions, etc.
• Income taxed at reduced rates:
Capital gains/dividends: 25%-30%
Interest income: 15%-25%
Residential rental income - 10% of gross rental
income
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Forms of Association in Israel Advantages and Disadvantages
• Individual
• Partnership - up to 20 partners (exceptions: law
and accounting firms)
• Company - limited liability or unlimited liability
(professional corporations - ex: doctors, lawyers,
accountants, etc.)
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Individual/Partnership/Corporations
Subject
Individual
Tax rate
Progressive up to 50%
Bookkeeping and
accounting
Simplified bookkeeping
that can be done
independently – not
recommended
National insurance (social National insurance
security)
amounts are 15% higher
Limited liability
No limit to liability
Severance pay
None
Company
26.5% (remember that after-tax
take-home income will be taxed
at an additional 30%-32%, so
that the effective tax is 50%).
Requires bookkeeping and
accounting by professionals
Savings of 15% in national
insurance
Limited liability
12,360 NIS ($3,531) per year of
employment
Individual and corporate tax rates may change in the future
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Deductible business expenses
Examples of business expenses:
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•
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Rent
Maintenance
Telephone and communication
Salaries and social benefits
Purchase of furniture & equipment (depreciable over several years)
Purchases
Office supplies
Professional fees
Specific expenses for each and every business
Home office expenses (ex: consultants, physicians, etc.) – a pro rata share of
household maintenance expenses are deductible
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Losses
• Losses – current operating losses (not capital) are offset against
current income and may be carried forward
Business Losses carried forward and may be offset
against any income source
Capital Losses may be offset only
against capital gains
Other
• Statement of Net Worth (“Hatzharat Hon”)
• Audited financial statements required for
corporations and non-profits
(recommended for partnerships)
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10-year tax exemption for Olim
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Broad exemption on all income produced abroad, including business income,
salaries and passive income (ex: interest, dividends, capital gains, rental income,
royalties etc.)
An additional 10-year exemption (i.e.: 20-year exemption) when investing in a
project in Israel with a “national goal”
10-year tax exemption on capital gains, a proportionate exemption from year 11
No requirement to purchase assets before Aliyah
Tax break on foreign pensions – Tax will not exceed the tax that would be
paid overseas
Exemption from “statement of net worth”, and reporting on trusts; exemption on
activity from controlled companies operating outside of Israel
The first year of the exemption period may be deferred by filing a request
During 2013, our office succeeded in cancelling proposed legislation that would
have revoked some of the items mentioned above
Information sharing with the IRS
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Mechanism for Foreign Tax Credit (after 10
years)
Income from a business overseas
Tax in Israel
Credit for tax paid overseas
Balance of tax due in Israel
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$
10,000
3,000
(2,000)
1,000
======
•
Value
Added
Tax
(VAT)
VAT rates and their application, including exemptions (fruits & vegetables,
exports, insurance, etc.)
• Manner in which VAT is prepared
Example:
Income
10,000
1,800
11,800
=====
4,000
720
4,720
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Consulting income as a physician
VAT collected (on revenues)
Total collected
Expenses
VAT paid on expenses
"Inputs"
Net amount of VAT paid
Accounting
with VAT
Authority
Accounting
with income tax
Authority
10,000
1,800
(4,000)
(720)
6,000
=======
1,080
====
(highest tax bracket)
Individual
50%
3,000
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Company
26.5%
1,590
National Insurance & Health Tax:
• Types of insurance: disability, birth grant, maternity leave, child allowance,
work injury, old age pension, reserve duty, retirement, residual, income
supplements, income support
• National Insurance rates for the self-employed and salaried worker
(employer/employee)
Self-employed
Salaried worker
National Insurance and Health Tax
16.23%
Employee – 12%
Employer – 6.5%
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Health Insurance
• Hospital stays, doctor visits, medical procedures, etc.
• Avoid high National Insurance rates by incorporating
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Salaries and Social Benefits
• Pension insurance by component –
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17% employer, 5% employee
Mandatory pension + types of insurance
Number of hours worked – overtime above
43 hours worked (125%, 150%) Sun-Thur
Minimum wage - NIS 4,300 (January 2014)
Continuing education fund
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Vacation
No. of years seniority
No. of vacation days to which employee is entitled
1-4
10
More than 5
Increases by 1 day for each year's seniority, up to a
maximum of 20 days
• Sick pay – 18 days per year, 1.5 days for each month worked. Employees are
allowed 8 sick days for children’s illnesses
• Severance pay - an employer must contribute 10% of salary towards pension and
severance, while 5% is deducted from the employee's salary for pension.
Contributions included above belong to the employee whether termination
initiated by the employer or employee.
• Salary payment date and late payment: payment must be paid by the 10th day of
the following month
• Pay slip structure
• Employer’s cost 30% + of gross pay
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PAY SLIP
MONTH
ID NUMBER
EMPLOYEE'S NAME
01/2013
33333333-3
ISRAEL ISRAELI
ALLOWANCE
POINTS
DATE OF BIRTH
2.25
1/1/1980
BANK CODE
BRANCH
UNMARRIED
BANK ACCOUNT
NUMBER
10
100
8888/77
PAYMENTS
RATE
ARITAL STATUS
PAYMENTS BREAKDOWN
QUANTITY
3,684
20.36
181
433
25.44
17
PAYMENT CATEGORY
BASIC WAGE
OVERTIME 125%
62
TRANSPORT FARE
TOTAL PAYMENTS
4,179
EMPLOYER
DEDUCTIONS
PAYROLL DEDUCTIONS
EMPLOYEE
DEDUCTIONS
DEDUCTION CATEGORY
576
INCOME TAX
225
372
NATIONAL SECURITY + HEALTH TAX
491
184
PENSION FUND
276
92
ADVANCED STUDY FUND
1,225
TOTAL PAYROLL DEDUCTIONS
2,954
NET WAGE
NET PAYMENT
2,954
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Dealing with the Tax Authorities
• Dealing directly with the Israeli Tax Authorities can be
troublesome at best … and outright dangerous at
worst!
• Remember, you have a business to run, a profession
to develop and a life to live. Don’t waste your time
haggling with tax bureaucrats who specialize in raiding
your hard earned income
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• ONE-STOP Shop
- Services in all sectors of the economy,
for all types of entities
- Expertise in taxation, audit, accounting
& financial analyses and payroll
- U.S. Tax Department
- Clients include: government ministries,
corporations, institutions and individuals
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Contact Us
Caspy & Caspy C. P. A.
Tel: +972-2-6796606
Fax: +972-2-6791011
E-mail: [email protected]
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