Israel

Market overview

Like many other countries, Israel has taken steps to adopt at least the minimum standard initiatives of the BEPS action plan, as well as the common approach for some action points and the best practice for BEPS Action 12.

Further, on May 12 2016, Israel was among five other countries that signed the multilateral competent authority agreement for the automatic exchange of country-by-country reports (CbC MCAA). This enabled the signatories to bilaterally and automatically exchange CbC reports with each other as envisioned by BEPS Action 13.

The Israeli legislature has put forward proposals for amendments to the Israeli Tax Ordinance (ITO). These amendments aim to tackle the issue of transfer pricing in the country and attempt to align local legislation with BEPS Action 13. This suggests the inclusion of the three-tier documentation system of the master file, the local file and the CbCR. Not only would the legislation enable Israel to adopt the BEPS initiative, it would indicate a desire to ensure that its laws meet international TP standards. This would also lead to Israeli taxpayers engaged in TP activities being required to submit more documentation, reports and information to comply with the ITO's policies.

Legislation that covers TP matters in Israel includes section 85A of the ITO. Taxpayers have to file a TP report with the assessing officer, at the assessing officer's request. This has to be filed within 60 days of the application date. The documentation must include: the taxpayer's group structure and the parties involved in the transaction, the contractual terms, the taxpayer's area of business activity, specifics of all transactions concerning the taxpayer and the related party and an economic assessment.

The proposed amendments would update the provisions of sections 85A and add new sections 85B and 85C to the ITO. Under section 85B and at the request of the assessing officer, taxpayers would be required to provide information in relation to their cross-border inter-company transactions. This information would take the form of documents, reports and data concerning the multinational group that is affiliated with the taxpayer. It is possible that this provision refers to the preparation and maintenance of a master file. A master file would be prepared in accordance with the OECD criteria.

Provisions under section 85C of the ITO would include an obligation for taxpayers that are affiliated with a multinational group to say so in the form. The form, with the declaration, will be filed as part of the tax return.


Tax authorities

Income Tax Office
66 Kanfei Nesharim Street
Jerusalem
Tel: +972 2 654 5111; +972 2 654 5415
Fax: +972 2 654 5183; +972 2 654 5413

Department of Customs and VAT
5 Bank of Israel St
Government Complex POB 320
Jerusalem 91002
Tel: +972 2 666 4000
Fax: +972 2 666 4011
Email: taxes@mof.gov.il
Website: taxes.gov.il; ozar.mof.gov.il


Tax rates at a glance

(As of August 2017)

Corporate income tax rate 24% (a)
Capital gains tax rates 24% (a)
Branch tax rate 24%/15% (a)
 
Withholding tax
Dividends 0/15/20/25/30% (b)(c)
Interest 0/24% (a)(b)(d)(e)
Royalties from patents, Know how, etc. 24% (a)(b)(d)
Branch-remittance tax n.a.
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. This is the regular company tax rate for profits and real capital gains. Reduced rates of company tax are available in accordance with the Capital Investment Encouragement Law
  2. The withholding tax may be reduced by applicable tax treaties.
  3. The 0% rate generally applies to distributions to Israeli parent companies. In addition, reduced withholding tax rates of 15% and 20% may apply under the Capital Investment Encouragement Law.
  4. In principle, the withholding taxes on interest and royalties are not final taxes.
  5. Interest paid to non-residents on Israeli corporate bonds registered for trading on the Tel-Aviv Stock Exchange is exempt. In general, interest paid to non-residents on Israeli governmental bonds is exempt. However, interest on short-term bonds (issued for 13 months or less) is taxable.

Source: EY 2017 Worldwide Corporate Tax Guide and Deloitte