What taxes do expats pay in Israel?

Nobody likes tax surprises in a new country. Here's exactly how Israel's tax system affects expats, with real numbers and rates.

Tax System Overview

Income Tax in Israel

Israel operates a progressive income tax system, meaning higher earners pay a higher percentage on their income above certain thresholds. The top marginal rate is 35%.

What Does This Mean in Practice?

On a gross annual salary of €90,000, you would pay an effective tax rate of approximately 14.9%, resulting in a net monthly income of approximately €5,675. This accounts for income tax and mandatory social contributions.

For context, the average monthly salary in Israel is approximately €3,542.

VAT (Value Added Tax)

The standard VAT rate in Israel is 17.0%. VAT is included in consumer prices and applies to most goods and services. Reduced rates typically apply to:

• Basic food items and groceries
• Medical supplies and pharmaceuticals
• Books and educational materials
• Public transport (in some cases)

Special Tax Regimes for Expats

Yes — unverified. Requires legal source verification

If eligible, these regimes can provide substantial savings during your initial years in Israel. Always verify current requirements with a qualified tax professional, as rules change frequently.

Tax Filing Requirements

As a tax resident of Israel, you are generally required to:

1. Register with tax authorities upon establishing residence
2. Obtain a tax identification number
3. File an annual tax return (deadlines vary)
4. Declare worldwide income if you are a tax resident
5. Report foreign bank accounts if applicable

Double Taxation

Israel has double taxation agreements (DTAs) with numerous countries. These treaties determine which country has the right to tax specific types of income and help prevent you from being taxed twice on the same income. Before moving, check whether a DTA exists between Israel and your home country.

Tax Tips for Expats

• Hire a local tax adviser familiar with expat situations during your first year
• Keep records of all income, deductions, and tax payments from day one
• Understand residency rules: most countries consider you a tax resident after 183 days
• Check for exit tax: some countries impose tax on unrealised gains when you leave
• Social security contributions are often separate from income tax and can add 10-20% to your total burden

Additional Practical Information

The following information is compiled from expat community sources and recent reports to complement the official data above.

Additional Data Points

Recent reports and expat sources provide these additional figures for Israel:

• The income tax rate in Israel ranges from 10% to 50% based on a person's income. For employee income , the employer automatically withholds this tax directly from the wages without requiring individuals to file a separate tax declaration .
• Israeli residents are entitled to deduct 6,345 shekels from their income; women: 1,410 shekels; and Israeli women: 7,755 shekels.
• For children aged 1 to 5; 4,230 shekels are deductible, in addition to the deduction for each child under 18, which is proportional to income.
• Dividends are taxed at a rate of 20%; capital gains from securities are also subject to a 20% tax, and the tax on the sale of real estate ranges from 20% to 25%.
• Shareholders can compensate themselves either through a salary or by receiving dividends. From a tax perspective, choosing the salary option tends to be more favorable because the tax rate on dividends can range from 25% to 30%, depending on individual circumstances.
• A standard VAT rate of 17% applies to all products except those meant for export. Companies with annual revenues under 1.5 million shekels pay VAT every two months, while those with incomes exceeding this threshold must pay it monthly. Companies can reclaim VAT on their expenses but are not required to pay VAT on their profits.

Additional data sourced from expat community reports. All information should be verified with official sources.