Lior Pick, Attorney-at-Law, CPA, Shiri Weiss, Attorney-at-Law
On December 5, 2011, the Knesset approved the taxation section of the Trachtenberg Committee’s report. In the wake of authorizing the law, a number of amendments will come into force commencing on January 1, 2012
1. Annulment of the Company Tax Reduction The gradual company tax reduction trend, which ultimately would have led to company tax of 18% in 2016 – has been abolished. As is well known, while in 2011, company tax is 24%, the committee has abolished company tax reduction, as aforementioned and determined that the company tax rate will return to 25% already on January 1, 2012. Furthermore, the possibility of a company tax hike to 26% in 2013 is being considered.
2. Raising the Income Tax Rate for Individuals in the Higher Taxation Bracket – Individuals with a gross monthly income of NIS 40,231 and over will be subject to a marginal tax of 48% (instead of the current 45%).
3. Raising the Taxation Rates on Capital Gains, Interest and Dividends and Betterment Tax- The taxation rate on interest, dividends, capital gains and betterment tax will be raised by 5% from 20% (in 2011) to 25% on January 1, 2012. Accordingly, the taxation rate on a major shareholder (a 10% or more shareholding in a company) will rise from 25% to 30%.
4. Raising an Employer’s Portion of National Insurance Payments – An employer’s provision for the National Insurance Institute has been raised from 5.9% to 7.5% on the portion of a salary that is higher than 60% of the average salary in the economy. This increase will be spread over three years.
Furthermore, the interim instruction regarding raising the ceiling of provisions for national insurance has been abolished and the ceiling will return to five times the average salary in the economy, i.e. a reduction from NIS 73,000 to NIS 41,000 per month.
5. Credit Points for Fathers – 2 taxation credit points will be given to a male for each child up to the age of 3 years (approx. NIS 400 per month).
6. Reduction of the Excise on Fuel – The excise hike on fuel planned for 2012 has been abolished.
7. Furthermore, it has been decided that a team is to be set up to reinforce taxation payments.
8. The VAT rate will remain unchanged at 16%.
9. Furthermore, it has been determined that individuals who earn between NIS 8000 and NIS 14,000 a month will benefit from a 2% marginal tax reduction.
10. Taxation on High Incomes (“Surtax”) – The committee’s recommendations include a 2% surtax on incomes (current income and capital gains) in excess of NIS 1 million per annum (approx. NIS 83,000 per month), but this has not yet been approved by the Knesset and, consequently, has not been included in the new legislation.
In view of the aforementioned, it is highly recommended to make arrangements in advance of these amendments, which will be coming into force, as aforementioned, almost immediately (from January 1, 2012). Perhaps an attempt should be made to take advantage of the current taxation rates. Thus, for example, companies that intend distributing a dividend would be well advised to do so before the end of the tax year (and thus save 5% on taxation).
As aforementioned, January 1, 2012 has been set as the date set for the amendments, applicable to income and/or earnings created as of that date,. True to the linear approach, the legislature has determined that the division of the earnings between periods will be based on the linear method. While we believe that this method creates a number of distortions, as aforementioned this is the approach that was adopted in the political episode (in the matter of betterment tax).
The aforementioned contains nothing to serve as an opinion and/or an alternative to individual legal taxation advice. We will be happy to be at your disposal for any queries and or explanations regarding this or any general matter. Our office specializes in taxation advice (income tax, betterment tax, VAT) and also accompanies real estate, company and international transactions.
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