Tax Consulting

It is mandatory for every business in the Israel to comply with taxation rules and file corporate taxes. Corporate income taxes are created for the improvement of the country the company is established in.

The Israel tax law imposes a 30% branch profits tax on a foreign corporation's Israel branch's effectively connected earnings and profits to the extent they are treated as distributed, based on any decrease in the branch's Israel net equity for the year. The branch profits tax may be reduced or eliminated under an applicable Israel tax treaty. The tax does not apply in the year the foreign corporation terminates its Israel trade or business. The purpose of the branch profits tax is to treat Israel operations of foreign corporations in a manner similar to Israel corporations owned by foreign persons – i.e, it is a proxy for the Israel tax on dividends paid by a Israel subsidiary to a foreign person.

With certain exceptions, a 30% (or lower treaty rate) branch-level interest tax is imposed on interest treated as paid by a Israel branch to foreign lenders. This applies both to interest paid by the branch and to a portion of the interest paid by the home office to the extent taken into account in determining the corporation's tax on effectively connected income.

What is a Corporate Income Tax?

Corporate Income Tax is the tax a business pays based on its profits during a financial year. To compute your corporate income tax, you need to deduct the company expenses, the employees' wages, and the equipment cost.

Domestic Corporations

Net income from all sources is subject to a twenty-one percent (30%) corporate income tax rate. Net income from all sources is subject to a twenty-one percent (30%) corporate income tax rate. Proprietary educational institutions and hospitals which are nonprofit, on net income if gross income from unrelated trade, business, and other activities that does not exceed 50% of the total gross income from all sources shall be subject to ten percent (10%) corporate income tax rate. Non-stock, nonprofit educational institutions (all assets and revenues used actually, directly, and exclusively for educational purposes) and other nonprofit organizations are exempt from the corporate income tax rate.

Israel trade or business

Generally, a foreign corporation engaged in a Israel trade or business is taxed on a net basis at regular corporate tax rates on income from Israel sources that is effectively connected with that business and also is subject to a 30% branch profits tax on the corporation's effectively connected earnings and profits to the extent treated as repatriated to the home office. The branch tax can be reduced or eliminated under an applicable Israel tax treaty.

In addition, a foreign corporation is subject to a 30% tax on the gross amount of certain Israel-source income not effectively connected with that business; such 30% tax potentially may be reduced or eliminated under an applicable Israel tax treaty. (These 30% rates were not changed by the Act.)

There is no definition in the tax statute of the term trade or business within the Israel – instead, that concept has been developed mainly by the Internal Revenue Service and court decisions through a facts-and-circumstances analysis. A foreign corporation needs to consider the nature and extent of its economic activities in the Israel, either directly or through its agents. The following have been considered to be important factors by the courts and/or the Internal Revenue Service:

The business must have a profit motive. Activities generally must be 'considerable, continuous, and regular.' Ministerial, clerical, or collection-related activities generally are not sufficiently profit-oriented to constitute a Israel trade or business. Isolated activities generally do not rise to the level of a trade or business.

An agent's activities in the Israel may result in a Israel trade or business.

Effectively connected income

If a non-Israel person has a Israel trade or business, the question arises as to what income is 'effectively connected' to such Israeli trade or business.

All Israeli-source active income earned by a non-Israeli person is treated as effectively connected. Passive-type income and gain from the sale of capital assets are treated as effectively connected to a non-Israelese person's Israeli trade or business only if a connection with the Israeli trade or business exists. Such a connection exists if the passive-type income or capital gain is derived from assets used in the Israeli trade or business (the asset use test) or if the activities conducted in the Israeli trade or business are a material factor in the production of the passive-type income or capital gain (the business activities test).

Certain types of foreign-source income generated through a Israeli office can be effectively connected income. These include:

Rents or royalties for use of intangible property outside the Israel that are derived in the active conduct of a Israeli trade or business. Foreign-source dividends or interest derived in active conduct of banking business in the Israel, or received by a corporation the principal business of which is trading in stocks or securities for its own account. Gain from the sale outside the Israel of inventory property and property held for sale to customers, when the sale is made through a Israeli office or fixed place of business, unless the property is sold for use outside the Israel and a non-Israeli office materially participates in the sale.

Our Tax Consultation Services Include:

Tax advisory and planning Requisition of IRS Rulings Assistance in availing tax incentives Application of tax treaty Tax compliance Tax audit and review Settlement of tax returns Requisition of tax refund and tax credit Procurement of Certificate Authorizing Registration Tax consultancy retainership arrangement

HA Konsultant Company specializes in tax consultation services that include tax advisory and planning, requisition of IRS rulings, tax return settlements, assistance in availing tax incentives, tax compliance, settlement of tax returns, and many more.

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