Calculate Israeli tax on worldwide income for residents outside the 10-year exemption period. Israel taxes residents on all income globally. Enter Israeli salary and foreign income to compute combined tax and any foreign tax credit.
Enter your Israeli salary and foreign income to compute the combined Israeli income tax. A foreign tax credit reduces the additional tax owed on foreign income.
Additional Israeli tax on foreign income
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Israeli income tax (on salary only)
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Total Israeli tax (combined income)
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Foreign tax credit applied
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Net Israeli tax after credit
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Your breakdown
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How Israel taxes worldwide income for residents
Since the 2003 tax reform, Israel applies a residence-based worldwide income tax system. An Israeli resident is taxed on all income from all sources globally, whether the income arises in Israel or abroad. Israeli income tax brackets are progressive, running from 10 percent on income up to 84,480 ILS to 50 percent on income above 721,560 ILS. Foreign income is stacked on top of Israeli income, which typically means it is taxed at the marginal rate applicable to the combined total. This can result in a significant Israeli tax charge on foreign income for professionals who also earn substantial Israeli salaries.
The foreign tax credit mechanism
To prevent double taxation, Israel allows a credit for income taxes paid to foreign governments on foreign-source income. The credit is applied against the Israeli tax computed on the same foreign income. If a taxpayer earns 80,000 ILS equivalent in dividends from a US portfolio and pays 24,000 ILS in US withholding tax, and the Israeli tax attributable to those dividends is 28,000 ILS, the credit reduces the Israeli payment to 4,000 ILS. The credit cannot exceed the Israeli tax on the foreign income, so excess foreign tax is not directly refundable by Israel. Tax treaty provisions may modify this calculation.
Practical steps for Israelis with foreign income
Israeli residents with foreign income above the reporting threshold must file an annual income tax return (Form 1301) with the Israeli Tax Authority by April 30 of the following year (extensions are available). All foreign income must be disclosed, including income covered by tax treaties that gives Israel secondary taxing rights. Foreign tax paid must be documented with official certificates from the foreign tax authority. Using a licensed Israeli accountant (roeh heshbon) who specialises in international taxation is strongly recommended for residents with material foreign income, to correctly apply credits and treaty provisions and minimise penalties.
Frequently asked questions
Does Israel tax residents on foreign income?
Yes. Israel moved to a worldwide income tax system for residents in 2003. Israeli tax residents are taxed on their total worldwide income, including salaries from foreign employers, dividends and interest from foreign accounts, rental income from property abroad, and capital gains from foreign assets. The same progressive income tax brackets and rates that apply to Israeli income apply to foreign income. Exceptions include income covered by the 10-year exemption for new immigrants and returning residents, and income covered by a specific tax treaty provision.
How does the foreign tax credit work in Israel?
Israel allows a credit for foreign income tax paid on foreign-source income, to reduce double taxation. The credit is limited to the lower of the foreign tax actually paid or the Israeli tax attributable to the same income. If the foreign tax rate is higher than the Israeli tax on that income, the excess foreign tax is not refunded by Israel but may be carried forward in some cases. Tax treaties between Israel and many countries (the US, UK, Germany, and others) specify how the credit is calculated and which country has primary taxing rights over different income types.
Are there reporting requirements for foreign accounts and assets in Israel?
Israeli residents are generally required to disclose foreign bank accounts and financial assets above certain thresholds in their annual tax return. Israel participates in the Common Reporting Standard (CRS), under which foreign banks share account information with the Israeli Tax Authority. The US-Israel tax treaty includes FATCA provisions. Failure to report foreign income or assets can result in significant penalties and interest. The Israeli Tax Authority has increased enforcement in this area, and voluntary disclosure programs have been offered in the past for those coming forward proactively.
What is the marginal tax rate on foreign income for a typical Israeli professional?
Foreign income is added on top of Israeli income when computing total taxable income. If an Israeli professional earns 250,000 ILS in Israeli salary, they are already in the 31 to 35 percent bracket range. Any foreign income added on top would be taxed at the marginal rate applicable to the combined income level, which could be 35 to 47 percent. The effective additional tax on foreign income depends on how much foreign income is stacked on top of existing Israeli income. The foreign tax credit can reduce or eliminate double taxation if similar rates were paid abroad.