Israel taxes residents on worldwide income and non-residents on Israel-source income only. The Israeli system is based on a combined form of assessment and self-assessment - taxpayers file their own calculation, but the Israel Tax Authority retains an active assessment role rather than this being a pure self-assessment system.
The Israeli tax year is generally the calendar year (certain entities - mutual funds, government companies, quoted companies, and subsidiaries of foreign publicly listed companies - may apply for a different year-end). The statutory corporate filing deadline is 5 months after the tax year-end (31 May for calendar-year taxpayers), with extensions available on request.
Israel's headline corporate income tax (CIT) rate is 23%.
The headline personal income tax (PIT) rate is 50%.
The standard VAT/GST (or equivalent consumption tax) rate is 18%.
An individual is an Israeli tax resident if their "center of life" is in Israel - a facts-and-circumstances test that the law backs with two rebuttable day-count presumptions: presence 183 days or more in the tax year, or presence 30 days or more in the tax year combined with 425 days or more across that year and the two preceding years. These day-count tests are presumptions only; the center-of-life test governs even where they aren't met, and the presumptions can be rebutted either way based on facts and circumstances. A person breaks Israeli residency only after no longer meeting the residency definition, living outside Israel at least 183 days/year for two consecutive years, and having their center of life outside Israel for the following two years - residency is then deemed broken retroactively to the original departure date. Anyone ceasing Israeli residency is subject to an exit tax on deemed disposal of worldwide assets at market value.
A non-Israeli entity has an Israeli permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Israel on the entity's behalf, following the OECD Model Treaty definition as applied under Israeli domestic law and any applicable tax treaty.
Under Israel's CFC regime, an Israeli individual or company may be taxed on a proportionate share of undistributed profits of an Israeli-controlled non-resident company (a deemed dividend), where: Israeli residents collectively hold more than 50% of the foreign company's "means of control" (with a threshold of 10%+ individual holding to be captured), most of the company's income derives from passive sources (interest, dividends, royalties, rental, capital gains), and that passive income has been subject to an effective tax rate of 15% or less.
Israel has no thin capitalization rules and no ATAD-equivalent interest limitation - a subsidiary may be financed entirely through intercompany/shareholder debt with no restriction on interest deductibility, subject only to general transfer pricing (arm's-length) principles on the interest rate itself.
Israel does not use an elective check-the-box classification system; entity classification generally follows the entity's actual legal characteristics. Israel has implemented anti-hybrid provisions addressing double-deduction and deduction-without-inclusion outcomes, broadly aligned with OECD BEPS Action 2 principles.
No foreign bank account or foreign financial asset reporting regime exists in Israel requiring residents to separately disclose foreign accounts; foreign income is reported through the standard annual tax return.
Israel provides a participation exemption regime for a qualifying Israeli holding company (under Amendment 132 to the Income Tax Ordinance): both capital gains on the disposal of shares in a held foreign company and dividends received from that company are exempt where the Israeli company has held at least 10% of the rights in the foreign company for at least 12 consecutive months, provided further specific conditions (including the foreign company's place of incorporation and level of business activity) are met.
Israel has a real foreign tax credit regime available to both individuals and companies for foreign tax paid on foreign-source income also taxed in Israel, capped at the Israeli tax otherwise due on that income, computed on a per-country basis.
Israel has concluded approximately 58 comprehensive double tax treaties on income and capital gains, per TaxAtlas, plus a smaller number of separate social security agreements - including its first treaty with the UAE, signed May 31, 2021 and effective January 1, 2022. Israel's treaties are generally based on the OECD Model, adjusted for domestic law and BEPS-related measures via the Multilateral Instrument (MLI).