Income Tax Ordinance [New Version]

In this Ordinance –

"person" – includes a company and a body of persons, as defined in this section;

"homestead", in an urban area – as its meaning in the Urban Property Tax Ordinance, 1940;

"stock exchange" – a stock exchange as defined in the Securities Law, or a stock exchange outside Israel that has received approval from one who is authorised to grant it under the law of the state in which it operates, as well as a regulated market, in Israel or outside Israel, unless expressly stated otherwise; the Minister of Finance may, by Order, prescribe conditions or restrictions with respect to this definition;

"spouse" – a married person who lives and maintains a joint household with the person to whom they are married;

"registered spouse" – a spouse who has been determined or elected pursuant to section 64b;

"industrial building", in a non-urban area – as its meaning in the Agricultural Property Tax Ordinance, 1942;

"retirement age" – retirement age as its meaning in the Retirement Age Law, 5764-2004;

"income" – the total income of a person from the sources specified in sections 2 and 3, together with amounts in respect of which it has been determined by any law that they are to be treated as income for the purposes of this Ordinance;

"taxable income" – income after the deductions, set-offs and exemptions permitted therefrom under any law;

"linkage differentials" – any amount added to a debt or to a claim amount as a result of linkage to the rate of currency, to the consumer price index or to another index, including exchange rate differentials; however, for the purpose of tax exemption, "linkage differentials" means any amount added to a debt or to a claim amount as a result of linkage to the rate of currency or to the consumer price index, including exchange rate differentials;

"linkage differentials and interest" – as their meaning in section 159a(a);

"exchange rate differentials" – an amount added as a result of a change in the rate of exchange to the principal of a loan that is a deposit in foreign currency or that is a loan repayable in foreign currency;

"employment income" – income under section 2(2);

"right in a real property association" – as its meaning in the Real Property Taxation Law;

"right in real property" – as defined in the Real Property Taxation Law;

"body of persons" – any public body, incorporated or united, and any company, brotherhood, fellowship or association, whether or not incorporated;

"company" – a company incorporated or registered under any law in force in Israel or elsewhere, including a co-operative society;

"month" – including part thereof;

"Inflation Taxation Law" – the Income Tax Law (Taxation under Inflationary Conditions), 5742-1982;

"Inflation Adjustments Law" – the Income Tax Law (Adjustments for Inflation) (Temporary Provision), 5745-1985;

"Capital Investment Encouragement Law" – the Capital Investment Encouragement Law, 5719-1959;

"Pension Savings Distribution Law" – the Law for the Distribution of Pension Savings between Spouses who have Separated, 5774-2014;

"Real Property Taxation Law" – the Real Property Taxation (Appreciation, Sale and Purchase) Law, 5723-1963;

"Value Added Tax Law" – the Value Added Tax Law, 5736-1975;

"Companies Ordinance" – the Companies Ordinance [New Version], 5743-1983;

"Companies Law" – the Companies Law, 5759-1999;

"Savings Encouragement Law" – the Savings Encouragement, Income Tax Discounts and Loan Guarantee Law, 5716-1956;

"Securities Law" – the Securities Law, 5728-1968;

"Associations Law" – the Associations Law, 5740-1980;

"Industry Encouragement Law" – the Industry Encouragement (Taxes) Law, 5729-1969;

"Provident Funds Supervision Law" – the Financial Services Supervision (Provident Funds) Law, 5765-2005;

"Economic Efficiency Law 2017 and 2018" – the Economic Efficiency (Legislative Amendments for Attaining the Budget Targets for the Budget Years 2017 and 2018) Law, 5777-2016;

"Joint Investments Law" – the Joint Investments in Trust Law, 5754-1994;

"adjusted amount" – any amount plus that amount multiplied by the rate of increase of the index;

"stock exchange" – (deleted)

"resident of Israel" or "resident" –

for the purpose of this paragraph, "day" – including part of a day;

and the Minister may likewise prescribe, as aforesaid, that categories of individuals who are deemed residents of Israel under paragraph (1) or (2) shall not be deemed as such, all subject to such conditions as he may prescribe;

"non-resident" – a person who is not a resident of Israel, as well as an individual in respect of whom all of the following apply:

"income from personal exertion" – including –

"index" – the consumer price index published by the Central Bureau of Statistics;

"rate of increase of the index", in a given period – the difference between the index last published before the end of the period and the index last published before the commencement of the period, divided by the index last published before the commencement of the period;

"preferred loans" – loans, or deposits under savings plans, the interest on which is wholly or partly exempt from tax under any law, unless otherwise stated in that law, as well as participation certificates therein;

"income tax" or "tax" – whether income tax or corporation tax imposed under this Ordinance;

"foreign taxes" – as defined in section 199;

"reciprocating state" – as its meaning in section 196;

"profession" – a vocation and any other profession that is not a business;

"security" – as defined in section 88;

"taxpayer" – a person who had income in the tax year;

"Director" – the Director appointed under section 229, including the Deputy Director;

"employer", "employing party" – one who employs a person within the framework of an employment relationship;

"business" – including trade, craft, agriculture or industry;

"output" – as defined in the Computers Law, 5755-1995;

"acceptable books" – books of account that the assessing officer has not refused to accept and has not disqualified, or that he refused to accept or disqualified but a committee as referred to in section 146 or the court set aside his decision, provided that books shall not be deemed acceptable if the taxpayer admitted that they are not acceptable and confirmed in writing that the legal consequences arising from his admission had been explained to him;

"legally incompetent persons" – a minor, an imbecile, a person of unsound mind and any person not competent to perform legal acts;

"assessing officer" – an officer whom the Minister of Finance has authorised to assess under this Ordinance, as well as a deputy assessing officer, an assistant assessing officer or a chief collector whom the Director has authorised in writing to exercise a particular power of an assessing officer under this Ordinance or to perform a particular function among his functions; the appointments of an assessing officer, a deputy assessing officer, an assistant assessing officer and a chief collector who have been authorised as aforesaid shall be published in Reshumot (Official Gazette);

"deposit" – an amount deposited with a banking corporation, or with a banking institution outside Israel operating under the law of the state in which it operates;

"provident fund", "provident fund for benefits", "provident fund for severance pay", "provident fund for pensions", "provident fund for savings", "pension fund", "central provident fund for pensions", "provident fund for investment", "training fund", "veteran fund", "insurance fund" and "insurance plan" – as defined in the Provident Funds Supervision Law;

"land", in an urban area – as its meaning in the Urban Property Tax Ordinance, 1940; in a non-urban area – as its meaning in the Agricultural Property Tax Ordinance, 1942;

"interest on debentures" – interest that an incorporated body is obligated to pay pursuant to a debenture or pursuant to a deed of trust on a debenture, or by virtue thereof, whether in the form of a mortgage or in the form of another type of document or certificate that contains an acknowledgement of liability;

"local authority" – a municipality, local council or other similar authority established under any law then in force providing for the establishment of local government authorities, including a co-operative society and any other body then fulfilling the role of a local authority;

"regulated market" – a system by means of which trade in securities is conducted, pursuant to rules prescribed by one authorised to prescribe them under the law of the state in which it operates;

"urban area" – an area in which urban property tax is payable under the Urban Property Tax Ordinance, 1940;

"tax year" – a period of twelve consecutive months commencing on 1 January, and if a special assessment period has been prescribed – the assessment period so prescribed.

"banking corporation" – as its meaning in the Banking (Licensing) Law, 5741-1981;

"savings plan" – in a banking corporation, including a savings plan approved under the Savings Encouragement Law as well as the savings component in a life insurance policy, or a savings plan attached to such a policy and approved by the Commissioner as defined in the Financial Services Supervision (Insurance) Law, 5741-1981.

Income tax shall be payable, subject to the provisions of this Ordinance, for every tax year, at the rates set out below, on the income of a person who is a resident of Israel that was produced or accrued in Israel or outside Israel, and on the income of a person who is a non-resident that was produced or accrued in Israel, from the following sources:

"the part of the income amount up to the determining date" means the part of the income amount whose ratio to the total income amount is as the ratio between the period from the date of issue of the share to the determining date and the period from the date of issue of the share to the date of its redemption;

"the remainder of the income amount" means the amount obtained by deducting the part of the income amount up to the determining date from the income amount;

"the determining date" – as defined in section 88;

"determining salary" means employment income – excluding payments given to the employee to cover expenses, overtime pay and payments in respect of special effort or a specific event – but not more than twice the amount constituting the ceiling for the payment of the cost of living allowance as prescribed from time to time in an agreement between the Co-ordinating Bureau of Economic Organisations and the General Federation of Labour in the Land of Israel;

"teaching employee" means a member of one of the following study funds:

"study fund" – (Repealed)

"the rules" – (Repealed)

"the average wage in the economy" means the average wage as calculated for the purposes of benefits and insurance contributions under section 2(b) of the National Insurance Law [Consolidated Version], 5755-1995, as published by the National Insurance Institute;

"severance pay amounts" – (Repealed)

"the deposit rate" means the rate prescribed pursuant to section 22 of the Supervision of Provident Funds Law for deposits on account of the employer's contributions component, or the rate of the employee's salary deposited by the employer into the provident fund on account of the employer's contributions component, whichever is lower;

"the severance pay component" – as its meaning under section 21 of the Supervision of Provident Funds Law;

"employer's contributions component" – as its meaning under section 21 of the Supervision of Provident Funds Law;

"salary" – as its meaning under section 22 of the Supervision of Provident Funds Law, in respect of which the employer paid to a provident fund;

"the ceiling amount" means an amount equal to two and a half times the average wage in the economy per month;

"taxable accumulated amounts" means amounts accumulated in the severance pay component of an employee in a provident fund for pension, even if withdrawn by the employee, which are deemed to be income of the employee under paragraph (1a) or (1b), at the time the employee received them;

"years of employment" means the years or proportional part thereof during which the employee was employed;

"the qualifying income ceiling" means the amount stated in paragraph (1) of the definition of "qualifying income" in section 47, as the case may be;

"the severance pay supplement ceiling" means the amount obtained by multiplying the severance pay ceiling by the years of employment with the same employer, less taxable accumulated amounts paid by all of the employee's employers in respect of those years of employment;

"the severance pay ceiling" means the employee's salary on the date of deposit or NIS 32,000, whichever is lower.

and in the case of an unlinked bond – if both of the following are fulfilled:

The portion of the amount expended in acquiring the bond that is equal to the accrued interest, less the tax applicable thereto, shall not be taken into account for the purpose of calculating the profit or loss of the recipient of the interest from the sale of the bond or from its redemption; what is stated in this subsection with respect to interest shall apply, mutatis mutandis, also to discount charges as defined in section 9(13b) that are not exempt from tax under that section.

"relative" — as defined in section 76(d)(1);

"controlling shareholder" — one who holds or is entitled to acquire, directly or indirectly, alone or together with his relative, one of the following:

For the purposes of this subsection —

"loan" — including any debt, except for one of the following:

"interest" — including linkage differentials;

"substantial shareholder" — as defined in section 88, except for a company that is not a transparent corporation as defined in paragraph (9);

"apartment" — as defined in section 1 of the Sale (Apartments) Law, 5733-1973;

"credit balance" — a balance that is capable of being set off under law, including a capital note issued for a period of up to five years;

"date of charge" — one of the following:

"withdrawal from a company" — withdrawal of funds from a company by a substantial shareholder or his relative, or the placing of a company's asset at their disposal for use, all directly or indirectly, except for a withdrawal or placing at disposal for use as aforesaid that constitutes income on which full tax has been charged;

"withdrawal of funds from a company" — including each of the following, provided that a cumulative amount of withdrawals that did not, on any day in the tax year and on any day in the preceding tax year, exceed one hundred thousand new shekels shall not be deemed a withdrawal of funds from a company:

"asset" — any of the following:

"cost of asset" — the higher of: the balance of the acquisition cost as stated in section 47 of the Land Taxation Law plus depreciation, or the cost of the asset in the statement of financial position of the company;

"relative" — as defined in section 88;

"interest" — including linkage differentials;

"loan" — including any debt that is not one of the following:

"special relationship" — including relations between a person and his relative, as well as control by one party to the loan over the other, or control by one person over the parties to the loan, directly or indirectly, alone or together with another;

"control" — holding, directly or indirectly, 5% or more, in one or more of the means of control, on at least one day in the tax year; and for the purpose of paragraph (10) of the definition "loan" — holding at least 25% of the voting power or of the right to profits, directly or indirectly, on at least one day in the tax year;

"means of control" and "together with another" — as defined in section 88;

"relative" — as defined in section 76(d);

"Israeli national" — any of the following:

"area" — any of the following: Judea and Samaria and the Gaza Strip, including the territories included within the territorial jurisdiction of the Palestinian Authority under the Agreement on the Gaza Strip and the Jericho Area signed in Cairo between Israel and the Palestine Liberation Organisation on the 23rd of Iyar 5754 (4 May 1994);

"resident of an area" — as the definition of "resident of Israel" or "resident" in section 1, except that wherever the word "in Israel" appears there, it shall be read as "in the area";

"profits" — as their meaning for the purposes of tax under the tax law applicable in the area;

"income produced in the area" — (Repealed)

"the administrative arrangement applicable in the area" — an administrative arrangement determined by a Government decision, prescribing entitlement to grants for the encouragement of capital investment in the area, corresponding in its details to the arrangement under the capital investment encouragement laws prescribing entitlement to such grants in Israel;

"capital investment encouragement laws" — the Capital Investment Encouragement Law, the Capital Investment Encouragement in Agriculture Law, 5741-1980, and the Regulations made thereunder.