The following are exempt from tax:
(1)payments, services and benefits paid or given from the State Treasury to the President or to a former President or to his survivors in connection with the discharge of his duties as President, excluding salary and pension;
(1a)payments, services and benefits paid or given from the State Treasury to the Prime Minister or to a former Prime Minister or to his survivors in connection with the discharge of his duties as Prime Minister, excluding salary and pension;
(2)(a)the income of a local authority, the Lottery (Mifal HaPais) and a public institution, to the extent that it was not derived from a business in which they are engaged, or from dividends, interest or linkage differentials paid by a body of persons under their control that is engaged in a business, as well as the income of a provident fund if not derived from a business in which the provident fund is engaged or from any income paid by a body of persons engaged in a business that is under the control of the provident fund or in which the provident fund holds a material holding; however, the Minister of Finance may, by Order, exempt income derived by a local authority, by the Lottery (Mifal HaPais) or by a public institution that is a benevolent fund from the aforesaid sources, for a period and subject to conditions that he shall prescribe, if he is satisfied that it is appropriate to do so for the benefit of the public;
(a1)notwithstanding the provisions of sub-paragraph (a), the income of a local authority from a dividend during the benefit period and from interest and linkage differentials during the benefit period – is exempt from tax; for this purpose –
"benefit period" – tax years 2011 to 2026;
"dividend during the benefit period" – a dividend from the profits of a water and sewage corporation distributed during the benefit period to a local authority that holds means of control in that corporation;
"interest and linkage differentials during the benefit period" – interest and linkage differentials that accrued during the benefit period and are paid during the benefit period by a water and sewage corporation to a local authority that holds means of control in that corporation, in respect of a loan granted by that local authority to that water and sewage corporation;
"water and sewage corporation" – a company or sewage company as defined in the Water and Sewage Corporations Law, 5761-2001, in which one or more local authorities hold all the means of control;
(b)In this paragraph –
"provident fund" – excluding an insurance fund;
"income", for the purposes of a retirement-age provident fund – including appreciation from the sale of a right in real property or a right in a real property association;
"tax", for the purposes of a retirement-age provident fund – including tax under sections 6 or 7 of the Land Taxation Law;
"retirement-age provident fund" – a pension provident fund, a savings provident fund or a severance pay provident fund;
"public institution" – a body of persons of at least seven members, the majority of whom are not relatives of one another, or an endowment the majority of whose trustees are not relatives of one another, that exists and operates for a public purpose and whose assets and income serve exclusively to achieve the public purpose and that submits an annual report regarding its assets, income and expenditure to the satisfaction of the assessing officer pursuant to Regulations enacted by the Minister of Finance; for this purpose, "relative" – as its meaning in section 76(d);
"public purpose" – a purpose concerning religion, culture, education, encouragement of settlement, science, health, welfare or sport, as well as any other purpose approved by the Minister of Finance as a public purpose;
"means of control", in a body of persons – any of the following:
(1)the right to appoint a director;
(2)the right to vote;
(3)the right to profits;
(4)the right to the residual assets upon liquidation of the body after discharge of its debts;
"control" – the ability, alone or together with others, to direct the activity of a body of persons, directly or indirectly; without derogating from the generality of the foregoing, the ability to prevent the adoption of business decisions in a body of persons shall be treated as control thereof, except the ability to prevent material business decisions; for this purpose, "material business decisions" – decisions concerning the issuance of means of control in a body of persons or the sale or dissolution of the majority of the business of that body of persons or a material change therein; without derogating from the generality of the foregoing, the aforesaid ability shall be treated as existing in a local authority, the Lottery (Mifal HaPais), a provident fund or a public institution, upon the occurrence of any of the following:
(1)in the hands of a local authority, the Lottery (Mifal HaPais) or a public institution – the power to appoint, directly or indirectly, a director in that body, or the right, directly or indirectly, to at least 25% of the voting power therein or of the residual assets thereof upon liquidation after discharge of its debts, or to the majority of its profits;
(2)(deleted)
(3)in the hands of several of the following bodies: a local authority, the Lottery (Mifal HaPais), a public institution or a provident fund – holding or the right to hold, jointly or severally, directly or indirectly, in excess of 50% of the means of control in a body of persons;
(4)notwithstanding the provisions of paragraph (3), with respect to the income of a provident fund from dividends, interest or linkage differentials received from a body of persons – holding or the right to hold, jointly or severally, directly or indirectly, means of control in the body of persons by several provident funds, at a rate not exceeding 75% of the means of control in the body of persons, shall not be treated as control as referred to in that paragraph;
"material holding" – a holding in a body of persons at rates exceeding the rates of holding that a provident fund is entitled to hold pursuant to provisions under sections 26 and 39(b) of the Supervision of Provident Funds Law as they were on the date of commencement of the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2026 Budget Year), 5786-2026, or a holding that does not meet the conditions and restrictions under those provisions, unless the Minister of Finance, with the approval of the Finance Committee of the Knesset, has prescribed different rates, conditions and restrictions with respect to such a holding;
"bank" – as its meaning in the Banking (Licensing) Law, 5741-1981, and several banks shall be treated as one bank if one has the ability to direct the activity of the other, directly or indirectly, or if one person has the ability to direct their activity as aforesaid, all if separate systems for the management of provident funds have not been established in them, as prescribed pursuant to section 26 of the Supervision of Provident Funds Law;
(c)(1)the Minister of Finance may prescribe, with the approval of the Finance Committee of the Knesset, provisions for computing the rate of indirect control and indirect material holding by provident funds in a body of persons;
(2)the Minister of Finance may prescribe that the holding of one or more of the means of control in a body of persons by several bodies as aforesaid, at a rate that brings them to control in the body of persons or to a material holding therein, shall not constitute control or a material holding, as the case may be, if effected for a period not exceeding in aggregate three months in the tax year or a shorter period prescribed by the Minister, at the end of which the rate of holding falls to a rate that does not bring them to control or to a material holding, as the case may be, all in accordance with rules that he has prescribed;
(2a)(a)the income of a professional organisation, including income from membership fees, provided that it was not derived from a business in which it is engaged, or from any income from a body of persons under its control that is engaged in a business, including from dividends, interest or linkage differentials;
(b)(1)notwithstanding the provisions of sub-paragraph (a), the surplus income of the professional organisation exceeding 50% of its expenditure shall not be exempt from tax;
(2)an amount of expenditure exceeding the amount of income in a particular tax year shall be treated as if it were an amount of expenditure incurred in the following tax year, adjusted in accordance with the rate of increase of the index in that following tax year;
(3)for this purpose –
"surplus income" – income exempt under sub-paragraph (a) after deduction therefrom of the expenditure incurred in producing that income;
"expenditure" – expenditure allowed as a deduction, excluding depreciation, as well as expenditure for the acquisition of a depreciable asset used for the purposes of the organisation or for creating such an asset;
"depreciable asset" – as defined in section 88, including a right in real property as defined in the Land Taxation Law;
(c)in this paragraph, "professional organisation" – a body of persons approved by the Director in which all of the following are fulfilled:
(1)it has at least seventy members, or the State and at least ten members are members thereof; in counting the number of members in a body of persons among whose members is included a member that is a professional organisation, the number of members of the professional organisation shall be taken into account;
(2)its entire purpose is the promotion of shared professional interests, professional training or public representation of a class of persons of a particular profession or of persons engaged in a particular economic branch or sector, and all its assets and income serve to promote those purposes;
(3)its activity is not for the purpose of increasing the profits of particular members thereof;
(4)it submits an annual report in respect of its assets, income and expenditure, to the satisfaction of the assessing officer, in accordance with Regulations made by the Minister of Finance;
(3)the income of a co-operative society whose business is with its members only, or whose business with a person who is not a member is of an insignificant scope or of an incidental nature only, if it has been proved, to the satisfaction of the assessing officer, that the business of the society is in the supply of goods, equipment or services for domestic or private use only, and not for the purposes of the business or profession of that member or person;
(4)amounts paid to diplomatic representatives and consular officers in the regular service of a foreign state in respect of their offices or in respect of their services in their official capacity, to the extent that that foreign state reciprocates such exemptions to the State of Israel;
(5)(a)income from the personal exertion of a blind person or of a disabled person who is entitled to a monthly benefit under the Disabled Persons (Compensation and Rehabilitation) Law, 5719-1959 [Consolidated Version] or under the Compensation for Victims of Hostile Actions Law, 5730-1970, and who has been determined to have a disability of 100%, or a disability of at least 90% on account of impairment to different organs where that percentage is the result of a special calculation of the impairment to the different organs without which a disability percentage of at least 100% would have been determined, as set out below:
(1)where a disability as aforesaid has been determined for a period of 365 days or more — income up to an amount of NIS 501,500;
(2)where a disability as aforesaid has been determined for a period of between 185 days and 364 days — income up to an amount of NIS 60,120;
For the purposes of this paragraph and sub-paragraph (a1) —
(a)where the disability percentage of a disabled person has been determined under one of the following laws, that determination shall apply:
(1)the Disabled Persons (Compensation and Rehabilitation) Law, 5719-1959 [Consolidated Version];
(2)the Nazi War Disabled Persons Law, 5714-1954;
(3)the Nazi Persecution Disabled Persons Law, 5717-1957;
(4)the Compensation for Victims of Hostile Actions Law, 5730-1970;
(5)(Repealed)
(6)Chapters V, IX, XIII or XIII1 of the National Insurance Law [Consolidated Version], 5755-1995;
(7)the Ringworm Victims Compensation Law, 5754-1994;
the Minister of Finance, with the approval of the Finance Committee of the Knesset, may add to the said laws;
(b)where the disability percentage of a disabled person has not been determined as aforesaid, it shall be determined in accordance with Regulations to be made by the Minister of Finance with the approval of the Finance Committee of the Knesset;
(a1)income from the personal exertion of a blind person or of a disabled person who is not entitled to a monthly benefit under the laws referred to in sub-paragraph (a) opening words, who has been determined to have a disability of at least 90%, even if such disability has been determined on account of impairment to different organs and that percentage is the result of a special calculation of the impairment to the different organs, provided that a disability of at least 40% has been determined in respect of one impairment, as set out below:
(1)where a disability as aforesaid has been determined for a period of 365 days or more — income up to an amount of NIS 400,000;
(2)where a disability as aforesaid has been determined for a period of between 185 days and 364 days — income up to an amount as stated in sub-paragraph (a)(2);
(b)where the income from personal exertion of a blind person or disabled person as aforesaid was less than 85,200 liras or where they had no such income, their income not from personal exertion shall also be exempt from tax, up to a total amount of 85,200 liras; however, if they had income from interest paid from monies deposited in a deposit account, savings plan or provident fund, originating from compensation or insurance monies received by the individual in respect of bodily injury — up to a total amount of NIS 300,000 or a higher amount prescribed by the Minister of Finance, with the approval of the Finance Committee of the Knesset;
(c)(1)in respect of a blind person or disabled person who has been determined to have a disability as stated in sub-paragraphs (a)(1) or (a1)(1) for part of the tax year, the provisions of this paragraph shall apply to a portion of their income in the tax year, the ratio of which to their total income in the tax year is as the ratio between the number of days in the tax year for which the disability has been determined and 365 (in this paragraph — the disability period ratio), and the amounts stated in sub-paragraphs (a)(1), (a1)(1) and (b) shall be read as amounts whose ratio to the amounts stated therein is as the disability period ratio;
(2)in respect of a blind person or disabled person who has been determined to have a disability as stated in sub-paragraphs (a)(2) or (a1)(2), the provisions of this paragraph shall apply to a portion of their income in the tax year the ratio of which to their total income in the tax year is as the disability period ratio; however, if the disability period determined for them falls in two tax years, the total exempt amount in the two tax years shall not exceed the amount stated in sub-paragraphs (a)(2) or (a1)(2);
(5a)amounts paid to a foster carer pursuant to section 46(a) of the Foster Care for Children Law, 5776-2016, and reimbursement of expenses pursuant to section 46(d) or (f) of that Law;
(6)pensions paid in respect of war wounds, border injury or hostile action injury, and pensions paid from the State Treasury to one who was dependent for their livelihood on a soldier who died as a result of a military action, including pensions paid under the Families of Soldiers Who Fell in Battle (Compensation and Rehabilitation) Law, 5710-1950, under the Compensation for Family Members of Abductees and Missing Persons in a Hostile Action Law, 5784-2023, and under section 2a of the Financing of Expenses for Families of Prisoners, Abductees and Missing Persons Law, 5768-2008, during the period of validity of that section; for the purposes of this paragraph —
"war wounds" — disease, aggravation of disease or injury that occurred to an individual during their period of service as a result of military service as its meaning in the Disabled Persons (Compensation and Rehabilitation) Law, 5719-1959 [Consolidated Version], or as a result of military combat service as its meaning in the Nazi War Disabled Persons Law, 5714-1954, or in circumstances entitling them to a benefit under the Nazi Persecution Disabled Persons Law, 5717-1957;
"border injury" — (deleted)
"hostile action injury" — as its meaning in the Compensation for Victims of Hostile Actions Law, 5730-1970;
(6a)amounts that a person disabled in their legs receives under law for the maintenance of their vehicle;
(6b)pensions paid by the State in respect of employment in the Government of the Land of Israel;
(6c)a disability pension paid under Section E of Chapter V, Chapter IX, Chapter XIII or Chapter XIII1 of the National Insurance Law [Consolidated Version], 5755-1995, a veteran citizen pension and a survivors' pension paid under Chapter XI of that Law, and a dependants' pension paid under Chapters V, XIII or XIII1 of that Law;
(6d)a social benefit or remuneration to prisoners of Zion and to family members of prisoners of Zion and those killed by the ruling power, by virtue of law;
(6e)a disability pension paid by a foreign state under its laws;
(6f)(a)a survivors' pension deriving from exempt payments;
(b)a survivors' pension not deriving from exempt payments, paid from a pension provident fund or pursuant to an insurance plan, or paid by virtue of a budgetary pension arrangement, all in an amount not exceeding the qualifying pension ceiling;
For the purposes of this paragraph —
"budgetary pension arrangement" — an arrangement under law or agreement, including a collective agreement, pursuant to which a pension is to be paid monthly on a continuous basis, from the employer's funds, to an employee who has retired from employment, throughout the days of their life, and after their death — to their survivor;
"survivors' pension" — a pension paid upon the death of a person to one of the following:
(1)the spouse of the deceased at the time of death, including one who was publicly known as the spouse of the deceased;
(2)a child of the deceased, including their adopted child, as well as a child of the deceased's spouse, provided that they have not yet reached the age of 21 or that they have no capacity to earn from work or from a profession;
(3)a parent of the deceased who was entirely dependent for their livelihood on the deceased on the eve of their death, and who has no capacity to earn from work or from a profession;
"qualifying pension ceiling" and "exempt payments" — as defined in section 9a;
(6g)remuneration paid under the Remuneration for Righteous Among the Nations Law, 5755-1995;
(6h)remuneration for an orphan, paid under the Remuneration (Child Orphaned as a Result of a Family Violence Act) Law, 5755-1995;
(7)any capital sum received as comprehensive compensation for death or injury;
(1)a capital grant received upon retirement — up to an amount equal to one month's salary for each year of employment, according to the last salary; if the amount of the grant exceeded that rate, the Director may exempt the excess, in whole or in part, having regard to the period of service, the level of wages, the conditions of employment and the circumstances of the retirement;
(2)in no case shall the exempt amount under this sub-paragraph exceed 25,000 liras for each year of employment and a proportionate part of that amount in respect of employment in part of a year;
(3)for the purposes of this sub-paragraph, "retirement" — includes a change in the status of an employee in a co-operative society from that of an employee to that of a member thereof;
(4)(a)an employee who, upon retirement from their employer, had to their credit in a severance pay provident fund or in the severance pay component of a pension provident fund monies designated for a retirement grant, or who received a retirement grant, and who upon retirement notified the Director that they choose to apply the provisions of this item, the amounts that they left in the said provident fund or that they deposited immediately upon retirement in the severance pay component of a pension provident fund shall not be regarded as having been received by them, if within one year of their retirement they began employment with another employer who pays severance pay contributions on their behalf to the severance pay component of such a provident fund, all up to the ceiling amount; for this purpose —
"severance pay component" — as defined in the Supervision of Provident Funds Law;
"ceiling amount" — an amount equal to four times the average wage in the economy, as defined in section 3(e3), multiplied by the number of years of employment with the employer from whom the employee retired, together with the amount required to cover that employer's obligations in respect of that employee under the Severance Pay Law, 5723-1963;
(b)where the conditions set out in sub-item (a) have been fulfilled and the employee subsequently retired from employment with another employer without the provisions of sub-item (a) having been fulfilled in respect of them (hereinafter — the last employer), items (1) to (3) shall apply to them subject to the following provisions:
(I) periods of their employment with the various employers that included successive retirements as stated in sub-item (a) shall be aggregated, and they shall be regarded as if they had been employed throughout all those years of employment with the last employer;
(II) the amounts standing to their credit in the severance pay provident fund upon retirement from the last employer, which originate from grants in respect of retirements as stated in sub-item (a), including interest, linkage differentials and other profits thereon (hereinafter in this item — profits on grant), shall be regarded as part of the retirement grant from the last employer;
(ba) where the conditions set out in sub-item (a) have been fulfilled and the employee has died, the provisions of sub-paragraph (b) shall apply to them subject to provisions (I) and (II) of sub-item (b) and with the necessary modifications;
(c)an employee who upon retirement as stated in sub-item (a) received part of the retirement grant that had accumulated to their credit shall be liable for tax on the amount received;
(d)an employee who chose to apply the provisions of this item may retract their choice within two years, and if they so retracted their choice the profits on the grant shall be regarded as part of the grant, and for the purposes of the exemption their last salary shall be their salary as it was at the time of retirement, increased by the rate of rise of the consumer price index in the period from their retirement until their retraction of their choice, and the exemption ceiling shall be as it was at the time of their retraction of their choice, however the period of their employment after retirement from the last employer shall not be taken into account; subject to the foregoing, any amount withdrawn from a severance pay provident fund or from the severance pay component of a pension provident fund before retirement from the last employer, originating from retirement grants as stated in sub-item (a) and profits thereon — are liable to tax;
(5)notwithstanding the provisions of section 164, a person who pays a retirement grant that is exempt pursuant to item (4) shall be exempt from the obligation to withhold tax, provided that they have received approval thereof from the Director or from a person authorised by the Director;
(a1)amounts that were regarded as employment income of the employee at the time they were paid to a pension provident fund, pursuant to section 3(e3)(1a) or (1b), that were received as a capital grant upon retirement, and the following provisions shall apply:
(1)on interest and other profits originating from those amounts, which were withdrawn from the fund by the employee or following their death, tax shall be imposed at the rate prescribed under section 125c(c);
(2)in any withdrawal from the fund by the employee of part of those amounts, interest and other profits as stated in sub-paragraph (1) shall be regarded as also having been withdrawn, in proportion to their relative share in the accumulated balance;
(3)those amounts and also interest and other profits originating therefrom, which were withdrawn from the fund by the employer, shall be subject to tax as income in the hands of the employer and an amount shall be deducted therefrom equal to the amount obtained by multiplying the maximum tax rate under section 121 by the amounts withdrawn;
(4)an amount deducted as stated in sub-paragraph (3) —
(a)shall remain in the severance pay component of the employee's provident fund;
(b)shall be regarded as an amount deposited by the employee at the time the amounts were withdrawn by the employer;
(c)shall be regarded as tax withheld at source pursuant to section 164, by the fund, from the monies paid to the employer;
(b)(1)a capital grant received upon death — up to an amount equal to two months' salary for each year of employment, according to the last salary; if the amount of the grant exceeded that rate, the Director may exempt the excess, in whole or in part, having regard to the period of service, the level of wages, the conditions of employment and the circumstances of the death;
(2)in no case shall the exempt amount under this sub-paragraph exceed 50,000 liras for each year of employment and a proportionate part of that amount in respect of employment in part of a year;
(b1)amounts that were regarded as employment income of the employee at the time they were paid to a pension provident fund, pursuant to section 3(e3)(1a) or (1b), that were received as a capital grant upon death, as well as interest and any other profit deriving therefrom;
(c)if the Director considers that the salary was increased shortly before the date of retirement in an unreasonable manner in order to increase the amount of the exempt grant, they may determine the amount of the exempt grant without regard to the increase;
(d)where the last salary was in respect of part-time employment, there shall be taken into account, in respect of the years during which the employee worked full time, the last salary that would have been payable in respect of full-time employment;
(e)a decision of the Director under sub-paragraphs (a) to (c) may be appealed in accordance with sections 153 to 158;
(f)an employer who paid a grant upon retirement or death shall attach to the report submitted pursuant to section 166 for the month in which the grant was paid, particulars in respect of the grant as prescribed;
(g)subject to the provisions of sub-paragraph (a)(4)(a), a capital grant upon retirement and a capital grant upon death are regarded as a grant received even if it remains deposited in a provident fund; this provision shall not apply to amounts standing to the credit of an employee who has retired in a pension provident fund, if upon retirement they notified the Director of their wish to continue leaving them for the purpose of payment of a pension; if they so notified, they may retract by notice to the Director; if they so retracted, the entire amount — subject to paragraph (17) — including interest, linkage differentials and other profits thereon, shall be regarded as a retirement grant and the following provisions shall apply thereto:
(1)if they did not receive a grant at the time of retirement — they shall be entitled to the exemption under sub-paragraph (a), and the exemption ceiling shall be as it was at the time of their retraction of their choice;
(2)received a grant upon retirement, the exemption ceiling shall be reduced by a rate equal to the amount of the grant for each year of employment, divided by the exemption ceiling as it stood at the time of retirement;
(g1)For the purpose of sub-paragraph (g), an employee who has retired and whose amounts standing to his credit in the severance pay component in all provident funds for pension in respect of his employment with the same employer do not exceed NIS 360,000 or the severance ceiling as defined in section 3(h3)(2) for each year of employment — whichever is higher — shall be deemed to have notified the Administrator, at the time of retirement, of his wish to continue to leave them for the purpose of pension payment, unless he notified the Administrator otherwise;
(h)The provisions of this paragraph shall not apply to amounts from the severance pay component to which section 6(h)(1) of the Pension Savings Distribution Law applies and which a former spouse of a member chose to transfer pursuant to the provisions of that section, and such amounts shall not be regarded as a retirement grant, unless the member notified the Administrator, with the consent of his former spouse, that the provisions of sub-paragraph (a)(1) to (3) shall apply to monies which the spouse chose to transfer pursuant to section 6(h)(1)(a) of that Law; the transfer of the amounts pursuant to the former spouse's choice in accordance with the provisions of the said section 6(h)(1) shall not be regarded as the member's retraction of his choice to apply sub-paragraph (a)(4) to the monies remaining with the member, insofar as he so chose, or of his notification pursuant to sub-paragraph (g) in respect of the monies remaining with him, insofar as he so notified; for the purpose of this sub-paragraph, "former spouse" and "member" — as defined in the Pension Savings Distribution Law;
(7b)(a)The lower of the following:
(1)amounts that an individual withdrew from a provident fund for pension pursuant to section 23(b3) of the Supervision of Provident Funds Law;
(2)the amount stated in paragraph (7a)(a)(2), multiplied by the number of years of employment during which the self-employed person made payments to a provident fund for pension, after deducting therefrom amounts withdrawn tax-exempt pursuant to paragraph (7a) in respect of those years of employment;
(b)The Administrator shall establish rules for reporting and for calculating the exempt amount pursuant to this paragraph;
(c)In this paragraph —
"self-employed person" — as defined in section 2 of the Economic Efficiency Law 2017 and 2018;
"year of employment" — each year commencing from the tax year in which a self-employed person first began making deposits to the unemployment savings component pursuant to Chapter II of the Economic Efficiency Law 2017 and 2018, or commencing from the tax year following the year in which he made a withdrawal without tax liability pursuant to this paragraph, whichever is later; and in respect of a self-employed person who began making deposits to a provident fund for pension in a self-employed capacity before the commencement date of that Law — each year commencing from the tax year in which he first began making deposits as a self-employed person, or commencing from the tax year following the year in which he made a withdrawal without tax liability, whichever is later;
(8)the profits of a shipowner who is not a resident of Israel, subject to what is stated in section 70;
(9)income that a person derived from a concession granted to him by the State, to the extent that it is exempted from tax under the terms of the concession; but nothing stated in this section shall be construed as exempting from tax any dividend, interest, linkage differentials, benefit, salary or wages received by a person, in whole or in part, out of income so exempted;
(10)interest paid to a foreign state, or to one whom the Minister of Finance, with the approval of the Finance Committee of the Knesset, has recognised as acting on behalf of and for a foreign state;
(11)(Repealed)
(12)(Repealed)
(13)linkage differentials received by an individual in respect of an asset, provided that all of the following conditions are met:
(1)the linkage differentials are not partial linkage differentials; for this purpose, "partial linkage differentials" — as prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset;
(2)the individual did not claim a deduction for interest expenses or linkage differentials in respect of the asset;
(3)the linkage differentials are not income under section 2(1) and are not recorded in his books of account nor required to be so recorded;
(13a)linkage differentials paid in respect of the expropriation of an asset that is not business inventory within the meaning of section 85;
(13b)(Repealed)
(14)(Repealed)
(14a)(Repealed)
(14b)exchange rate differentials on a deposit of a company in foreign currency arising from payments by non-residents on account of the purchase of shares therein, to the extent that the deposit funds have not yet been utilised, provided that the majority of the share capital of the company, the majority of the voting rights therein and the majority of the rights to profits therein are held by non-residents;
(15)exchange rate differentials on a loan given by a non-resident, other than a loan given by his permanent establishment in Israel;
(15a)an amount received by a non-resident pursuant to a policy for the insurance of a loan against a change in the exchange rate of the lira, relating to the principal of a loan given in foreign currency that he held lawfully or in liras arising from the lawful conversion of foreign currency and which, under its terms, is to be repaid in liras without linkage differentials, provided that the exempt amount shall not exceed an amount equal to the difference arising from the change in the exchange rate;
(15b)(Repealed)
(15c)interest on a bond issued pursuant to a law that exempts its holder from tax on the interest, if the holder is a non-resident and it is paid to one who was a non-resident when the bond was acquired;
(15d)interest, discount fees or linkage differentials paid to a non-resident on a bond traded on a stock exchange in Israel, issued by a body of persons that is a resident of Israel (in this paragraph — the issuing body of persons), provided that the income does not arise in the permanent establishment of the non-resident in Israel; in this paragraph, "non-resident" — one who is a non-resident on the date of receipt of the interest, discount fees or linkage differentials, as the case may be, other than one of the following:
(1)a substantial shareholder as defined in section 88, in the issuing body of persons;
(2)a relative as defined in paragraph (3) of the definition of "relative" in section 88, of the issuing body of persons;
(3)one who is employed by the issuing body of persons, provides services to it, sells products to it, or has other special relations with it, unless it has been proved to the satisfaction of the assessing officer that the rate of interest or discount fees, as the case may be, was determined in good faith and without being influenced by the existence of such relations between the non-resident and the issuing body of persons;
(16)(Repealed)
(16a)(a)amounts withdrawn by an employee from his account in a training fund, including linkage differentials, as well as interest and other profits originating in the preferred deposit, if 6 years have elapsed from the date of the first payment to that account, and in respect of an employee who has reached retirement age — if 3 years have elapsed from the date of the first payment to that account; and in respect of amounts used by the employee for the purpose of his training — if 3 years have elapsed from the date of the first payment to that account; if the employee has died, the persons entitled to receive the said amounts shall be permitted to withdraw them from the training fund exempt from tax;
(b)The exemption pursuant to this paragraph is conditional upon the account being closed to further payments if an employee withdraws any amount from his account; if the account is so closed, the provisions of sub-paragraph (a) shall apply in respect of the withdrawal of the balance of the amount in the account; provided that if an amount not exceeding one-third of the amount that stood to the credit of the account holder at the time of withdrawal is withdrawn for the purpose of training in Israel, and no other withdrawal of such an amount preceded that withdrawal within the 12 months prior to the said withdrawal, it shall not be regarded as a withdrawal for this purpose;
(c)For the purpose of this paragraph, "date of the first payment" — the earlier of the following:
(1)the end of the month in which the first payment was made;
(2)the end of the month in respect of which the first payment was made, but not before the commencement of the tax year in which it was paid;
"preferred deposit" — each of the following:
(1)an amount paid by an employer, up to the amount or rate that is not regarded, pursuant to section 3(h), as employment income at the time it was paid to the fund;
(2)an amount paid by the employee that is one of the following:
(a)an amount not exceeding one-third of the amount paid by the employer at the rate prescribed in section 3(h), in respect of the employee's determining salary as defined in that section;
(b)an amount at a rate not exceeding 2.5% of the employee's determining salary;
(c)an amount at another rate prescribed for employee payments in a collective agreement approved pursuant to the Collective Agreements Law, 5717-1957, before the 2nd day of Tammuz 5762 (12 June 2002);
(3)an amount paid to a training fund for kibbutz members, as defined in section 58a, up to an amount equal to NIS 14,140 per year;
(d)The Minister of Finance may prescribe by Regulations rules with respect to the closing of an account to further payments and with respect to conditions under which different accounts of an employee in one or more training funds shall be regarded as a single account for the purpose of this paragraph;
(e)(Repealed)
(16b)(a)amounts withdrawn by an individual from his account in a training fund for self-employed persons as defined in section 17(5a), including linkage differentials, as well as interest and other profits originating in the preferred deposit — if 6 years have elapsed from the date of the first payment to that account, and in respect of an individual who has reached retirement age, if 3 years have elapsed from the date of the first payment to that account, and in respect of amounts used by the individual for the purpose of his training — if 3 years have elapsed from the date of the first payment to that account; if the individual has died, the persons entitled to receive such amounts shall be permitted to withdraw them from the training fund exempt from tax; the Administrator may prescribe rules with respect to entitlement to withdraw amounts for the purpose of training tax-exempt; for this purpose, "the preferred deposit" — NIS 14,140 per year;
(b)The provisions of paragraph (16a)(b) to (d) shall apply to the withdrawal of amounts pursuant to this paragraph, with the necessary modifications;
(16c)(Lapsed)
(17)funds received by an employee, other than funds received pursuant to insurance against loss of working capacity as defined in section 3(a), up to the amount of the employer's payments to a provident fund for benefits and these funds are not subject to tax under section 87, provided that in respect of payments made from the 1964 tax year onwards, only those funds shall be exempt up to the amount of the employer's payments within the limits of the amounts according to the rates prescribed pursuant to section 22 of the Supervision of Provident Funds Law, as well as funds that have been subject to tax under section 3(h3);
(17a)(a)amounts transferred to a new account in the name of the former spouse of a member in a provident fund for pension pursuant to the provisions of section 6(a) or (h)(1)(a) of the Pension Savings Distribution Law (hereinafter — the transferred amount), up to the amount detailed as follows:
(1)where the accumulated balance did not exceed the ceiling — the entire transferred amount;
(2)where the accumulated balance exceeded the ceiling — the transferred amount less the difference between the accumulated balance and the ceiling, and not less than zero;
(b)where the transferred amount includes amounts from the total balance that are exempt payments and amounts in a new account within the meaning of section 9a of the member, including profits accrued thereon — they shall be recorded with the former spouse as principal and as profits in a ratio equal to the ratio before their transfer, and they shall be regarded as profits in the hands of the former spouse from the date of their accrual with the member prior to the transfer, and amounts that prior to their transfer were in a new account within the meaning of section 9a in the name of the member — shall be transferred to a new account within that meaning in the name of the former spouse;
(c)Notwithstanding the provisions of sub-paragraphs (a) and (b), such an exemption shall be granted for each component of the transferred amount in accordance with its proportionate share in the total balance;
(d)For the purpose of this paragraph —
"former spouse", "pension savings by means of accrual of rights", and "member" — as defined in the Pension Savings Distribution Law;
"new account within the meaning of section 9a" — a new account within the meaning of paragraph (2) of the definition of "exempt payments" in section 9a;
"total balance" — the balance in all provident funds for pension held by the individual, calculated pursuant to the provisions of section 6(b) of the Pension Savings Distribution Law, excluding pension savings by means of accrual of rights;
"accumulated balance" — the total balance excluding exempt payments, amounts in a provident fund for investment and amounts in a new account within the meaning of section 9a, including profits accrued thereon, calculated pursuant to the provisions of section 6(b) of the Pension Savings Distribution Law;
"ceiling" — the product of the qualifying pension ceiling multiplied by the capital conversion multiplier;
"capital conversion multiplier", "qualifying pension ceiling" and "exempt payments" — as defined in section 9a;
(17b)amounts withdrawn by an individual from all components of the account pursuant to the provisions of section 23(b)(1a) of the Supervision of Provident Funds Law;
(18)interest, linkage differentials and other profits not subject to tax under section 3(d) or section 87, received by an individual from a provident fund for benefits, originating in amounts deposited by the individual or his employer into the provident fund;
(18a)(Repealed)
(18b)interest, linkage differentials and other profits (in this paragraph — profits), received by an individual from a provident fund for investment, originating in amounts deposited in a provident fund for investment, in respect of which the conditions of section 22(a1) of the Supervision of Provident Funds Law are met (in this paragraph — amounts) and the conditions listed in paragraphs (1) to (3) below are met; if the individual has died and the condition listed in paragraph (3) was met before his death, the profits accrued up to the end of three months from the date of death shall be exempt:
(a)at least 5 years have elapsed from the date of the first payment of amounts to that account;
(b)the individual has reached the age of 60;
(c)the individual presented the Administrator's certificate as defined in the Land Taxation Law, that he did not purchase a residential apartment, directly or indirectly, from the 16th day of Kislev 5777 (16 December 2016) until 5 years from the date of the first payment of amounts to the account; for this purpose —
(1)if the individual purchased an apartment after the 11th day of Tishrei 5778 (1 October 2017), and within the 18 months following the purchase of the apartment or the 18 months preceding the purchase of the apartment, sold another residential apartment, he shall be deemed not to have purchased an apartment, provided that the sale of the apartment was not made before the last payment to that account;
(2)notwithstanding any law and any agreement, an individual and his spouse, other than a spouse living permanently apart, and their children who have not yet reached the age of 18 shall be regarded as a single purchaser;
(19)an amount received pursuant to a life insurance policy, other than —
(1)an amount received by a person in respect of the insurance of the life of another, other than his relative within the meaning of section 88, where the premium for his insurance was not permitted to the insurer as an expense;
(2)an amount that is not exempt pursuant to paragraphs (7a) or (17), or that is subject to tax under sections 3(d) or 87;
in this paragraph, "an amount received pursuant to a life insurance policy" — an amount received upon the death of the insured in respect of the risk component for the event of death only, in a life insurance policy, other than an amount received from the savings component or arising therefrom;
(20)the value of the employee's travel from his home to the place of work and back in organised group transportation arranged and financed by the employer, if the Administrator or a person authorised by him has determined that organised group transportation of the employees to the place of work is essential due to the working conditions and the location of the place of work, and the transportation is in accordance with the conditions he prescribed;
(21)(a)an amount received by an employee as compensation for delayed payment of wages pursuant to the Wage Protection Law, 5718-1958, within the limits of the amount of linkage differentials and interest on the delayed wages;
(b)Notwithstanding the provisions of sub-paragraph (a), in respect of one whose taxable income in any month of the 24 months preceding the receipt of the compensation exceeded the ceiling amount for that month, the tax component of the exempt compensation shall be paid as tax;
(c)In this paragraph —
"tax component" — the compensation given in respect of that part of the wages that would have been paid as tax had the wages been paid on time;
"ceiling amount" — an amount of NIS 2,300, adjusted as though it were an income ceiling as defined in section 120a;
(22)alimony received by an individual from one to whom he was married or from one to whom he is married and who lives apart from him, and alimony received by an individual for his children from the other parent, or a payment received by an individual, for himself or for his children, from the National Insurance Institute pursuant to the Maintenance (Guarantee of Payment) Law, 5732-1972;
(23)(a)A proportion of a pension received by a person under an agreement for the provision of a living estate to the Jewish National Fund, to the Keren Hayesod – United Israel Appeal, or to any other institution designated by the Minister of Finance, as set out below:
(1)if the donor of the living estate had not reached the age of 50 at the time of giving – 50%;
(2)if at the time of giving the living estate the donor had reached the age of 50 but had not reached the age of 60 – 60%;
(3)if at the time of giving the living estate the donor had reached the age of 60 but had not reached the age of 70 – 75%;
(4)if at the time of giving the living estate the donor had reached the age of 70 but had not reached the age of 80 – 80%;
(5)if at the time of giving the living estate the donor had reached the age of 80 – 90%;
(b)The exemption under sub-paragraph (a) is in lieu of the exemption under section 9b, and the donor of the living estate shall not be entitled to a credit or a deduction under any law in respect of the giving of that living estate;
(24)Interest and linkage differentials received by a taxpayer in respect of tax paid in excess, interest and linkage differentials received by a dealer under section 105 of the Value Added Tax Law, 5736-1975, and interest and linkage differentials received by a taxpayer by virtue of section 103a of the Land Appreciation Tax Law; this provision shall not apply in respect of a taxpayer for whom interest and linkage differentials constitute income under section 2(1);
(25)Income from rental of a residential apartment received by an elderly person residing in a nursing home in respect of the apartment in which they lived before entering the nursing home – up to an amount equal to half of the annual payment paid for their upkeep in the tax year at the nursing home; for this purpose, "nursing home" means a permanent place of residence for at least thirty individuals whose age exceeds 65 years, which has been granted a licence under the Supervision of Institutions Law, 5725-1965;
(26)A donation to a candidate in a primary election that is permitted under Chapter II of the Political Parties Law, 5752-1992;
(27)Funds received by the Fund or received by a discharged soldier under the Absorption of Discharged Soldiers Law, 5754-1994;
(28)Earnings or profit, as referred to in section 2a, whose value is less than an amount prescribed by the Minister of Finance, with the approval of the Finance Committee of the Knesset, and all subject to such conditions and adjustments as the Minister prescribed;
(29)A scholarship granted to a student or a researcher during the period of their studies at a study and research institution, and in respect of a researcher – up to the ceiling amount; in this paragraph –
"researcher" means any of the following:
(1)a person who has reached the age of 18 and has served for at least five years as a researcher at a Torah research institute and is studying at the institute within its fields of activity;
(2)a person who holds at least a first academic degree from an institution of higher education in Israel, or from an academic institution abroad recognised by the Ministry of Education, and who serves as a researcher at a research institution and studies at the research institution within its fields of activity;
"study and research institution" means any of the following:
(1)an institution of higher education, in respect of a student;
(2)a research institution, in respect of a researcher;
(3)a Torah research institute, in respect of a researcher;
"institution of higher education" means an institution that is one of the following:
(1)an institution recognised under section 9 of the Council for Higher Education Law, 5718-1958 (hereinafter – the Council for Higher Education Law);
(2)an institution that has received a permit or approval under section 21a of the Council for Higher Education Law;
(3)an institution whose degree has been recognised under section 28a of the Council for Higher Education Law;
"research institution" means a public institution that promotes, conducts or maintains research in the fields of activity and studies conducted therein, and publishes research in publications issued by it or with the assistance of or in collaboration with institutions of higher education, and which is not an institution of higher education;
"Torah research institute" means a public institution that promotes, conducts or maintains research in the fields of Torah studies, and is entitled to support from the Ministry of Culture under the Budget Foundations Law, 5745-1985;
"public institution" – as defined in paragraph (2) of this section;
"scholarship" means a grant, prize or exemption from payment given to a student or a researcher, directly or indirectly, on a one-time or periodic basis, during the period of their studies, for the purpose of financing tuition fees or for the purpose of their subsistence during the period of their studies, provided that no consideration whatsoever is given therefor by the student or researcher and that they were given during the period of studies; for this purpose, royalties for the use of research shall not be considered a grant, prize or exemption from payment as aforesaid;
"student" means a person who is studying at an institution of higher education within the fields of study conducted therein;
"ceiling amount" means NIS 90,000; that amount shall be treated as an amount within the meaning of section 120b;
"use of research" means use by the study and research institution of the research or findings of the student or researcher, including by way of publication of a book or publication of the name of the institution as aforesaid in the research;
"consideration" – including any undertaking by the student or researcher to provide any service to the grantor of the scholarship or to fulfil a role therein; and for this purpose, the following shall not be considered consideration:
(1)an undertaking by the student or researcher to devote the greater part of their effort and time to studies or research, all at the study and research institution;
(2)use of research;
(3)community or social activity by the student or researcher on behalf of the study and research institution, or in connection therewith;
"period of studies" –
(1)in respect of a student – the period of studies of a student as defined in the regulations of the institution of higher education for the type of studies in question, and in respect of the following, the period of studies shall not exceed –
(a)in respect of a person studying for a second academic degree – a period of four tax years from the day on which they commenced their studies for that degree;
(b)in respect of a person studying for a third academic degree – a period of eight tax years from the day on which they commenced their studies for that degree;
(2)in respect of a researcher – the period of research as defined by the research institution or the Torah research institute, provided that it shall not exceed 12 years;
(30)Compensation paid to a donor under section 43 of the Egg Donation Law, 5770-2010.
(31)A grant paid by the Ministry of Culture and Sport, the Israeli Olympic Committee, the Israeli Paralympic Committee, or the ILAT Association – the Israeli Association for Competitive Sport that is not Olympic, to a person who placed first, second or third in a competition held within the framework of the Olympic Games, the Paralympic Games or the World Games, or to a person who placed as aforesaid in a competition for adults held within the framework of a World Championship, a European Championship or a recognised championship, all in respect of a win in such a competition; for the purpose of this paragraph, "recognised championship" means a championship that is an alternative to a World Championship or a European Championship, in sports disciplines in which no such championship is held, which has been recognised by the Ministry of Culture and Sport, in consultation with the High Achievement Sport Unit or the Competitive Sport Unit, as the case may be.