Income Tax Ordinance

No tax shall be payable on income derived from outside Israel and received in Israel by a person who is present in Israel for a temporary purpose only and not with the intention of establishing his residence therein, and who has not in fact resided in Israel during the tax year, whether continuously or intermittently, for more than six months in the aggregate.

With respect to an individual who is not a resident of Israel in the tax year, the Minister of Finance may prescribe rules to determine —

The profits of a person who is not a resident of Israel and who is engaged in the business of owning ships or chartering ships (in this Ordinance — a foreign shipowner) are exempt from tax to the extent that the exemption is determined by an agreement between the State to which the foreign shipowner belongs and the State of Israel.

[Israeli cargo]

Subject to the provisions of Section 70, where a ship owned or chartered by a foreign shipowner calls at an Israeli port, the full amount of his profits derived from the carriage of passengers, mail, livestock or goods (all of which shall hereinafter be referred to as cargo) loaded in Israel shall be deemed to be income accrued in Israel; this provision shall not apply to goods brought to Israel for the purpose of loading only.

Computation of profits of a foreign shipowner holding a certificate

72. (a) Where a foreign shipowner produces a certificate issued by any income tax authority attesting to both of the following:

his profits derived in Israel from his shipping business in that period, before any deduction of depreciation, shall be the amount which bears the same ratio to his receipts from the carriage of cargo loaded in Israel as his total profits according to the certificate in that period bear to his total receipts from the carriage of cargo.

[Foreign shipowner in other cases]

Where, for any reason whatsoever, it is not possible to apply satisfactorily the provisions of Section 72 at the time of assessment, the profits derived in Israel may be computed on the basis of a fair percentage of the full amount of receipts from the carriage of cargo loaded in Israel; provided that if a person has been assessed in a particular tax year on the basis of such a percentage, he shall be entitled within six years after the end of that tax year to claim at any time that his tax liability for that year be recomputed on the basis established in Section 72.

[Occasional call]

Where the Assessing Officer has decided that a ship belonging to a particular foreign shipowner has called at a port in Israel on an occasional basis and that there is no reason to assume that this ship or other ships under the same ownership will call at Israel, the provisions of Sections 71–73 shall not apply to the profits from that ship and no tax shall be imposed thereon.

[Aviation enterprises and wireless undertakings]

A person who is not a resident of Israel and who is engaged in the business of air transport or transmission of messages by cable or wireless shall be assessed to tax as if he were a foreign shipowner; the provisions of Sections 71–74 shall apply, mutatis mutandis, to the computation of profits and earnings from such businesses.

A notional dividend from a particular close company (hereinafter — the first company) to a shareholder who is also a close company (hereinafter — the second company) — shall not be liable to tax as income of the second company, but shall be treated as if the second company had distributed it as a dividend on the date determined by the Commissioner pursuant to Section 77, and accordingly the shareholders of the second company shall be assessed or their assessments shall be amended; and if a shareholder of the second company is also a close company — the provisions of this Section shall apply,

[To a close company]

mutatis mutandis, to the notional dividend, as if all references to the first company referred to the second company, and all references to the second company referred to that shareholder, and so on according to the same principle, until no part of the undistributed profits in respect of which the Commissioner's directions were given remains to be treated as if distributed to a close company.

[Tax unpaid shall be a debt of the Company]

Where a person has been assessed, or whose assessment has been amended, pursuant to the provisions of Sections 77 or 78 and has not paid in due time all or part of the tax attributable to his share in the notional dividend — the unpaid amount shall be a debt due to the Government from the Company which, by reason of its failure to distribute the profits, gave rise to the Commissioner's direction under Section 77, and shall be recovered as a debt.

[Subsequently distributed]

Undistributed profits that are chargeable to tax under Sections 77 and 78 and are subsequently distributed shall not be treated as taxable income of the recipient of the profits.

A committee of five persons, including at least three who are not State employees, shall advise the Commissioner on the exercise of the power conferred upon him in this Chapter; the committee shall be selected by the Commissioner as occasion requires from a list to be prepared by the Minister of Finance by notice published in the Official Gazette.

Interpretation

82. (a) "Assignment", for the purposes of Sections 83, 84 and 86 — includes a Trust, conveyance, Contract, agreement, arrangement or transfer of assets.

Where income is payable to or for the benefit of a person in a particular tax year by virtue of an assignment made during the lifetime of the assignor or in consequence thereof, and the assignor is still alive, and at the commencement of that tax year that person had not yet attained the age of 20 years and was not married — that income shall, for the purposes of this Ordinance, be treated as the income of the assignor for that tax year and not as the income of any other person; it is immaterial for this purpose whether the income is payable directly or indirectly, whether to the person or for his benefit, whether in the present or in the future, whether it is payable upon the fulfillment of a condition or upon the occurrence of a particular event of uncertain occurrence, or as a result of the exercise by any person of a power or discretion conferred upon him, or in any other manner, and whether it is income which under Chapter Five is deemed to have been received by that person as aforesaid.

[For revocation]

With respect to moneys as specified hereunder, the Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe by Regulations rules concerning liability to tax, the person liable thereto, and its rates; and these are as follows: