Translation Notice — This is an English translation of a Hebrew law and may contain inaccuracies. In any dispute or legal matter, the original Hebrew text as published in Reshumot (ספר החוקים) is the sole authoritative and legally binding version.

Ordinance

Income Tax Ordinance

פקודת מס הכנסה

Part VII: Tax Rates

Tax Rates for an Individual — Schedule of Tax on Taxable Income

121.

(a)The following is the tax on the taxable income of an individual:

(1)On every pound of the first 500 pounds — 22.5 agorot

(2)On every pound of the next 1,000 pounds — 25 agorot

(3)On every pound of the next 1,000 pounds — 30 agorot

(4)On every pound of the next 2,000 pounds — 37.5 agorot

(5)On every pound of the next 3,000 pounds — 45 agorot

(6)On every pound of the next 4,000 pounds — 47.5 agorot

(7)On every pound of the next 5,000 pounds — 50 agorot

(8)On every pound of the next 5,000 pounds — 52.5 agorot

(9)On every pound of the next 5,000 pounds — 55 agorot

(10)On every pound of the next 5,000 pounds — 57.5 agorot

(11)On every additional pound — 60 agorot

(b)Notwithstanding the provisions of subsection (a), an individual who is a non-resident shall also be liable to tax on the first 500 pounds of his taxable income at the rate of 25 agorot per pound.

(c)In respect of an individual resident of Israel who is not entitled to a deduction for a wife under Section 37 or for children under Section 40, the tax rates under subsection (a)(5) and (6) shall be increased by 2.5 agorot per pound, under subsection (a)(7), (8), and (9) by 5 agorot per pound, and under subsection (a)(10) by 2.5 agorot per pound. This subsection shall not apply to an individual who would have been entitled to the said deduction but for the provisions of Section 66(a)(2).

In respect of Work Productivity Bonus

Tax on Grant for Work Productivity

122.

(a)Notwithstanding the provisions of Section 121, the rate of tax on income received as a grant for work productivity shall not exceed fifteen agorot per pound.

(b)For the purposes of this Section —

"grant for work productivity" means a grant, benefit, or premium that constitutes employment income and is paid pursuant to a Contract of employment approved for the purposes of this Section as prescribed in Regulations — in addition to the customary or contractually fixed salary or wages — for work productivity exceeding the ordinary rate of productivity, within the limits of thirty percent of the amount of that salary or those wages; however, such a grant does not include —

(1)payment for work in overtime hours or on official days of rest in the State;

(2)payment to a member by a Company, cooperative society, or other corporation.

Overtime Hours

Tax on Income from Overtime Hours

123.

(a)Notwithstanding the provisions of Section 121, the rate of tax on employment income for overtime hours shall not exceed 30 agorot per pound, if paid to a person in respect of whom the Minister of Finance has approved, on the recommendation of a committee appointed by the Minister of Finance for the purposes of this Section, that his overtime work was necessary due to the essential nature of his work and the impossibility of replacing him with another worker; the provisions of this Section shall not apply to that portion of employment income for overtime hours exceeding 40 percent of the taxpayer's regular wages. The additional wage paid for work on the night shift pursuant to a collective agreement within the meaning of the Collective Agreements Law, 5717–1957,17 shall be treated as wages for work in overtime hours.

(b)The Minister of Finance may prescribe by Regulations that an additional wage paid to a category of workers to be specified in the Regulations in lieu of wages for overtime hours of work, or an additional wage paid for work on a second shift or for work on days of rest, shall be liable to tax at a rate not exceeding 35%.

17 [reference to Collective Agreements Law, 5717–1957]

Key Money and Premium — Reduced Tax Rate

124.

Notwithstanding the provisions of Section 121, the tax on income from key money or premiums derived from residential property shall not exceed 25%, if the taxpayer has paid to the Assessing Officer tax on that income at the said rate within 30 days of the date of its receipt.

Key Money and Premium

Rate of Tax on Sale of Patent etc.

125.

Notwithstanding the provisions of Section 121, income received from the sale of a patent or design by the inventor, or from the sale of a copyright by the author, where the invention or creation was outside the scope of their regular occupation, shall not be subject to a tax rate exceeding 25%.

Sale of Patent etc.

Rate of Tax on

126.

(a)A tax to be called "corporation tax" shall be imposed on the taxable income of a body of persons at the rate of 28 agorot per pound.

(b)In computing the taxable income under subsection (a), income from a dividend or from a distribution of profits received directly or indirectly from another body of persons liable to corporation tax shall not be included.

Corporation Tax

127.

(a)In addition to corporation tax, income tax shall be imposed on the taxable income of a body of persons at the rate of 25 agorot per pound.

(b)In computing the taxable income under subsection (a), the following shall be deducted:

(1)corporation tax paid in respect of that income;

(2)in the case of a body of persons resident in Israel — also any dividend paid during the tax year out of its income that was liable to income tax prior to the payment of the dividend.

(c)If, in the tax year in which the dividend was distributed, it was not possible to deduct it, in whole or in part, as provided in paragraph (b)(2), because there was no taxable income in that year, or because the income was less than the amount of the dividend permitted to be deducted, the amount of the dividend that was not deducted shall be regarded as an expense deductible from the taxable income in the first tax year preceding the tax year in which the dividend was paid, and to the extent that it cannot be so deducted in that year either, in whole or in part, it shall be permitted to be deducted in the preceding years in that order, and the assessments for those years shall be regarded as amended accordingly.

[Body of Persons]

Income Tax of

128.

(a)Notwithstanding the provisions of Sections 126 and 127, a body of persons shall pay, on special income, corporation tax at the rate of twelve and a half agorot per pound and income tax at the rate of twelve and a half agorot per pound.

In this Section, "special income" means —

(1)income from a premium or from key money derived from a residential estate on which the body of persons paid to the Assessing Officer a payment at the rate of 25% within 30 days of the date of its receipt;

(2)income from capital gains within the meaning of Part V.

(b)In computing the taxable income liable to income tax under subsection (a), the following rules shall apply:

(1)corporation tax paid in respect of special income shall not be deducted;

(2)a dividend paid out of special income shall be permitted to be deducted from that income, and the assessment for that tax year shall be regarded as amended accordingly.

17 SH 221, 5717, p. 63.

[On Special Income]

148 Book of Laws 6 9th Iyyar 5721 25.04.1961

Exemption of Certain Cooperative Societies from Corporation Tax

Corporation Tax

129.

(a)A cooperative society whose business is conducted 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, and whose said business is predominantly the marketing or processing of its members' agricultural produce, shall be exempt from corporation tax on that part of its taxable income derived from the marketing or processing of its members' agricultural produce or from the supply of agricultural goods and equipment to its members; the exempt amount shall not exceed 3% of its business turnover in that year, but the Minister of Finance may, with the approval of the Finance Committee of the Knesset, increase by Order the said rate.

(b)A cooperative society that has distributed or returned to its members, directly or indirectly, profits on which it did not pay corporation tax by virtue of the provisions of subsection (a), shall be liable to pay the amount of corporation tax it did not so pay within 30 days from the date of the distribution or return.

(c)In this Section —

(1)"cooperative society" means a cooperative society whose members are cooperative societies or individuals, 51% of whose members each derive the majority of their income from agriculture, provided that the number of members shall not be less than —

(a)40, if the members are individuals only;

(b)5 cooperative societies whose total combined membership as aforesaid is at least 200, if the members are cooperative societies only;

(2)"member" includes a candidate for membership whose period of candidacy has not yet completed one year.

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Part VIII: Returns, Notices and Information

Chapter One: Preparation and Submission of a Return

preamble-3.

[In the Keeping of Books]

Authority to Require

130.

(a)For the purpose of assessment, the Commissioner may direct, generally or in respect of a particular class of taxpayers, the keeping of account books of income derived from a business or profession, and may prescribe in those directions rules for the method of keeping the books; the directions shall come into force upon the expiration of three months from the date of their publication in the Official Gazette.

(b)Where directions have been given under subsection (a), the Assessing Officer may refuse to accept accounts not based on account books kept in accordance with the directions; however, the taxpayer shall be entitled on Appeal under Sections 153–158 to contest the Assessing Officer's decision under this subsection.

(c)Nothing in any directions given under subsection (a) shall be construed as requiring a person to disclose confidential information communicated to him by reason of his profession.

Who Is Required to File a Return

131.

(a)The following persons are required to submit a return as set out below:

(1)an individual resident in Israel whose taxable income before the deductions under Sections 34–43 exceeds the amount of the deduction under Section 34;

(2)a non-resident who had taxable income;

(3)a body of persons that had taxable income or that had a loss within the meaning of Section 28;

149 Book of Laws 6 9th Iyyar 5721 25.04.1961

(4)any person from whom the Assessing Officer has required the submission of a return, even if that person is exempt from the obligation to submit a return.

(b)A report under subsection (a)(3) shall be certified by a certified public accountant within the meaning of the Certified Public Accountants Law, 5715–1955,18 and coordinated by that accountant for tax purposes.

132.

(a)A return under Section 131 shall be submitted to the Assessing Officer no later than 30 June of each year, and shall set out the income that the person submitting the return had during the tax year preceding that year, as well as all particulars required for the purposes of this Ordinance in relation to that income.

(b)Notwithstanding the provisions of subsection (a) —

(1)a person whose return is based on a complete system of accounts, according to the double-entry bookkeeping method, and to which a balance sheet and profit and loss account are attached, shall submit the return under that subsection no later than 31 August of each year;

(2)a person whom the Assessing Officer has permitted under Section 7 to have his income computed according to a special assessment period shall be required to submit the return as aforesaid no later than the expiration of five months from the day on which that special assessment period ended.

Time for Submission

133. The Assessing Officer may, if it has been proven to his satisfaction that sufficient cause exists therefor, postpone the submission of the return under Section 132(a) or (b), as the case may be, to a date to be determined, provided that a person who has received such a postponement —

(1)shall submit, by the date referred to in Section 132(a) or (b), as the case may be, an estimated return of the said income prepared according to his best estimate;

(2)shall be liable, for the entire period of the postponement, to interest at 9% per annum on the amount by which the tax he is liable to pay for that tax year according to the return he submitted exceeds the tax he is liable to pay on the basis of the estimated return.

Postponement of Time

134.

The Minister of Finance may prescribe by Order that an individual to whom Regulations under Section 12 apply shall be exempt from submitting a return under this Section.

Exemption from Submission

Chapter Two: Authority to Obtain Information

135.

In order to obtain full information regarding a person's income —

(1)the Assessing Officer may require him, by written notice, to furnish — within a period to be specified in the notice — any return to be specified in the notice, including a return of the assets and property of that person, or of his spouse and his children in respect of whom he is entitled to a deduction under Sections 37, 40 and 41, and may also require him to appear before the Assessing Officer — personally or through his representative — and to produce for examination books, documents, accounts and returns that the Assessing Officer considers necessary; however, the Assessing Officer — other than an assistant assessing officer and a chief collector — may require personal appearance, with or without a representative, at the option of the person;

(2)the Assessing Officer, or another officer authorised by him in writing, may enter any premises in which a business or profession is conducted and inspect business inventory, cash register, machines, books, accounts, documents, records and other certificates relating to that business

18 SH 173, 5716, p. 26.

[Returns, Information, Books, etc.]

150 Book of Laws 6 9th Iyyar 5721 25.04.1961

or profession, and require explanations in connection therewith, if this appears to him to be necessary in order to ensure compliance with the provisions of this Ordinance or to prevent evasion of those provisions;

(3)the Assessing Officer, or a person authorised by him in writing, while conducting an inspection as referred to in paragraph (2), may seize books, accounts, documents, records and other certificates relating to that business or profession, if he is satisfied that this is necessary in order to ensure the execution of this Ordinance or to prevent evasion of its provisions; provided that anything seized —

(a)shall not be removed from the place of seizure except pursuant to a direction of the Assessing Officer, and for this purpose "Assessing Officer" excludes an assistant assessing officer and a chief collector;

as well as any criminal prosecution for an offence under this Ordinance.

[Return from Employer Regarding His Employees]

Authority to Require

136.

(a)Every employer shall, if required to do so by the Assessing Officer by notice, prepare and submit within the time specified in the notice, a return for a particular year containing the names and places of residence of persons employed by him and the payments and allowances given to them in respect of their employment with him; the provisions of this Ordinance regarding non-submission of a return or particulars required by the Assessing Officer shall apply to such a return, provided that an employer shall not be penalised for the omission of the name and place of residence of an employee employed by him who is not employed in any other employment, if the Assessing Officer is satisfied, after inquiry, that that employee has no taxable income.

(b)Where the employer is a body of persons, the manager or other senior officer shall be regarded as the employer for the purposes of this Chapter, and every director of the Company, or any person employed in its management, shall be regarded as employed by it.

[Return Regarding Income Received or Paid to Another]

Authority to Require

137.

Where a person — regardless of his capacity — receives profits or income to which this Ordinance applies and which belong to another person, or where he pays profits or income as aforesaid to another person or to his order, the Assessing Officer may serve on that person a notice requiring him to submit — within the time specified therein, which shall not be less than thirty days after the date of service thereof — a return containing a true and accurate disclosure of all such profits and income and the name and address of that other person.

[Return from Occupier of Premises]

Authority to Require

138.

The Assessing Officer may serve on any person occupying a residential estate, land or industrial building, a written notice requiring him to submit within a reasonable time a return containing the name and address of the owner of the residential estate, the land or the industrial building, as well as a true and accurate disclosure of the rent paid and any other consideration given therefor.

[Return Regarding Residents and Tenants]

Authority to Require

139.

The Assessing Officer may serve on a person a written notice requiring him to submit, within the time specified therein, which shall not be less than thirty days after the date of service thereof, a return containing the name of every resident or tenant residing in his house, hotel or institution on the date of the notice and who had resided there for all three months preceding that date, excluding temporary absences.

[Official Information]

Authority to Require

140.

Notwithstanding the provisions of any other law, the Assessing Officer may require any employee of a public body to supply any particular required for the purposes of this Ordinance that is within the knowledge or possession of that employee. However, no employee as aforesaid may be compelled by virtue of this Section to disclose particulars in respect of which he is bound to observe confidentiality under

151 Book of Laws 6 9th Iyyar 5721 25.04.1961

the Statistics Ordinance, 1947,19 or under the Postal Bank Law, 5711–1951,20 or under the Bank of Israel Law, 5714–1953.

For the purposes of this Section, "public body" means the State, a local authority, a Company in whose management the Government participates, and any other body that the Minister of Finance, with the approval of the Finance Committee of the Knesset, has designated as a public body.

.

141.

Where a person has undertaken by Contract to pay another employment income of not less than a certain amount, after deduction of tax under Section 164, both the payer and the recipient are required to give notice thereof to the Commissioner within thirty days from the date of the making of the Contract, and to set out therein the particulars of the Contract and any other particular relating thereto as the Commissioner may require. If the Contract was in writing — a copy thereof shall be attached to the notice.

Obligation to Give Notice of a Net Payment Agreement

Chapter Three: Miscellaneous

142.

The Assessing Officer may serve on a person — at any time and as often as he considers it necessary — a written notice requiring him to supply, within a reasonable time specified in that notice, more complete or additional returns in respect of any matter on which he is required or obligated under this Ordinance to submit a return.

[May Require Supplements or Additions]

Assessing Officer

143.

A person who assists another, for remuneration, in preparing a return, notice, form or other document for the purposes of this Ordinance, is required to declare on that document that he assisted in its preparation.

[By Another]

Preparation of a Return

144.

A return, declaration or form purporting to be given under this Ordinance by a certain person or on his behalf shall be regarded for all purposes as if given by that person or with his authorisation, unless the contrary is proved, and every person who signs any such return, declaration or form shall be regarded as one who is aware of every matter contained therein.

Return to Be Regarded as Given Under Proper Authorisation

[Chapter One: The Assessment]

Part Nine: Income Assessment and Appeals

145.

(a)Where a person has submitted a return, the Assessing Officer may do one of the following:

(1)confirm the return and make the assessment accordingly;

(2)determine, according to his best judgment, the amount of the taxable income of that person and assess him accordingly, if he has reasonable grounds to assume that the return is incorrect;

(3)confirm the return by way of provisional confirmation and require payment of the tax due thereunder, without prejudice to his right to determine thereafter the amount of that person's income under paragraph (2), and a demand for payment as aforesaid shall have the same effect as a notice of assessment under Section 149.

(b)Where a person has not submitted a return and the Assessing Officer is of the opinion that that person is liable to pay tax, the Assessing Officer may determine, according to his best judgment, the amount of the taxable income of that person and assess him accordingly, provided that this assessment shall not affect any other liability of that person for having failed to submit a return or for having neglected to submit it.

Authority to Assess

146.

(a)The Minister of Finance may appoint a committee, generally or for a specific region or for a specific class of assessees, to advise assessing officers in the exercise of their powers under Section 145(a)(2) or 145(b) and Sections 150–152; in appointing such a committee the Minister of Finance shall have regard to the various circles of which the public is composed.

(b)Notice of the appointment of a committee shall be published in the Official Gazette.

(c)Members of a committee shall not be employees of the State or employees of a municipality or local council.

(d)The deliberations of a committee or any material communicated to any of its members by virtue of membership of the committee shall not be published except in accordance with the provisions of Section 232.

Authority of the Commissioner

147.

(a)The Commissioner may, on his own initiative or at the request of the assessee, during the tax year or within six years thereafter, require the record of any proceeding under this Ordinance taken by an assessing officer, and having received the record he may conduct any inquiry that appears to him appropriate, or cause such an inquiry to be conducted, and he may, subject to the provisions of this Ordinance, issue in that matter any Order that appears to him appropriate; and if the assessee has, in respect of a tax year, done any of the things enumerated in Section 220, the Commissioner may act as aforesaid within fifteen years after that tax year.

(b)An Order under subsection (a) shall be issued by the Commissioner or by a person authorised by him to do so, and an assessment made in consequence of an Order so issued shall, for the purposes of Appeal, have the same legal status as the Order.

(c)An Order under subsection (a) that increases the assessment shall not be issued unless the assessee has been given a reasonable opportunity to state his arguments.

(d)An Order under subsection (a) that increases the assessment shall, for the purposes of Appeal, have the same legal status as an Order under Section 152(b).

(e)An Order under subsection (a) that reduces the assessment, issued before the expiry of the time for lodging an Appeal against the assessment but before an Appeal has been lodged, shall extinguish the assessee's right to Appeal against that assessment, but the assessee may Appeal against the Order as if it were an Order under Section 152(b).

(f)Where an Order under subsection (a) is issued after an Appeal against the assessment has been lodged but before the Appeal proceedings have been concluded, it shall be dealt with as if it were an Appeal against the Order.

Lists of Assessees

148.

(a)The assessing officer shall prepare, as soon as practicable, lists of persons who have been assessed for tax.

(b)Such lists (hereinafter — assessment lists) shall contain the names and addresses of the assessees for tax, the amount of the chargeable income of each of them, the amount of tax paid by each, and such other particulars as have been prescribed.

(c)Where complete copies of all assessment notices and all amended assessment notices are filed in the office of the assessing officer, they shall constitute the assessment lists for the purposes of this Ordinance.

Notice of Assessment

149.

The assessing officer shall ensure that every person whose name appears on an assessment list and for whom an assessment has been made under Section 145 is served, by hand or by registered post, with a notice addressed to him at the address of his usual place of residence or place of business, setting out the amount of his chargeable income, the amount of tax payable by him, and his rights under Section 150.

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