As part of the global tax competition, Israel has decided to join a large number of countries and to gradually reduce its tax rates on both individuals and companies in order to attract foreign investments and business enterprises.

In July 2009 an official Temporary Order was published, according to which the corporate income tax (CIT) rate is to gradually be reduced over several years to 18% in the tax year 2016 and the individual income tax (IIT) rate – to 39% in 2016.

This graduate tax rates reduction has attracted vast attention towards Israel, as a potential investments market, adding to this several other tax benefits, such as the Encouragement of Capital Investment Law and the 10-year tax holiday to eligible individuals (the 168 Tax Amendment). According to Amendment 168 Israel provides New Immigrants and Returning Residents (as defined by law) with extreme tax benefits, including a 10-year tax exemption on foreign sourced income and gains, as well as no reporting requirements on such income or gains.

In contrary to the liberalized tax policy of Israel in recent years, as described above, the Financial Committee of the Israeli Parliament decided on May 16, 2011 to delay the planned tax rates reduction, such that the CIT rate will not be reduced from 244 to 23% in 2012, as planned and the IIT rate (highest bracket) will remain at a rate of 45% instead of a reduced rate of 44%.

This initial decision is planned to be enacted by the Israeli Parliament (Kenesset) in the near future.

We will update regarding any developments.

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