SELF-EMPLOYED IN ISRAEL

DEDUCTIONS

General

According to the Israel Tax Ordinance (ITO), any expense is tax deductible for business if it leads to the production of income.

Combined Personal and Business Expenses

However, any expense which is both of a personal, as well as business nature, can only be partially deducted. Israel has well established rules in this regard:

Car - allowable expense equals the greater of:
(1) 45% of total expenses or
(2) The total expenses less an "equivalent car expense". The "equivalent car expense" (ECE) is an amount which is fixed in a published table classified according to seven different groups of cars.

Cell phone - allowable expense is the greater of:
(1) 50% of the total cost or (2) the total cost less 1,140 NIS.

Business office in a private home:
a) Telephone: non-allowed expense is equal to the greater of:
(1) 20% of the total expense or (2) NIS 2,100.
b) Electricity, Arnona (real estate tax), Va'ad Bayit (building maintenance)
Insurance: allowable according to business use of the premises.
c) Water & gas - not allowable (unless can prove absolutely an integral part of the business process, e.g. flower arranger.
d) Rent - not allowable unless the landlord has a file open with the tax authorities.
e) Overseas Travel -
More than 50% of the trip must be for business for any deduction. (See appendix.)

TAX CREDITS

A tax credit is a direct decrease of the calculated tax due.

Credit Points
a) Each resident is entitled to credit points (2¼ for a male; 2¾ for a female).
Each credit point is 2,460 NIS.
b) Child credit - a female taxpayer is allowed 1 credit point per child under 18 years (half point in year of birth and year turned 18 years old).
c) Oleh chadash allowed as follows:

Charitable Contributions:

Tax credit of 35% of the amount paid, to a recognized Israeli if total contributions exceed 300 NIS for the year. Maximum contribution is the lesser of 30% of taxable income or 7,500,000 NIS.

Foreign Taxes:

Foreign taxes paid on each type of income taxable in Israel is allowed as a credit but no more than the Israeli tax on the same type of income.

SOCIAL BENEFITS

a) Bituach Leumi (National Insurance). 52% of total payments deductible.
b) Keren Hishtalmut (Education Fund): Maximum contribution is 7% of net income (up to ceiling of 234,000 NIS). The allowable deduction is 4.5% (64.3% of the contribution).
c) Disability Insurance - maximum allowable deduction is 2½% of net income.
d) Life insurance/kupat gemel (pension):
The allowance is on a maximum income of 187,200 NIS.

1. Ticket
1.1 Tourist and business class - all allowable
1.2 First class - allowable only to cost of business class ticket.

2. Hotel - Room Up to 90 days (with receipts)
2.1.1 First 7 days - up to $243 per night
2.1.2 Next 8 to 90 - up to $107 per night, if greater, 75% of bill up to maximum of $182 per night.
2.2 Over 90 days (with receipts) - up to $107 per night.
2.3 Two trips with break in Israel of less than 14 days are treated as if they were a single trip for the purpose of calculating the number of days and rate per trip.

3. Food, etc.
3.1 If claim for room with receipt - up to $68 per day
3.2 If no claim for room - up to $114 per day

4. Children's education If overseas over 10 months- up to $599 per child per month (with receipts)

5. Car Rental All expenses including rental, gas, insurance etc. - up to $53 per day (receipts required).

6. Additional allowances
6.1 The tax authorities can, from time to time, agree to a 25% increase in the above allowances for specific countries: Australia, Austria, Italia, Iceland, Ireland, Angola, Belgium, germany, Dubai, Denmark, Holland, Hong Kong, U.K, Taiwan, Japan, Greece, Luxemburg, Norvegia, Spain, Uman, Finland, France, Katar, Korea, Cameroun, Canada, Sweden, Switzerland.
6.2 The rates will be increased annually in accordance with inflation in the U.S.

7. Travel Report Every claim for an overseas trip must be supported by tickets, bill and travel report, detailing work performed overseas.