Corporate Income Tax in Israel
Israel's corporate income tax system is a comprehensive framework that governs the taxation of profits earned by companies operating within the country. The system is designed to generate revenue for the government while also encouraging economic growth and investment.
Methodology for Calculating Corporate Income Tax
The calculation of corporate income tax in Israel involves a multi-step process:
- Determination of Taxable Income: The first step is to determine the taxable income of the corporation. This is done by starting with the company's accounting profits and making adjustments based on specific tax rules and regulations. These adjustments may include adding back certain expenses that are not deductible for tax purposes or subtracting certain types of income that are exempt from taxation.
- Application of Tax Rates: Once the taxable income has been determined, the applicable tax rate is applied. Israel has a two-tiered corporate income tax system, with different rates applying to different levels of taxable income. The standard corporate income tax rate is 23%, while a reduced rate of 16% applies to certain types of income, such as dividends and capital gains.
- Tax Credits and Deductions: Corporations may be eligible for various tax credits and deductions that can reduce their overall tax liability. These include credits for research and development, investment in certain industries, and donations to charitable organizations.
Taxable Income
Taxable income for corporations in Israel includes all income derived from business activities, including:
- Trading income
- Investment income
- Rental income
- Royalties
- Capital gains
Certain types of income may be exempt from corporate income tax, such as:
- Dividends received from other Israeli companies
- Capital gains on the sale of certain assets, such as shares in other companies
- Income earned by non-profit organizations
Legal Framework
The legal framework for corporate income tax in Israel is primarily governed by the Income Tax Ordinance (ITO). The ITO provides detailed provisions on the calculation of taxable income, applicable tax rates, and exemptions. The ITO is supplemented by various regulations and circulars issued by the Israel Tax Authority.
Conclusion
Israel's corporate income tax system is a complex and dynamic framework that is constantly evolving to meet the changing needs of the economy. By understanding the key elements of the system, corporations can effectively manage their tax liability and contribute to the overall economic growth of the country.
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