The Israeli tax system is based on global taxation, which determines tax liability for an Israeli resident based on income that is received or accrued anywhere in the world, whether in Israel or abroad.

Companies in Israel are genrally subject to company tax on their profits at the rate of 26% on taxable income (to be reduced to 25% in 2010, 24% in 2011, and further).

Distributed profits after company tax are subject to dividend withholding tax at rates of 20% or 25%. These rates apply both to foreign individuals and foreign companies (if the tax treaty does not determine a lower rate). In the case of a non-resident individual, interest income is generally liable to withholding tax of 15% (if it is not linked to the consumer price index) or 20% unless reduced by a tax treaty. Lower tax rates and other benefits are applicable under Israel's investment incentive legislation.

Personal Taxation

Israel imposes progressive tax at rates of up to 46% (to be reduced to 45% in 2010 and 2011, 44% in 2012, and further). Credits, deductions and exemptions are given based on residency, gender, number of children, disabilities and more.

New immigrants are granted generous exemptions. For up to 10 years, they are granted exemptions on income from almost every source located outside Israel, whether the profit is business-related, passive or capital gains.

Foreign Residents

Foreign residents enjoy a range of fiscal benefits. These benefits can be found in the law for encouragement of capital investment. Foreign residents will continue to enjoy a range of exemptions that cover income from passive investments in Israeli banks. Although foreign residents will be subject to tax on captial gains derived from Israeli assets, they will be exempted from taxes on gains from the sale of publicly traded equities and the sale of securities  of both publicly traded and privately held Israeli companies. Since December 2008, almost every foreign resident can benefit from these exemptions.