Want to pay less taxes? We have yet to meet someone who doesn’t! This guide will outline some of the key ways you can reduce the amount of Israeli taxes you pay.

As always, nothing here should be thought of as personal tax, legal, or investment advice. The goal of this article is to give practical tax-saving best practices along with ideas you can discuss directly with a tax professional familiar with your personal circumstances.

Understanding the tax brackets

Before diving into the ways to reduce your tax bill, it can helpful to understand the basic tax rates in Israel (All #’s are in NIS). Take note that this is a general overview and these specific numbers may not apply to your situation:

Income tax brackets for salary income (2024):

Salary (per month)	Salary (per year)	Tax rate	Total income tax per year before tax credits (highest)*
0 – 7,010	0 – 84,120	10%	8,412
7,011 – 10,060	84,121 – 120,720	14%	13,536
10,061 – 16,150	120,721 – 193,800	20%	28,152
16,151 – 22,440	193,801 – 269,280	31%	51,551
22,441 – 46,690	269,281 – 560,280	35%	153,401
46,691 – 60,130	560,281 – 721,560	47%	229,203
60,130 and over	721,561 and over	50%	∞

Bituach Leumi & Demei Briut (2024):

Salary per month	Rate (employee)	Tax rate (self-employed)
0 – 7,522	3.5%	5.97%
7,523 – 49,030	12%	17.83%
49,031 and up	0%	0%

Where you invest passively and are not a major shareholder (10% or more ownership), passive income can be taxed at:

Capital gains	Dividends	Interest	Gifts & inheritance
25%	25%	15-25%	0%

For real estate, up to 5,654 NIS per month (2024) of rental income, is generally exempt from taxation.

Child tax credit points

While saving on taxes isn’t a very good reason to have kids…. it doesn’t hurt! Each tax credit point can reduce the amount of tax you pay by about 242 NIS per month. In 2024, Israel added new tax credit points for young children further strengthening this benefit. If you are blessed with a child in 2024 (even at the end of December), make sure to update your employer and/or accountant. Here is a full breakdown of all the credits you may be entitled to in 2024:

Resident	Woman	For each child (Mothers)	For each child (Fathers):	New Olim (from 2022)
2.25	0.5	Birth year: 2.5 Turning one-two: 4.5 Turning three: 3.5 Turning four-five: 2.5 Turning six to seventeen: 2 Turning eighteen: 0.5	Birth year: 2.5 Turning one-two: 4.5 Turning three: 3.5 Turning four-five: 2.5 Turning six to seventeen: 1	First 12 months: 1 Next 18 months: 3 Next 12 months: 2 Next 12 months: 1

Charitable gifting

For every shekel you donate to a registered Israeli non-profit (Seif 46 Aleph), you get 35 agurot back as a credit against any tax you owe/paid.

To get this benefit during the year you made the donation you will likely need to do a Tiyum Mas, though some employers allow you to submit your donation receipts directly. If Dec 31 has passed, you will need to do a Hechzer Mas. A Hechzer Mas can be done on your own, with an accountant, or through tax reporting software like Alfie & Taxon.

If you are self-employed, give the receipts to your accountant.

Limits apply if you donate more than 30% of your taxable income or more than about 9 million NIS and the excess can be carried over for future years.

Gifting appreciated assets for double tax savings

When you donate an asset that has increased in value you kill two major tax birds with one stone:

1. The 35% tax credit – just like any other donation, you get a tax credit based on the value of the asset at the time you donate it.
2. When you donate an asset you avoid all the income tax you would have had to pay had you sold it. For a simple example, let’s say you wanted to donate a stock that you bought for ₪100 that is now worth ₪200. Had you sold it you would owe ₪25 in tax (25% of the ₪100 capital gain). By donating it instead, you avoid the ₪25 tax and get a ₪70 tax credit for a double tax benefit.

Some Israeli organizations are set up to receive gifted stock directly, but most aren’t. This is where a donor advised fund (DAF) can be especially useful. By donating assets directly to a DAF you can get all the tax benefits immediately and then decide which charities you want to receive the proceeds in the future.

Two non-profits in Israel that are offer DAFs where you can donate both cash and appreciated assets are:

• JGive – 50K NIS minimum to open an account with support for donating tradable shares.
• Keshet – 100K NIS minimum to open an account with support for donating many different asset types including shares, real estate, and art.

Maximize your Keren Hishtalmut

Not every employee is offered a Keren Hishtalmut, but if you are, it can be a great way to receive more salary without paying more income tax. No income tax is paid on the employer’s contribution (7.5%) to a Keren Hishtalmut , up to a salary of 15,712 ₪ (as of 2024).

Self-employed can also open a Keren Hishtalmut and can contribute up to 4.5% of your income or 13,202 ₪ (the lower of the two, 2024) and receive a tax deduction, thereby reducing your income tax. (If you are a US citizen, there are other tax considerations which may make opening a KH a bad choice for you.)

Most of all, the money in a Keren Hishtalmut (that was contributed within the tax cap limits) is invested and grows completely tax free in Israel – the only completely tax-free investment account available in Israel. To understand your KH further see our “Ultimate Guide to Keren Hishtalmut.”

Take advantage of your Aliyah Holiday

New Olim get a 10 year exemption from paying tax on all non-Israeli sourced income. This allows for potentially significant tax savings in two areas:

• Investments – maintaining non-Israeli investments can help you avoid paying Israeli tax on capital gains, interest, and dividends for 10 years.
• Work trips – A new Oleh who expects to be leaving Israel regularly or on occasion for work related activities can benefit from significant tax planning opportunities.

See our full guide “What you didn’t know about the aliyah tax holiday” to learn more.

Move to the “periphery”

By establishing residency for 12 consecutive months in a small town far from the center of the country, you may be entitled to a significant tax break. Depending on where live and how much you earn, that tax break can get as high as 20% or 4,400 ILS per spouse per month.

Salaried employees can claim this benefit retroactively after 12 months of residency by updating their 101 form. Self-employed will include this information when they file their annual tax return. See here a full list of towns considered to part of the “periphery” and what break they qualify for.

Fund your Pension

While funding your pension in Israel is not really voluntary, it is worth noting that pension contributions receive significant tax benefits. Up to certain limits, you receive a 35% tax deduction on pension contributions deducted from your salary (6%-7% of your pensionable salary).

In addition, you pay no income tax or Bituach Leumi on employer contributions to pension (6.5%-7.5%) or employee pension contributions to the “Pitsuyim” component of your pension, up to certain caps. This allows a large percentage of your salary to go to work for you & your future retirement before Uncle Shmuel gets his cut. A portion of the future withdrawals you receive from your pension (according to current tax law) will also be tax free.

Besides making sure your employer is paying into your pension properly, there isn’t likely much more you can do in this category to reduce your taxes. Just take note that this money coming out your salary and employer’s pocket and going into your pension has serious tax advantages.

Tiyum Mas

If you are are earning a salary from more than one source, don’t forget this important step! A Tiyum Mas allows an employer to withhold the proper amount of taxes from your salary. Without it, an employer is required to withhold the highest income tax rate from any employees salary who has more than one job.

To complete a Tiyum Mas, first register here, and then fill out this form. After receiving back the Tiyum Mas document from Mas Hachnasa, print and bring to your employer.

Employee equity planning

In high tech Israel, Restricted Stock Units (RSUs) and stock options are a common piece of employee compensation. We hope to publish a comprehensive guide on this topic in the future!

It is worth noting here that significant tax planning opportunities can exist both on deciding when to exercise and when to sell (especially if you are US citizen).

Tax benefits if you are over 60

The rule of thumb goes like this: paying tax down the line is alway better than paying tax today. While this is not true in every case, it tends to be accurate when it comes to retirement savings in Israel (according to the current tax rules).

One key example is that if you are over 60, you are usually entitled to more beneficial rates on passive income. By waiting to realize capital gains until after 60, you can keep your money working for you while hopefully being able to take advantage of the lower tax rates in the future.

In addition, retirees withdrawing from foreign pensions and retirement accounts are usually entitled to preferential 9ג tax treatment. Lastly, US citizens living in Israel can receive social security payments (if eligible) completely tax free in both the US and Israel.

Step up in basis on an inheritance

If you receive an asset as an inheritance from someone who is not an Israeli resident, you may want to apply for a “step up in basis.” You can apply via form 905 to have the Israeli tax authority recognize your cost basis of the asset as it’s fair market value at the time the non-Israeli resident died rather than what he/she originally paid for it.

This can result in significantly lower capital gains tax when you sell the asset, especially if the asset significantly appreciated during the life of the decedent.

Additional tips

• Take advantage of your tax credit points. You may have additional tax credit points if you recently finished the army, graduated from university, have a family member with a disability, or are divorced.
• Check if your employer is covering your tax bill (גילום) for benefits such as gifts. It is common for hitech employees to provide Gilum.
• If you are an employee with a salary below 10,000 ILS you can slightly reduce your taxes by increasing your pension contribution.
• If both spouses work in the family business, you can reduce tax by better balancing the salary between the two of you (if there is legitimate justification for doing so).
• Non-Americans should consider investing in shekel-denominated, Irish-domiciled ETFs. Accumulating funds allow for indefinite tax deferral.

Keep good records!

When it comes to taking advantage of tax deductions, keeping relevant documentation is really important. 3 common examples include:

• Keep those donation receipts. They are worth real money!
• If you are self-employed, you need to keep really good records of all your expenses & receipts. Every expense you incur in pursuit of your business goals is potentially deductible and can reduce your tax bill.
• When you purchase a property, there is a good chance you will one day want to sell it for more than you paid for it. There are many deductible expenses you are likely to incur throughout your ownership of the property that can significantly reduce the amount of capital gains you owe. Keep good records of everything you invested in to the property from the day you bought it until the day you sold it!