Israeli corporate tax applies to both Israel-registered companies and international companies with a branch in Israel. A foreign company is subject to Israeli corporation tax only on accrued or inferred income in Israel, while an Israeli-basedcompany is subject to Israeli corporation taxes on income accrued or earned inIsrael and worldwide. The Income Generation Guidelines specify when income isassumed to come from an Israeli source.
In 2022, the corporation tax rate will be 23% (same as 2021).
A minority corporation, according to Section 62A ITA, is owned or controlled by no more than five individuals (regarding certain relatives). This paragraph is designed particularly for situations in which a minority company employee ("Person") provides management or management-related services to another company. In such a circumstance, the revenue will not be taxable to the minority company but will be taxed to the individual as employment income,business income, or other income, depending on the circumstances.
The employment income classification applies if 70% or more of the minority company's total income or taxable income in the tax year is derived from services performed by the individual or the individual's relatives over four (4) years, or if the individual's services performed for the other company are of the type performed in an employer-employee relationship.
Foreign resident corporations may be exempt from corporation tax if their operations do not qualify as a permanent establishment under the appropriate double taxation treaty between Israel and the state of foreign residency.
The definition of PE under a relevant tax treaty is far clearer than whether a non-resident has ataxable presence under Israeli domestic tax law. A non-resident is normally subject to taxes on income earned or generated in Israel in the absence of taxtreaty protection.
Withholding taxes on income from Israeli sources are generally deducted at the corporate income tax rate on all transfers of income abroad under Israeli national tax laws unless an ITA tax certificate is available showing the withholding of exempt transfers or a reduced tax rate under an applicable tax treaty.