Il Income Tax Returns

Israel Income Tax Returns Skill v1.0

General reference only. This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

Based on work by Skills IL, licensed under MIT. Adapted for the OpenAccountants format.

Section 1 — Quick reference

Conservative defaults

Section 2 — Return types and deadlines

CPA-represented filers typically receive automatic extensions through the CPA association's quota arrangement with the ITA (often to September 30 or later).

Section 3 — Who must file Form 1301

• Self-employed individuals (Osek Murshe or Osek Patur)
• Individuals whose gross salary exceeded NIS 721,560 (surtax threshold)
• Individuals with income from multiple employers
• Individuals with foreign income or assets abroad exceeding reporting thresholds
• Anyone who received capital gains during the tax year
• Individuals who received rental income exceeding the exempt threshold

Section 4 — Income tax brackets (2026)

Brackets 1–2 and 6 frozen at 2025 values; brackets 3–5 expanded by the Economic Efficiency Law 2026 (approved March 30, 2026, retroactive to January 1, 2026):

Monthly equivalent brackets

Section 5 — Surtax (Mas Yesafim — מס יסף)

Two-tier system from 2026:

From 2026, Mas Shevach (real estate capital gains) on investment properties is included in the surtax income calculation.

The NIS 721,560 threshold is frozen through tax year 2027 — do not apply CPI uplifts.

Section 6 — Nekudot Zikui (נקודות זיכוי — Tax credit points)

Each point reduces the annual tax liability by NIS 2,904 (approximately NIS 242/month). Frozen 2025–2027.

Worked example

Married woman (2.75 points) with two children aged 3 and 7 (2.5 + 1.0 = 3.5 points):

• Total: 6.25 points × NIS 2,904 = NIS 18,150 annual tax reduction

Section 7 — Pension contribution credits

7.1 Section 45א — 35% tax credit (Zikui)

• Reduces tax liability directly by 35% of qualifying pension contribution
• Applies to both employees and self-employed
• Employee ceiling: qualifying contribution up to 7% of eligible salary (capped at NIS 23,232/month for 2026)
• Self-employed ceiling: 5.5% of business income

7.2 Section 47 — Pension deduction (Nikui)

• Reduces taxable income by the contribution amount
• Self-employed can deduct up to 11% of annual business income (capped at qualifying ceiling)
• Employee contributions above the 7% Section 45א threshold can qualify

7.3 Combined rule

The same shekel cannot double-count. Self-employed filers typically structure deposits so part qualifies for 45א (credit) and part for 47 (deduction) within the 16.5% combined ceiling.

Worked example (self-employed, NIS 300,000 annual income)

Section 8 — Rental income tax tracks

Israeli law offers three options for taxing residential rental income:

Section 9 — Capital gains

9.1 Real estate (Mas Shevach — מס שבח)

Filing: Within 30 days of sale (40 days if requesting exemption).

Calculation:

Sale price
− Original purchase price (adjusted for CPI)
− Allowable deductions (purchase tax paid, legal fees, agent commission, renovation costs with receipts)
= Real capital gain (Shevach Re'ali — שבח ריאלי)
× 25% tax rate
= Mas Shevach payable

Single apartment exemption (Ptur Dira Yechida — פטור דירה יחידה):

• Seller's only residential property in Israel
• Owned for at least 18 months
• Sale price below NIS 5,008,000 (2024–2027, frozen)
• Seller is an Israeli resident
• Partial exemption applies proportionally above the ceiling

Linear method (Shita Liniarit — שיטה ליניארית): For properties purchased before January 7, 2014, only the portion of gain attributable to the period after that date is taxed at 25%. The pre-2014 portion may be exempt or taxed at a lower historical rate.

9.2 Securities (Forms 1322/1325)

• 25% tax rate for individuals on traded securities
• 30% if seller holds 10%+ of the company
• Losses can offset gains within the same category in the same tax year
• Capital losses carry forward to offset future capital gains (but not ordinary income)

Section 10 — Advance tax payments (Mikdamot — מקדמות)

10.1 How they work

• The ITA sets a percentage rate based on prior year returns
• Applied to bi-monthly turnover (total revenue excluding VAT)
• New businesses receive a percentage based on industry statistics

10.2 Payment schedule

10.3 Year-end reconciliation

• Mikdamot paid > actual tax → refund (Hechzer Mas — החזר מס)
• Mikdamot paid < actual tax → difference owed (plus possible interest)
• Rate adjustment available mid-year if income changes significantly (Shinui Shiur Mikdamot — שינוי שיעור מקדמות)

Section 11 — Corporate tax

Section 12 — Form 6111 (standardized financial statements)

Required for any business with annual turnover exceeding NIS 300,000 (including VAT).

Section A: Profit and Loss Statement

• Revenue by source, COGS, operating expenses, financial income/expenses, depreciation, net profit, tax adjustments

Section B: Balance Sheet

• Current assets, fixed assets, current liabilities, long-term liabilities, equity

All amounts in NIS. Must match audited financial statements exactly. Submitted electronically via Shaam.

Section 13 — Filing via Shaam online portal

1. Register at misim.gov.il with Teudat Zehut (תעודת זהות) or company number
2. Set up digital credentials (username + password + 2FA)
3. Select the relevant form and tax year
4. Enter data or upload from accounting software
5. System validates data and flags errors
6. Review calculated tax liability
7. Submit electronically (receive confirmation number)
8. Pay any tax owed via the payment portal

CPA authorization (Yipui Koach — ייפוי כוח): Granted per-client, per-year via the Shaam portal. Allows CPA to submit returns and communicate with the ITA on behalf of the client.

Section 14 — Worked examples

Example 1 — Freelancer annual return (Form 1301)

Scenario: Male freelance developer (Osek Murshe), annual business revenue NIS 450,000, business expenses NIS 80,000, two children aged 4 and 8.

Working:

• Net business income: NIS 450,000 − NIS 80,000 = NIS 370,000
• Credit points: 2.25 (resident) + 2.5 (child age 4) + 1.0 (child age 8) = 5.75 points
• Tax credit: 5.75 × NIS 2,904 = NIS 16,698
• Income tax (applying 2026 brackets to NIS 370,000):
  • 10% on 84,120 = NIS 8,412
  • 14% on 36,600 = NIS 5,124
  • 20% on 107,280 = NIS 21,456
  • 31% on 73,200 = NIS 22,692
  • 35% on 68,800 = NIS 24,080
  • Gross tax: NIS 81,764
• Less credit points: NIS 81,764 − NIS 16,698 = NIS 65,066 income tax
• Less mikdamot paid during year → net tax due or refund

Example 2 — Real estate capital gains (Mas Shevach)

Scenario: Investment apartment sold for NIS 2,800,000, purchased in 2018 for NIS 1,600,000.

Working:

• Gross gain: NIS 2,800,000 − NIS 1,600,000 = NIS 1,200,000
• Adjust for CPI change from 2018 to sale date
• Deduct allowable expenses (purchase tax, legal fees, agent commission, documented renovation)
• Real gain × 25% = Mas Shevach payable
• File within 30 days of sale
• Check surtax: if total annual income exceeds NIS 721,560, additional 5% on capital gain portion above threshold

Section 15 — Common errors

Section 16 — Reference material

Disclaimer

חשוב: כל המידע בקובץ זה מיועד למטרות מידע וחישוב בלבד. יש לבדוק כל עמדה מול רואה חשבון (Ro'eh Cheshbon) או יועץ מס (Yo'etz Mas) מוסמך לפני הגשה או פעולה.

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional — such as a רואה חשבון (Ro'eh Cheshbon — CPA) or יועץ מס (Yo'etz Mas — tax advisor) licensed in Israel — before filing or acting upon.

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Source: OpenAccountants — open tax Guides for AI, reviewed by named CPAs/CAs/EAs. Quality: source-cited draft. For always-current figures and named-accountant backing, connect the OpenAccountants MCP server (openaccountants-mcp).