SIGNIFICANT DEVELOPMENTS
As form January 1, 2000, sales tax at rates of up to of 2.5% will be generally applicable to the sale of most real estate rights.
TERRITORIALITY AND RESIDENCE
Israeli-resident individuals are subject to taxation on Israeli-source income(i. e., income accrued in, derived from or received in Israel). The individual taxpayer is given relief for foreign taxes paid either in accordance with the relevant double taxation treaty or unilaterally. In addition, certain income, although from foreign sources,is deemed to be Israeli-source income in the hands of a resident,namely the following,
1. Income from a profession or vocation that an Israeli resident generally conducts in Israel. For these purposes, a change in the character of the income(e. g., business income vs. Employment income or vice versa) generated from the same vocation would not be considered a change in the vocation itself.
2. Income of an Israeli-resident employee from work performed outside of Israel for an Israeli resident employer within four years from the employee's from Israel. If the work is of the same nature as that in which the employee was engaged in Israel, the income is taxable even if the four years have elapsed. The four-year limit also does not apply if the employer is the state of Israel or a specified quasi-government body.
3. Profits from a business controlled and managed in Israel.
4. Capital gains that accrue to an Israeli resident outside of Israel(in respect of assets held outside Israel), even if the proceeds are not remitted to Israel.
Nonresident individuals are subject to income tax on Israeli-source-income and to capital gains tax on capital gains from assets situated in Israel, as well as the profits of a business controlled and managed in Israel. They are also subject to tax on income arising abroad and received in Israel, unless the income is received by a person who is in Israel for some temporary purpose only without any intention of establishing a permanent residence in Israel and who during the tax year has not actually resided there, whether continuously or with interruptions, for a total of more than six months. A nonresident can be assessable and chargeable to tax in the name of a trustee, guardian, committee, attorney, factor, agent, receiver, branch, or manager, irrespective of whether such appointee is in receipt of the relevant income.
The Israel Income Tax Ordinance defines a ＂resident＂as :＂an individual who resides in Israel except for such temporary absences which to the assessing officer may seem reasonable and not inconsistent with the claim of such individual to be resident in Israel.＂In practice, all circumstances relating to the question of residence of the taxpayer should be examined, including such factors as birthplace, ownership of property in Israel, close family residing in Israel, the type of visa used for entry into Israel, the taxpayer's own representations, military service, the nature of the taxpayer's living quarters in Israel, and, above all,the length of time spent in Israel. If these and any other relevant factors show that home has been established in Israel, then the taxpayer will be considered resident for tax purposes.
Should an individual be deemed an Israeli resident at the same time resident of another country, the tie-breaker teats set out in the applicable treaty will determine in which country the employee will be viewed as resident. Generally, the treaties focus on factors relating to where the person's permanent home is maintained in which country the person's personal and economic relations are closest(＂center of vital interests＂test) and in which country the person is a national.
For several years a ＂days-test＂formula residency has been under consideration by the tax authorities, and this approach has now been formally proposed in draft legislation published on July 20,1998. The Israel Income Ordinance defines a nonresident taxpayer as being anyone other than a person resident in Israel. It elaborates on this definition by including inter alia, any person who is in Israel for some temporary purpose only, as described above.
GROSS INCOME
Employee gross income/All remuneration derived from employment, including allowances paid to an employee for cars, clothes, transport, professional literature, and the like, are taxed as ordinary income. If the interest rate charged on loans to employees ins less than the rate of increase in the consumer price index(CPI)(with an addition of 2% annual interest), the resulting benefit for each month in which these loans are outstanding (i. e., the difference between actual interest charged and the increase in the CPI plus interest) is also taxed as ordinary employment income. The prescribed value of the regular use of a company car is considered to be income of the employee. Any benefit arising from exercising a right or option at a
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