This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
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Chapter 21. Israel
Abstract
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
21.1. Overview
With limited water resources and arable land Israel’s agricultural sector is characterised by an intensive production systems which combine agri-technological advancements to increase production levels. In 2017, 1% of the labour force was employed in agriculture and the agricultural GDP amounted to 1.3%. Specific tax benefits for agricultural income exist mostly reducing the tax rates applied to taxable income from the sector.
Over 80% of Israel’s agriculture is based on cooperative foundations (the kibbutz and the Moshav), using nationally owned land under a long-term renewable 49‑year leases. The “kibbutz” (based on the Hebrew word for “group”) is a rural community generally comprising several hundred inhabitants involved in cooperative production on land ranging in size from 300 to 700 hectares. The major economic activities of the kibbutz are agricultural production, industry, agro-tourism and services. Over the years, the share of agriculture in the economy of the kibbutz has declined, and now most kibbutz income comes from non-agricultural activities.
The other major farming community, the Moshav, comprises 50 to 120 individual family farm units, which like the kibbutz, is formally defined as an “agricultural cooperative".
A third type of rural community is the non-cooperative Moshava, a community of farmers who mostly live on privately owned land. Some Moshava farmers have organised themselves as an agricultural association in order to provide the members with certain services such as sorting, packing, processing, operating packhouses and wineries.
The overall number of rural communities in Israel rose from 769 in 1961 to 966 in 2016.
21.2. Income taxation
Income tax is levied according to the Israeli Income Tax Ordinance, 5721-1961 (ITO). The ITO contains rules for corporate income tax, individual income tax as well as for the administrative aspects of taxation.
As of 2019, corporations in Israel are subject to a tax rate of 23%.
Individuals are subject to progressive personal income tax rates ranging from 10% to 47%. An additional tax for high income earners (in excess of ISL 649 560) is charged at a rate of 3%. Special tax rules apply with regard to passive source income, rental fees, persons aged over 60 years old, new immigrants and returning residents. An Israeli individual resident taxpayer may reduce their taxable income in accordance with the tax brackets and rates by using various allowable credits.
Personal and corporate income taxes are levied on the worldwide income of individuals or companies who are Israeli tax residents. Non-residents are taxed on Israeli-source income. An individual is an Israeli tax resident if “centre of life” of that person is located in Israel (s. 1(a) ITO). A company is considered as Israeli tax resident if it is incorporated in Israel or it is managed and controlled from Israel (s. 1(b) ITO).
Foreign residents are liable to tax on income generated or derived in Israel, subject to source rules and the respective double taxation treaties. Permanent establishments of foreign companies are generally taxed on Israeli-source income only. The Israeli income tax system includes special rules with regard to foreign professional companies, controlled foreign companies and foreign occupational companies enabling Israel to tax foreign source income in Israel under the defined circumstances.
Capital gains, defined as the excess of proceeds from the sale of an asset over its depreciated cost, are taxed at a rate of 25% or 30% based on ownership interest holding with respect to individuals and at the standard income tax rate of 23% with respect to companies.
Agriculture income is considered as any other business income. Specific tax benefits are granted to agriculture income in accordance with the Law for Encouragement of Capital Investment in Agriculture, 1980. These benefits include:
Accelerated depreciation for equipment and buildings. (Art. 31,32)
Reduced tax rate for five years on dividends from an agricultural enterprise of 20% instead of 25% or 30%. (Art. 33(b))
Reduced personal income tax with the top bracket subject to a tax rate of 30% instead of 47%. (Art. 33(c)(d))
Foreign resident experts invited to render services to an agricultural enterprise are subject to reduced tax rate with the top bracket subject to a tax rate of 25% instead of 47%. This benefit exists for three to five years. (Art. 35(a))
Qualifying agricultural companies enjoy a 5-year tax holiday. However, corporate tax is collected upon payment of dividends from the exempt revenue in addition to tax imposed on the dividends at a rate of 20%. (Art. 35A(a)(c))
21.3. Property taxation
There is no special property tax treatment for agriculture.
There is no gift tax or inheritance tax in Israel.
The government levies an acquisition tax on purchases of real estate between 0% and 10% for a first apartment and 5% and 10% for a second apartment.
21.4. Tax on goods and services
A valued added tax (VAT) of 17% is applied to certain goods and services. Fresh fruit and vegetables have a VAT rate of 0%.
21.5. Environmental taxes
There are no tax provisions used to improve the environmental impacts of agriculture-related activities applied in Israel.
21.6. Tax incentives for R&D and innovation
There is no distinction for agricultural R&D activities. Under the Law for the Encouragement of Capital Investment there are tax benefits for enterprises that contribute to the development of the productive capacity of the economy by generating industrial income. These tax incentives can apply to the income generated from intellectual property developed by plant breeding companies provided that they meet the necessary requirements.
21.7. Other taxes
Israel does not provide any tax concessions to the agriculture sector through its social security system.