The ITA announced on November 7, 2017, that it will now allow “privileged” municipal authorities to send their residents self-initiated but targeted confirmations of residency in that municipality that will confer tax advantages more easily than before.
According to the tax law an individual whose center of living is in a privileged location are entitled to tax credits of 7% to 20% against earned income from employment or self-employment.
In order to cash in on this benefit, it was previously necessary to fill in an application form (Form 1312), attach verification documents and go physically to the local municipal authority. After checking, the municipal authority would confirm the residency at that location on Form 1312 Alef. An employee would then hand this form to their employer in order to receive the tax break.
The new procedure is meant to be better. It was developed following requests from a number of privileged municipal authorities. Now they can send updated confirmations of residency (Form 1312 Alef) without the residents having to request them physically. The ITA has sent out detailed new rules in this regard to local municipalities and to some employers in Israel.
How valuable is the tax break?
It depends where you live. The ITA’s withholding tax tables list nearly 500 locations. For example, if you live in Carmiel, your tax bill may be reduced by 7% of your income up to an annual income ceiling of NIS 132,000. So if a Carmiel resident earned NIS 100,000 in 2017, his or her tax bill went down by NIS 7,000. (The 2018 withholding tax tables haven’t yet been published but are expected to be similar).
By contrast, a resident of Akko may get a tax credit of 9% on annual income up to NIS 156,000 in 2017. So if in 2017 a Carmiel resident earns NIS 100,000, his or her tax bill goes down by NIS 9,000.
A resident of Revivim may get a tax credit of 10% on annual income up to NIS 162,000 in 2017. So if in 2017 a Revivim resident earns NIS 100,000, his or her tax bill goes down by NIS 10,000.
Under, separate Eilat legislation, there is a 10% tax credit for residents of Eilat on income earned in Eilat of up to NIS 238,000 per year
There’s an 11% tax credit for residents of Kfar Vradim on annual income up to NIS 168,000, a 12% tax credit for residents of Beit Shean on annual income up to NIS 192,000, a 13% tax credit for residents of Metulla on annual income of up to NIS 198,000, a 16% tax credit for residents of Arad on annual income of up to NIS 192,000, a 17% tax credit for residents of Shlomi on annual income of up to NIS 204,000, an 18% tax credit for residents of Mitzpe Ramon on annual income of up to NIS 234,000 and a 19% tax credit for residents of Kiryat Shemona on annual income up to NIS 234,000.
Last but not least, there’s a 20% tax credit on annual income of up to NIS 241,080 for residents of around 53 locations including Sderot, Yad Mordechai, Kfar Aza and Kerem Shalom. ‘
What’s Not On:
Needless to say, we could not find any tax credits for residents of Tel-Aviv, Herzliya, Netanya, Raanana or even Jerusalem.
Can a Tel-Aviv resident take a vacation home in say Mitzpe Ramon and claim a tax credit? The answer is no, the tax credits are only for residents whose center of living is in one of the listed locations. There have been many court cases confirming the principle of the center of living. Each case turns on its own facts.
As always, consult experienced tax advisors in each country at an early stage in specific cases.