1 Income Tax – Reductions and Exemptions Development towns - assistance to residents of development towns where economic conditionsare usually worst than urban areas in the center of the country. Front line towns - towns located near the country's borders receive tax reductions in order to encourage settlement in these areas. Persons of limited means - tax reduction to low income populations. Other deprived populations - benefits for disabled persons, elderly etc. Specific tax benefits - encouragement of specific populations to generate income. for example: working women, discharged soldiers, youth etc. Development towns - assistance to residents of development towns where economic conditionsare usually worst than urban areas in the center of the country. Front line towns - towns located near the country's borders receive tax reductions in order to encourage settlement in these areas. Persons of limited means - tax reduction to low income populations. Other deprived populations - benefits for disabled persons, elderly etc. Specific tax benefits - encouragement of specific populations to generate income. for example: working women, discharged soldiers, youth etc. In order to implement the different goals of the government, the tax burden in Israel is spread differently between citizens:

2 Direct taxes Tax Methods:  The personal method – based on the person generating the income. If the person generating the income is an Israeli resident, the state levies a tax on his revenues, even if they are generated outside its territory.  The territorial method – based on the territory where the income is generated. The state levies tax on income generated within its territory, even if it is generated by foreign residents. The Israeli tax method – the territorial method was used until following a tax reform, the personal method has been adopted and used since Today, therefore, every Israeli citizen is required to pay tax for any revenue generated both in Israel and outside it. Foreign residents are required to pay tax for revenue generated within the Israeli territory. Israel has signed a tax treaty for the prevention of double taxation along with 50 other countries, specifically to prevent Israeli residents from paying taxes twice for their revenues in both those countries and in Israel.

Methods of Collecting Tax  Deduction at source – a tax deducted by employers from employee salaries, and a tax deducted from the revenue of some self employed persons.  Prepayments – tax paid every month (or every two months) by self employed persons and companies. The prepayment amount is usually determined as a percentage of the reported monthly turnover. The size of the prepayment may be increased or decreased during the year.  Assessments – an examination of the reports submitted by taxpayers and an evaluation of their liable income conducted by the employees of the Tax Authority is called an Assessment. Here too, following the examination, additional tax is collected beyond the declared income. Tax collection is conducted under the power of The Tax Ordinance – Collection.

Fees Purchas e tax Levied on purchas e of land in Israel. Purchas e tax Levied on purchas e of land in Israel. Fuel Blo Other surcharges Customs Buying tax VAT

5 VAT (Value Added Tax) - an indirect tax VAT is levied on the added value - the difference between sales and purchases. VAT is an indirect tax levied on a wide variety of products and services (excluding fruits and vegetables, the Eilat region and incoming tourism services). VAT contributes to the sense of equality since it is levied on every liable person. VAT is a very recommended tax, simple and easy to manage and collect.

6 VAT (Value Added Tax) – an indirect tax Disadvantages:  "Encourages" evasion among some service providers (plumbers, technicians, builders, garages, doctors and others).  VAT is a regressive tax. i.e. the lower the income, the higher the percentage of the income paid as VAT. This is because VAT is levied on consumption, and consumption constitutes a larger part of the income in lower income populations (higher income populations save a large part of their income and VAT is not paid for savings).