Companies Income Tax - Palestine

 

Filing:

An income tax return must be filed within four months from year-end. Audited financial statements and reconciliation between financial income and taxable income approved by a CPA should be attached.

Corporate tax is imposed on a company’s net profits, which consist of business/trading income, passive income (except for dividends received from resident companies). Taxable income of resident persons and companies includes foreign income derived from their funds or deposits in Palestine.

Taxable income is computed on an accrual basis, except for interest and commissions on doubtful debts of financial institutions, which are taxable on a cash basis. Taxable income of certain professions is computed on a cash basis in accordance with directives issued by the tax director.

Income Tax Rate on Companies in Palestine is 15% of taxable income, except for telecommunication companies and companies that have monopoly and franchising rights in the Palestinian market, where the applicable tax rate is 20% of taxable income.

A tax on share of profit or cash dividends is 10% deducted from the source of income, but this legal requirement is inactive as of 31/12/2015.

Capital gains – Capital gains derived from the sale of investments in equity securities and bonds are exempt. Capital gains derived from the sale of tangible assets and real property is taxable at the regular corporate rate.

Losses – Tax losses may be carried forward for five years. Such losses do not include unrealized losses from revaluations or losses incurred on transactions that were tax exempt. The law is silent with regard to revaluation gains; however, the general practice of the tax department is to exempt revaluation gains. The carry back of losses is not permitted.

Donation expenses deducted from taxable income are allowed up to 20% of taxable income, after deducting carried over losses and exemptions.

Property Tax:

  • Tax on property is levied at a rate of 17% of the assessed value of rental income.
  • 40% of property tax will be deducted from taxable income as accepted expenses.
  • 60% of property tax will be deducted directly as credit from income tax due.

Tax Advances:

A taxpayer must pay in advance for the current year an amount equal to 100% of income tax imposed on the last tax year finalized, in one payment, four quarterly payments or based on special arrangements with the income tax officer.

Deduction at source:

  1. Organizations must deduct 5% of taxpayer income from interest/ profits/ commission revenues from deposits or 10% of revenues and prizes.
  2. For any payment over Nis 3,000 the payee must present a deduction at source certificate with zero percent tax deduction. The organization alternatively must:-
  • Deduct amount equal to 5% of fees paid for professional services provided by Doctors, Lawyers, Engineers, Accountants and consultant.
  • Deduct amount equal to 10% of any expenses payment other than professional services.
  • Deduct a percentage as stated in deduction at source certificate.
  • The organization or payee must not split the invoices or the payments to avoid obtaining deduction at source certificate.

Penalties will be imposed on taxpayer for the lateness in paying taxes, advances or submitting tax reports and forms to income tax authority.

According to Income tax law article #30 the following encouragement discounts were stated:-

For tax year 2016:-

  1. Discount equal to 8% of tax advances due if the paid within the first two month of 2016.
  2. Discount equal to 6% of tax advances due if the paid in the third month of 2016.

The Tax advances will be determined based on data on tax system, the advances amount could be change based on taxpayer updated data.

The taxpayer must notice that when tax department accept postdated checks the check could take up to two weeks from the date of check to be withdrawn from banks, so taxpayer must be alert to not issue checks at end of discount period as they may lose the discount.

According to Income tax law article #19 the following encouragement discounts were stated:-

For tax year 2015:-

  1. Discount equal to 4% of tax due if the tax report submitted and the tax due paid within the first month of 2016.
  2. Discount equal to 2% of tax due if the tax report submitted and the tax due paid within the second and third month of 2016.