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Taxes

In an effort to improve the income tax system and reduce the tax burden on individuals, the State of Palestine passed new legislation on income tax brackets for individuals and companies in 2004, followed by a presidential decree to amend the income tax law No.8 for 2011. For companies, this is a change from a 20% rate to a 15% flat rate. For individuals, this is a significant change from a progressive bracket of 5-20% to 5-15%. The following sections briefly outline the taxation laws.

Individual Income Tax Rates
Corporate Income Tax Rate
Foreign Dividend Tax
Value-Added Tax (VAT)
Other Taxes

Individual Income Tax Rates

A new income tax law has been drafted and was passed in 2001, followed by a new amendments on the income tax law as presidential decree No. 8 for 2011. Income tax is withheld at source from salaried employees and individuals earning wages. Personal credits and other deductions, which the employee may be due, are factored into the calculation. If the annual income of the individual taxpayer is below the low-income tax-exempt status (adjusted annually), the taxpayer is exempt from filing an annual tax report.
The tax rates payable by Palestinian residents as of 2011 are as follows:
Annual Income, NIS Income Tax Rate
Annual Income, NIS
Income Tax Rate
1 - 75,000
5%
75,001-150,000
10%
150,001 and up
15%


Special exemptions and/or credits are given to the unemployed, spouses, children, dependents and university students. The above tax rates are calculated before the applicable tax credits are applied.
Employers are required to withhold tax from salaries paid to employees. The employer is required to report and to remit the withholding tax on a monthly basis.

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Corporate Income Tax Rate

Palestinian companies and businesses are primarily subject to a 15% tax on income, Excluding telecommunication companies and pure monopolistic companies in the Palestinian market whic is primarily subject to a 20% tax on income. Losses, equipment depreciation, and business expenses are also factored into the calculation of taxes.
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Foreign Dividend Tax

A 15% tax is withheld at source from dividends distributed in Palestine to shareholders of a foreign company. There are, however, no taxes due on dividends distributed to shareholders of Palestinian companies regardless of where they live or their nationality, and regardless of whether they are an individual or a company. An automatic deduction at the source of 25% is withheld from companies, unless companies or individuals obtain a Deduction at the Source Certificate, which grants a reduced rate that ranges between zero and five percent. Applications for these certificates are available from the district tax offices.
VAT is a consumption-based tax imposed on all local goods and services at a rate of 16%.
VAT Categories:
VAT Refunds:
VAT Exemptions:
• Large companies employing more than one employee with annual sales in excess of U.S. $50,000 pay 16% VAT. Companies that fall under this category can issue a VAT invoice.

• Small companies employing more than one employee and whose annual sales do not exceed U.S. $50,000 pay 16% VAT. Small companies do not have the right to issue a VAT invoice. 

•Companies with annual revenues that do not exceed U.S. $12,000 are exempt from VAT payments. These companies must declare their sales, on a self-assessed report, at the end of the tax year. 

•Financial institutions, such as banks and insurance companies pay a 16% VAT on employee salaries each month, and a 16% VAT on profits generated semi-annually or annually. 

•Non-profit organizations are exempt from paying VAT. 

•Importers pay 16% VAT on the value of imported goods. This may be deducted as input tax when the VAT is declared to the VAT administration. 
• Large companies are authorized to collect the VAT with their sales and deduct and equal amount from the VAT remitted to the government for their purchases. 

• Small companies are authorized to collect the VAT and deduct an equal amount from the VAT to be paid on purchases from large companies. 

•All VAT paid for business start-up costs will be refunded within one to six months of submission of the receipts. 

•If there are no sales transactions during the month, the business is not required to remit the VAT. 

•All refunds can be in the form of either cash or credits. 

•There is no VAT on exports. 
• Exemptions from VAT are given to projects supported by the Palestinian Authority such as investments in financial institutions, preschool education, research and development projects, transportation projects, infrastructure projects, and food processing projects.
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Capital Gains Tax 
Businesses and companies are not assessed for capital gains tax.

 

Tax for Service Contracts 
Income generated or earned from contracts entered into for the provision of services is taxable.
 
Dividends, Leases and Royalties
Dividends paid out of profit are taxable. Dividends paid after redistribution of capital are exempt. Royalties are not exempt. Lease payments are not exempt. Retained profits are exempt only if reinvested.
 
Purchase Tax 
Purchase taxes are payable by manufacturers or importers at the port of entry on certain consumer products specified by law. Products that are manufactured for export are exempt from the purchase tax. Purchase tax is imposed at a rate of 5% to 95% depending on set rates and the type of good.
 
Gift and Inheritance Tax 
There are no taxes paid on gifts or inheritance in Palestine
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