(a) This is the standard corporate income tax rate. For other rates, see Section B.
(b) Foreign branches operating in Palestine are taxed like Palestinian companies.
(c) In general, the withholding taxes may be credited against income tax due.
(d) See Section B.
(e) No withholding tax is imposed on interest received from banks. Withholding tax applies to interest payments to nonresidents.
(f) This withholding tax applies to resident and nonresident companies. It applies to payments of higher than ILS2,500 if the vendor does not provide a deduction-at-source certificate.
B. Taxes on corporate income and gains
Corporate income tax. Palestinian companies and branches of foreign companies carrying on business in Palestine are subject to corporate income tax. A company is considered Palestinian if it is incorporated in Palestine. A branch of a foreign company registered in Palestine is treated like a Palestinian company.
Rates of corporate income tax. The standard rate of corporate income tax is 15% of taxable income. Telecommunication companies, franchises and monopoly companies are taxed at a rate of 20%. The tax rate on life insurance companies is 5% of the total life insurance premiums owed to the company. Interest income derived by banks from small and medium-sized entities’ finance programs is subject to income tax at a rate of 10%.
Under the Law for Encouragement of Investments, as amended in 2014, approved companies may pay income tax at the following rates:
• 0% for agricultural projects that realize income from the cultivation of land or livestock
• 5% for a period of five years beginning on the date of realization of profit but not exceeding four years from the beginning of the company’s operations
• 10% for a period of three years after the end of the first phase
• The standard rate after the end of the three-year period
Under Decree No. 14 for 2016, income up to ILS300,000 from agriculture projects is subject to a 0% income tax rate; the remaining income is subject to the standard rate.
An application must be filed with the Palestinian Investment Promotion Agency to obtain approval for these tax benefits.
Capital gains. Capital gains are taxable at the standard corporate income tax rate. However, gains arising from the sale of shares and bonds from an investment portfolio are exempted. The expenses related to these exempted gains are not deductible for tax purposes. These nondeductible expenses are calculated according to a formula in the law and subtracted from the total expenses of the entity.
Administration. Companies must file a corporate tax return by the end of the fourth month after their year-end. All companies must use the calendar year as their tax year, unless the tax authorities approve a different tax year. As a result, tax returns are
imported from the treaty countries have either full or limited customs exemption, depending on the type of goods imported.