Palestinian Authority
ey.com/globaltaxguides
Ramallah GMT +2
EY
Street address:
Mail address: Al-Masyoun
PADICO House Building Ramallah P.O. Box 1373 Palestine Ramallah Palestine
Executive and immigration contacts
Sa’ed Abdallah
Xavier Delaunay
+972 (2) 242-1011
Fax: +972 (2) 242-2324
Email: saed.abdallah@ps.ey.com
+971 (56) 406-1072 (resident in Dubai, Email: xavier.delaunay@ae.ey.com United Arab Emirates)
The exchange rates between the new Israel shekel and the US dollar are USD0.27 = ILS1 and USD 1 = ILS 3.7.
A. Income tax
Who is liable. Unless otherwise stated in the law, income tax in Palestine is imposed on all income realized by any individual in Palestine.
A Palestinian national is considered resident for tax purposes if he or she resides in Palestine for a total period of at least 120 days in a calendar year.
A non-Palestinian national is considered resident for tax purposes if he or she resides in Palestine for a total period of at least 183 days in a calendar year.
Income subject to tax
General. As stated above in Who is liable, all income derived by individuals is subject to tax unless otherwise provided in the law.
Investment income. Under the Income Tax Law amendments in 2014, dividends are subject to income tax. Dividends distributed by companies that are resident in Palestine are subject to withholding tax at a rate of 10%. The Ministry of Finance has put on hold the application of this rate and treats dividends as exempt income. The current treatment is that no taxes are imposed on dividends paid to individuals.
Interest income is taxable.
Rental income is treated as ordinary income and is taxed at the rates set forth in Rates.
Exempt income. The following types of income are exempt from income tax:
• Pension payments or lump-sum amounts paid in accordance with Labor Law. Amounts paid in excess of that required by the Labor Law are taxed.
• Salaries and allowances paid by the United Nations from its budget to its staff and employees.
• Income earned by funds approved by the Minister of Finance, such as retirement, savings, social security and health insurance funds, provided that the exemption is limited to income from the contributions of both employers and employees.
• Compensation paid for work injuries or death and employees’ medical expenses.
• Travel mission or representation allowances that are paid to public or private sector employees, provided that they are spent for purposes of the job.
• Income from jobs or services earned by blind or disabled persons with 50% disability according to the report of the competent medical committee.
• Tax-exempt income pursuant to a special law or a bilateral or multilateral agreement concluded by the national authority.
• Additional amounts that are paid as allowances or bonuses to Palestinians while working abroad in the diplomatic or consular corps. This exemption does not include a cost-of-living allowance.
• The wages of non-Palestinian staff of the diplomatic or consular corps who represent other countries in Palestine, subject to reciprocal treatment.
• Income earned abroad unless originating from taxpayers’ funds or deposits in Palestine.
• Inheritances, except for revenues generated from inherited properties.
• The income of cooperative associations in relation to their transactions with their members.
• Severance payments that are paid according to the legislation in force and not exceeding one month for each year.
• Tax refunds resulting from settling previous years.
Capital gains and losses. In general, capital gains are taxable. An exception is the exemption for gains derived from the sale of financial securities from an investment portfolio, but a certain percentage of the entity’s expenses must be added back to income as disallowed expenses.
Deductions
Personal deductions and allowances. Nationals and foreigners who are considered residents are granted the following annual allowances that are deductible.
• Residency allowance in the amount of ILS36,000
• A one-time allowance in the amount of ILS30,000 for the building or purchase of a house, or an allowance for actual interest paid on a housing loan for a maximum of 10 years, up to a maximum of ILS4,000 per year
• The lesser of actual transportation expenses or 10% of gross salary
• University student exemption for the individual himself or his spouse or his children in the amount of ILS6,000 annually, with a maximum of two students
• An employee’s contributions to retirement plans, provident funds, medical insurance or other funds approved by the Minister of Finance
Business deductions. All business expenses incurred in generating income are deductible. However, certain limitations apply to
donations, write-offs of accounts receivable, and hospitality and training expenses.
Rates. Personal income, net of deductions, is subject to income tax at the following rates.
150,000 15 —
Withholding tax. Payments made by resident taxpayers to nonresident individuals or companies who are subject to tax under the provisions of the tax law are subject to withholding tax at a rate of 10% of the gross amount paid.
All governmental agencies and shareholding companies that pay rent to local persons and make payments to local providers of services and suppliers of goods should request a Deduction at Source Certificate. Payments exceeding ILS2,500 are subject to withholding tax at the rate stated in the certificate. If the beneficiary does not provide a Deduction at Source Certificate, payments are subject to withholding tax at a rate of 10%.
Relief for losses. Losses may be carried forward and deducted from future profits for five years if the individual maintains proper accounting records. Losses cannot be carried back.
B. Other taxes
Property tax is levied on the assessed rental value of real property at a rate of 17%. Twenty percent of the assessed or rental value is deducted from the tax base.
C. Tax filing and payment procedures
The tax year in Palestine is the calendar year. Tax returns must be filed in Arabic using a prescribed form within four months after the end of each calendar year. The total amount of tax due must be paid at the time the return is filed.
Married persons can be taxed jointly or separately on all types of income. However, if they decide to be taxed separately, the housing allowance (see Section A) is granted to only one of them.
The tax regulations provide incentives to taxpayers who make advance tax payments. These taxpayers are entitled to the following credits (approved by the Minister of Finance at the beginning of each tax year):
• 7% on payments made in the first and second month of the calendar year.
• 5% on payments made in the third month of the calendar year.
In addition, the following special incentives are granted to taxpayers who pay the tax due and file their tax returns within the filing period.
Month of payment
First month 4
Second and third months 2
A resident individual is exempted from filing for income tax if the individual does any of the following:
• Undertakes business for which annual sales or revenues do not exceed ILS50,000
• Derives income only from salaries
• Undertakes agricultural activities and his or her annual sales or purchases do not exceed ILS30,000
• Generates income from property rentals that does not exceed ILS30,000 annually
D. Tax treaties
The Palestinian Authority has entered into double tax treaties with Ethiopia, Jordan, Serbia, Sri Lanka, Sudan, Türkiye, the United Arab Emirates, Venezuela and Vietnam.
The Palestinian Authority has initialed a tax treaty with Oman. Tax treaty negotiations are underway with Turkmenistan.
E. Temporary visas
All visitors must obtain entry visas to visit Palestine. Nationals of Canada, the United States and Western European countries may obtain a three-month temporary visa at the time of entry.
An exit fee may be required, depending on the port of exit.
F. Work permits
Individuals of all nationalities must apply for working permits if they want to work in Palestine. Work permits are issued by the Ministry of Interior.
An applicant may not begin working in Palestine before obtaining a work permit. Work permits may not be transferred from one employer to another; therefore, if an employee changes employers, the previous work permit is canceled, and the worker must apply for a new permit.
Foreign investors may engage in almost any type of economic activity. The Palestinian Authority does not limit foreigners’ investments, except for certain sectors, including energy, manufacturing of firearms, oil and gas, which require prior approval. In addition, foreign ownership of a public shareholding company may not exceed 49%.
Foreign investment for the establishment of a new company requires prior registration and authorization from the Palestinian Ministry of National Economy. To register and obtain authorization, the articles of incorporation, bylaws and board of directors’ authorization must be filed, and a resident representative must be appointed.
G. Family and personal considerations
Family members. The spouse of a foreign national with a work permit does not automatically receive the same type of work permit as the primary applicant. He or she must file independently for a work permit to work in Palestine.
Driver’s permits. Foreign nationals in Palestine may exchange their home countries driver’s licenses for a Palestinian license after passing a simple driving test.