A capital gain is the profit created on the sale of equipment that is not trading stock of the business, so, for example, if your business is a law office and you sell a computer at a profit, the profit is a capital gain.
On the other hand, if you are the owner of a store that sells computers, the sale of these computers is normal income and not a capital gain.
Types of Capital Gains
In calculating the profit, a distinction is made between inflationary profit which reflects the increase in value in terms of inflation from the date of purchase until it is sold.
The real profit is that reflected by the profit in excess of the cost of the asset sold, after it has been adjusted for inflation.
The rate of tax: From 1.1.94, there is no tax obligation on inflationary capital gains for assets, including unlisted shares ,bought after 1.1.12 the real capital gain is subject to 25% tax rate.
If the share seller has control of 10% or more in the company, the tax rate is 30%.For assets and unlisted shares bought before 1.1.12 the tax is calculated according to the marginal tax rate for the period till 31.12.02, 20%/25% for the period 1.1.03-31.12.11 and 25%/30% for the period from 1.1.12 onwards.
The law makes the payment of an advance on income tax compulsory on a capital gain within 30 days of the date on which the asset is sold.
Spreading the Capital Gains
The Law allows you to spread the capital gain over 4 years, ending in the year of the sale. This relief is significant if in the 3 years preceding the sale, you did not have a taxable income or if you paid tax at a low rate.
Capital Gains of an Overseas Resident in Israel
If you are resident overseas and sell an asset in Israel or, in the case of a transaction conducted outside Israel, you sell an asset that is located in Israel, you will be liable for capital gains tax on this income.
Setting Off a Capital Gain
A real capital gain may be offset against a business loss in the year in which the gain was created, or against a business loss in previous years. Similarly, you may offset a capital gain against a capital loss.
The principles of taxation of real estate sales, in those instances in which the sale is taxable, are very similar to that mentioned above in connection with capital gains.
Israel Investment Income
Income from sale of listed shares is taxed at 25% for individuals holding less than 10% of the shares, or 30% for shareholding of 10% or more.
Non-residents selling Israeli shares bought from 1.1.2009 onwards are exempt from capital gain tax on the sale of the shares subject to certain terms.
Dividend income for individuals is taxed at 30% rate.
If the shareholding is less than 10% the tax rate is 25%.
Dividend received by an Israeli company from another Israeli company is tax exempt subject to terms.
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