Income Tax - What is Income Tax?

Income tax is a direct tax imposed on individuals, whether they are natural persons or legal entities such as companies, who engage in professions, business activities, or services, and whose income exceeds a certain amount of money in a year. The state deducts a portion of individuals' profits if it exceeds a certain threshold.
This government service complies with the provisions of Article 2 of Law No. 8 of 2011 and its amendments regarding income tax. According to this law, every individual engaged in any activity or business within Palestine is required to register with the Income Tax Departments from the start of the activity or business, regardless of the size of the activity. Additionally, any income realized by a Palestinian individual outside Palestine and derived from their funds or deposits in Palestine must also be subject to registration to comply with the law and avoid legal penalties associated with non-registration.

 Registration Location:
This service is provided through the Income Tax Offices located in all the governorates of the country, in addition to the Collection and Computer Directorate located in the building of the General Directorate of Income Tax in Ramallah, which is responsible for registering the activities of non-profit organizations.

Requirements for Opening a Tax File:

• Name of the file owner, whether they are a natural person or a legal entity.
• ID. Card number or passport for the taxpayer if they are a natural person, or the registration number in the Companies Registry issued by the Companies Registrar if the taxpayer is a legal entity.
• Nature of the business or activity that the taxpayer will engage in.
• Date of commencement of this business or activity.
• Detailed address of the taxpayer's business and activity.
• Name of the authorized representative of the taxpayer, if applicable.
• The number of the taxpayer's workers and employees in terms of their numbers and average salaries.
• Signature of the taxpayer or their authorized signatories on the application.

 Attachments for opening a tax file application: 

• A copy of the individual's ID. Card or passport issued by the official authorities.
• Certificate of registration from the companies controller concerning public shareholding and private limited companies.
• A lease contract is certified by the tax department if available.
• Valid and explicitly signed authorization from the individual file holder or the Commissioner of the shareholding Company as stipulated in the memorandum of association and bylaws.
• Owners of commercial and general vehicles shall bring the contract of a waiver approved by the Department of Traffic or a valid license for the vehicle.
• Open a withholding file if there are users or withholding tax from the source.
• License of professions and crafts.
• Professional certificate for self-employed persons.

Implementation phases:

• Receiving the file opening application  from the taxpayer or their authorized representative, verifying the accuracy of its completion and attachments, and signing it by the receptionist in the department.
• Submit  the file opening application  and its attachments officially and providing the applicant with a stamped copy.
• Sending the file opening application  to the designated officer responsible for the taxpayer's profession, including all necessary procedures for opening a new file for the taxpayer both in paper and electronically.
• The applicant shall receive a file opening notification starting from the date of commencing business activity. The file number shall be based on the identity card or passport number for natural persons, and the registration number shall be based on the registration certificate from the Companies Controller  Department for legal entities.

Income Tax Deductions for Individuals:

• 36,000  NIS for resident taxpayers.
• The actual amount paid, as a fixed transportation allowance for public sector employees.
• The actual amount paid as transportation allowance or (10%) of the total annual salary for private sector employees.
• University exemption of 6,000 NIS annually, except for those receiving scholarships or grants.
• Exemption for the purchase or construction of a residential home worth 30,000 NIS once only, or exemption from the actual interest paid on a bank loan or housing institution spent on purchasing or building a residence, up to a maximum of 4,000 NIS annually for a maximum of 10 years, provided that supporting documents are provided.

Tax Exemptions for Individuals:

• Capital gains derived from the sale of properties are exempt from taxes.
• Capital gains derived from the sale of investments in securities are exempt from taxes.
• Taxes on labor income must be withheld by the employer and remitted to the tax authority.

Companies Income Tax:

• A company is considered resident if it is incorporated, managed, or controlled in Palestine.
• Taxable income ranges from 15% to 20% based on net corporate profits and the type of company.

Deductions on Corporate Income Tax:

• Expenses for exploring new markets, not exceeding 2% of total income and up to a maximum of 500,000 NIS.
• Actual expenses for internal research and development, scientific research, and collaboration with scientific institutions for development purposes.
• Training expenses for employees.
• Actual expenses for adopting Palestinian standards and specifications, and optimal application of enterprise management, including the development of electronic accounting systems and adoption of international accounting standards.
• Hospitality expenses.

Tax Exemptions for Companies:

• Capital gains derived from the sale of properties.
• Capital gains derived from the sale of investments in securities.
• Carrying forward losses for up to 5 years, but losses cannot be carried forward again.