Name: OpenAccountants MCP Server
Author: OpenAccountants

Israel Income Tax Returns Skill v1.0

Based on work by Skills IL, licensed under MIT. Adapted for the OpenAccountants format.

Section 1 — Quick reference

Quick reference table

Field	Value
Country	Israel (מדינת ישראל)
Scope	Annual income tax returns for individuals and companies
Currency	NIS (Israeli New Shekel — ₪)
Tax authority	Israel Tax Authority (ITA — Reshut HaMisim — רשות המיסים)
Filing portal	Shaam Online — https://www.misim.gov.il
Individual return	Form 1301 (דוח שנתי ליחיד)
Short return (salaried refund)	Form 135 (דוח שנתי מקוצר)
Corporate return	Form 1214 (דוח שנתי לחברה)
Corporate tax rate	23% flat
Surtax threshold	NIS 721,560 (frozen 2025–2027)
Credit point value	NIS 2,904/year (NIS 242/month) — frozen 2025–2027
Contributor	Open Accountants Community
Validated by	Pending — requires sign-off by Israel-licensed רואה חשבון or יועץ מס

Conservative defaults

Conservative defaults table

Ambiguity	Default
Unknown filing obligation	Assume filing is required
Unknown bracket year	Use the most recent confirmed brackets
Unknown credit points	Apply base resident points only (2.25 male / 2.75 female)
Unknown rental income track	Apply marginal rate (most conservative; highest potential tax)
Unknown capital gains holding period	Apply 25% rate (no reduced rate exists in Israel regardless)

Section 2 — Return types and deadlines

Return types and deadlines table

Form	Hebrew	Who files	Deadline	Frequency
1301	דוח שנתי ליחיד	Individuals, sole proprietors, freelancers	June 30 online; May 31 paper (for tax year 2025 filed in 2026)	Annual
135	דוח שנתי מקוצר	Salaried individuals claiming a refund	Within 6 years of the tax year end (Section 160)	On demand
1214	דוח שנתי לחברה	Companies (Chevra Ba'am, Chevra Pratit)	May 31 (5 months after year end); extensions available	Annual
126	דוח מעסיק על משכורות	Employers reporting employee salaries	April 30	Annual
856	דוח על תשלומים לספקים	Businesses reporting payments to suppliers	April 30	Annual
6111	דוח כספי אחיד	Businesses with turnover > NIS 300,000 (incl. VAT)	Submitted with 1301 or 1214	Annual
Mikdamot	מקדמות מס הכנסה	Self-employed and businesses with advance assessments	15th of the month after the period	Bi-monthly
Mas Shevach	הצהרת מס שבח	Anyone selling real estate in Israel	30 days from sale (40 days if requesting exemption)	Per transaction
1322/1325	דוח רווח הון מניירות ערך	Anyone with securities capital gains	30 days from sale (or annually with Form 1301)	Per transaction or annual

CPA-represented filers typically receive automatic extensions through the CPA association's quota arrangement with the ITA (often to September 30 or later).

Section 3 — Who must file Form 1301

Who must file Form 1301 — Self-employed individuals (Osek Murshe or Osek Patur); Individuals whose gross salary exceeded NIS 721,560 (surtax threshold); Individuals with income from multiple employers; Individuals with foreign income or assets abroad exceeding reporting thresholds; Anyone who received capital gains during the tax year; Individuals who received rental income exceeding the exempt threshold (Section 3 — Who must file Form 1301)

Section 4 — Income tax brackets (2026)

Brackets 1–2 and 6 frozen at 2025 values; brackets 3–5 expanded by the Economic Efficiency Law 2026 (approved March 30, 2026, retroactive to January 1, 2026):

Income tax brackets (2026) table (Section 4 — Income tax brackets (2026))

Bracket	Annual income range (NIS)	Rate
1	0 – 84,120	10%
2	84,121 – 120,720	14%
3	120,721 – 228,000	20%
4	228,001 – 301,200	31%
5	301,201 – 560,280	35%
6	560,281 – 721,560	47%
Surtax	Above 721,560	See Section 5

Monthly equivalent brackets

Monthly equivalent brackets table

Monthly income (NIS)	Rate
Up to 7,010	10%
7,011 – 10,060	14%
10,061 – 19,000	20%
19,001 – 25,100	31%
25,101 – 46,690	35%
46,691 and above	47%

Section 5 — Surtax (Mas Yesafim — מס יסף)

Two-tier system from 2026:

Surtax rates table (Section 5 — Surtax (Mas Yesafim — מס יסף))

Income type	Rate above NIS 721,560	Effective top rate
Employment and active income	3%	50% (47% + 3%)
Capital and passive income (dividends, interest, rent, capital gains)	5% (3% base + 2% additional)	30% (25% + 5%) for capital gains

Mas Shevach in surtax income — From 2026, Mas Shevach (real estate capital gains) on investment properties is included in the surtax income calculation. (Section 5 — Surtax (Mas Yesafim — מס יסף))
Surtax threshold freeze — The NIS 721,560 threshold is frozen through tax year 2027 — do not apply CPI uplifts. (Section 5 — Surtax (Mas Yesafim — מס יסף))

Section 6 — Nekudot Zikui (נקודות זיכוי — Tax credit points)

Credit point value — Each point reduces the annual tax liability by NIS 2,904 (approximately NIS 242/month). Frozen 2025–2027. (Section 6 — Nekudot Zikui (נקודות זיכוי — Tax credit points))

Nekudot Zikui table (Section 6 — Nekudot Zikui (נקודות זיכוי — Tax credit points))

Category	Points	Notes
Israeli resident (male)	2.25	Base entitlement
Israeli resident (female)	2.75	Base (0.5 additional)
New immigrant (Oleh Chadash — עולה חדש)	3.0 year 1, 2.0 year 2, 1.0 year 3	For 3.5 years from Aliyah date (post-2022: 8.5 points over 54 months)
Returning resident (Toshav Chozer — תושב חוזר)	Same as Oleh Chadash	After 10+ years abroad
Child born during tax year	1.5	Per child
Children aged 1–5	2.5 per child	Per child
Children aged 6–17	1.0 per child	Per child
Child aged 18	0.5	Last year of child credit
Single parent	1.0	Divorced, widowed, or separated with custody
Academic degree (BA)	1.0	Per year, up to 3 years matching study duration (graduates 2023+)
Academic degree (MA)	0.5	For 2 years after completion (graduates 2023+)
Vocational certificate	1.0	Per year, up to 3 years matching study duration (graduates 2023+)
Disability (100% or blind)	2.0	Permanent
Combat reserve soldiers	0.5–1.0	Based on reserve days (from 2026: 0.5 for 20+ days, 0.75 for 45+, 1.0 for 60+)

Worked example

Married woman (2.75 points) with two children aged 3 and 7 (2.5 + 1.0 = 3.5 points):

Total: 6.25 points × NIS 2,904 = NIS 18,150 annual tax reduction

7.1 Section 45א — 35% tax credit (Zikui)

Section 45א credit rules — Reduces tax liability directly by 35% of qualifying pension contribution; Applies to both employees and self-employed; Employee ceiling: qualifying contribution up to 7% of eligible salary (capped at NIS 23,232/month for 2026); Self-employed ceiling: 5.5% of business income (7.1 Section 45א — 35% tax credit (Zikui))

7.2 Section 47 — Pension deduction (Nikui)

Section 47 deduction rules — Reduces taxable income by the contribution amount; Self-employed can deduct up to 11% of annual business income (capped at qualifying ceiling); Employee contributions above the 7% Section 45א threshold can qualify (7.2 Section 47 — Pension deduction (Nikui))

7.3 Combined rule

Combined 45א/47 rule — The same shekel cannot double-count. Self-employed filers typically structure deposits so part qualifies for 45א (credit) and part for 47 (deduction) within the 16.5% combined ceiling. (7.3 Combined rule)

Worked example (self-employed, NIS 300,000 annual income)

Worked example (self-employed, NIS 300,000 annual income) table

Benefit	Calculation
Pension deposit	NIS 33,000 (11% of income)
Section 47 deduction	Reduces taxable income by up to NIS 33,000
Section 45א credit	35% of up to 5.5% of income = up to NIS 16,500 eligible → NIS 5,775 direct tax reduction

Section 8 — Rental income tax tracks

Israeli law offers three options for taxing residential rental income:

Rental income tax tracks table (Section 8 — Rental income tax tracks)

Track	Rate	Conditions
Exempt	0%	Monthly rent below NIS 5,654/month (2025–2027, frozen, no longer CPI-indexed)
Flat rate	10%	On gross rent, no deductions allowed. Payment by January 31 of following year
Marginal	Progressive rates (10%–50%)	Full deduction of expenses (depreciation, mortgage interest, maintenance). Filed with Form 1301

9.1 Real estate (Mas Shevach — מס שבח)

Filing deadline — Filing: Within 30 days of sale (40 days if requesting exemption). (9.1 Real estate (Mas Shevach — מס שבח))
Mas Shevach calculation — Sale price − Original purchase price (adjusted for CPI) − Allowable deductions (purchase tax paid, legal fees, agent commission, renovation costs with receipts) = Real capital gain (Shevach Re'ali — שבח ריאלי) × 25% tax rate = Mas Shevach payable (9.1 Real estate (Mas Shevach — מס שבח))
Single apartment exemption (Ptur Dira Yechida — פטור דירה יחידה) — Seller's only residential property in Israel; Owned for at least 18 months; Sale price below NIS 5,008,000 (2024–2027, frozen); Seller is an Israeli resident; Partial exemption applies proportionally above the ceiling (9.1 Real estate (Mas Shevach — מס שבח))
Linear method (Shita Liniarit — שיטה ליניארית) — For properties purchased before January 7, 2014, only the portion of gain attributable to the period after that date is taxed at 25%. The pre-2014 portion may be exempt or taxed at a lower historical rate. (9.1 Real estate (Mas Shevach — מס שבח))

9.2 Securities (Forms 1322/1325)

Securities capital gains rules — 25% tax rate for individuals on traded securities; 30% if seller holds 10%+ of the company; Losses can offset gains within the same category in the same tax year; Capital losses carry forward to offset future capital gains (but not ordinary income) (9.2 Securities (Forms 1322/1325))

10.1 How they work

Mikdamot mechanics — The ITA sets a percentage rate based on prior year returns; Applied to bi-monthly turnover (total revenue excluding VAT); New businesses receive a percentage based on industry statistics (10.1 How they work)

10.2 Payment schedule

Payment schedule table (10.2 Payment schedule)

Period	Months	Payment due
1	January – February	March 15
2	March – April	May 15
3	May – June	July 15
4	July – August	September 15
5	September – October	November 15
6	November – December	January 15

10.3 Year-end reconciliation

Year-end reconciliation rules — Mikdamot paid > actual tax → refund (Hechzer Mas — החזר מס); Mikdamot paid < actual tax → difference owed (plus possible interest); Rate adjustment available mid-year if income changes significantly (Shinui Shiur Mikdamot — שינוי שיעור מקדמות) (10.3 Year-end reconciliation)

Section 11 — Corporate tax

Corporate tax table (Section 11 — Corporate tax)

Item	Rate / rule
Corporate tax rate	23% flat on taxable profits
Closely held company (Chevra Me'atim — חברה מעטים)	2% annual tax on accumulated undistributed profits unless 6%+ distributed as dividends
Form 6111	Required for turnover > NIS 300,000 (including VAT)
Deadline	May 31 (extensions available)

Section 12 — Form 6111 (standardized financial statements)

Form 6111 requirement — Required for any business with annual turnover exceeding NIS 300,000 (including VAT). (Section 12 — Form 6111 (standardized financial statements))
Section A: Profit and Loss Statement — Revenue by source, COGS, operating expenses, financial income/expenses, depreciation, net profit, tax adjustments (Section 12 — Form 6111 (standardized financial statements))
Section B: Balance Sheet — Current assets, fixed assets, current liabilities, long-term liabilities, equity (Section 12 — Form 6111 (standardized financial statements))
Submission requirement — All amounts in NIS. Must match audited financial statements exactly. Submitted electronically via Shaam. (Section 12 — Form 6111 (standardized financial statements))

Section 13 — Filing via Shaam online portal

Register at misim.gov.il with Teudat Zehut (תעודת זהות) or company number
Set up digital credentials (username + password + 2FA)
Select the relevant form and tax year
Enter data or upload from accounting software
System validates data and flags errors
Review calculated tax liability
Submit electronically (receive confirmation number)
Pay any tax owed via the payment portal

CPA authorization (Yipui Koach — ייפוי כוח) — Granted per-client, per-year via the Shaam portal. Allows CPA to submit returns and communicate with the ITA on behalf of the client. (Section 13 — Filing via Shaam online portal)

Example 1 — Freelancer annual return (Form 1301)

Scenario: Male freelance developer (Osek Murshe), annual business revenue NIS 450,000, business expenses NIS 80,000, two children aged 4 and 8.

Working:

Net business income: NIS 450,000 − NIS 80,000 = NIS 370,000
Credit points: 2.25 (resident) + 2.5 (child age 4) + 1.0 (child age 8) = 5.75 points
Tax credit: 5.75 × NIS 2,904 = NIS 16,698
Income tax (applying 2026 brackets to NIS 370,000):
- 10% on 84,120 = NIS 8,412
- 14% on 36,600 = NIS 5,124
- 20% on 107,280 = NIS 21,456
- 31% on 73,200 = NIS 22,692
- 35% on 68,800 = NIS 24,080
- Gross tax: NIS 81,764
Less credit points: NIS 81,764 − NIS 16,698 = NIS 65,066 income tax
Less mikdamot paid during year → net tax due or refund

Example 2 — Real estate capital gains (Mas Shevach)

Scenario: Investment apartment sold for NIS 2,800,000, purchased in 2018 for NIS 1,600,000.

Working:

Gross gain: NIS 2,800,000 − NIS 1,600,000 = NIS 1,200,000
Adjust for CPI change from 2018 to sale date
Deduct allowable expenses (purchase tax, legal fees, agent commission, documented renovation)
Real gain × 25% = Mas Shevach payable
File within 30 days of sale
Check surtax: if total annual income exceeds NIS 721,560, additional 5% on capital gain portion above threshold

Section 15 — Common errors

Common errors table (Section 15 — Common errors)

Error	Why it matters
Using US form numbers (1040)	Israel uses Form 1301 for individuals
Wrong deadline (April 30 for Form 1301)	April 30 is the legacy paper baseline; current online deadline is June 30
Single capital gains rate for everything	Securities: 25%; significant shareholders: 30%; real estate: varies
Default credit point value without checking eligibility	Points vary by personal status; must calculate per individual
Treating Mas Shevach and surtax as separate	From 2026, investment property Mas Shevach counts toward surtax income
Forgetting Section 45א/47 pension credits	One of the most common filing errors for self-employed

Section 16 — Reference material

Reference material table (Section 16 — Reference material)

Resource	Reference
Tax Authority — Form 1301 service	https://www.gov.il/he/service/reporting-and-payment-2025-annual-tax-report-for-individuals
Shaam filing portal	https://www.misim.gov.il
Kol Zchut — income tax brackets	https://www.kolzchut.org.il/he/מדרגות_מס_הכנסה
Kol Zchut — tax credit points	https://www.kolzchut.org.il/he/נקודות_זיכוי
Kol Zchut — Mas Shevach	https://www.kolzchut.org.il/he/חישוב_מס_שבח
Real estate taxation office	https://www.gov.il/he/departments/topics/land_taxation
Income Tax Ordinance	https://www.nevo.co.il/law/70264

Disclaimer

חשוב: כל המידע בקובץ זה מיועד למטרות מידע וחישוב בלבד. יש לבדוק כל עמדה מול רואה חשבון (Ro'eh Cheshbon) או יועץ מס (Yo'etz Mas) מוסמך לפני הגשה או פעולה.

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional — such as a רואה חשבון (Ro'eh Cheshbon — CPA) or יועץ מס (Yo'etz Mas — tax advisor) licensed in Israel — before filing or acting upon.

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il-income-tax-returns

Key figures — Israel, 2025

The full Guide