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 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 resident in Palestine are subject to withholding tax at a rate of 10% and are considered as a payment on account. The Ministry of Finance has put on hold the application of this rate. 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 to its staff.
- Income from retirement, saving, security and health insurance funds approved by the Minister of Finance.
- 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.
Capital gains and losses. In general, capital gains are taxable. An exception is the exemption for gains derived from the sale of shares and bonds, but a certain percentage of the entity’s expenses must be added back to income as disallowed expenses.
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, 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, and hospitality and training expenses.
Rates. Personal income, net of deductions, is subject to income tax at the following rates.
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Withholding tax. Payments made by resident taxpayers to nonresident individuals or companies 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.
Property tax is levied on the assessed rental value of real property at a rate of 17%. Twenty percent of the assessed rental value is exempt from tax.
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 fiscal 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:
- 8% on payments made in the first and second month of the fiscal year.
- 6% on payments made in the third month of the fiscal 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 Incentive (%)
First month 4
Second and third months 2
Foreign tax relief
The Palestinian Authority has entered into double tax treaties with Jordan, Oman, Sri Lanka, Sudan, the United Arab Emirates and Vietnam.
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.
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.
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.