Year-end pen­sion plan­ning for 2018

The Jerusalem Post - - BUSINESS & FINANCE - • By LEON HAR­RIS leon@hcat.co.

Pen­sion con­tri­bu­tions are im­por­tant in pro­vid­ing for our re­tire­ment years. Be­low is a brief over­view of Is­raeli tax law rules for 2018. Types of mem­bers: The tax law dis­tin­guishes be­tween “priv­i­leged” and “non-priv­i­leged” mem­bers of a prov­i­dent fund who may also be em­ployed or self-em­ployed.

A priv­i­leged mem­ber is one who con­trib­utes at least 16% of the aver­age na­tional salary (NIS 9,906 per month in 2018), i.e., con­trib­utes at least NIS 19,020 for the 12 months of 2018.

Em­ployee con­tri­bu­tions: Once em­ploy­ees have worked three to six months at a firm, they are en­ti­tled to manda­tory pen­sion and sev­er­ance fund­ing. The stip­u­lated min­i­mum pen­sion fund con­tri­bu­tion is 18.5% of gross salary. The em­ployer gen­er­ally pays 6.5% to­ward pen­sion fund­ing and 6% to­ward sev­er­ance fund­ing. The em­ployee pays 6% to­ward pen­sion fund­ing.

“Study funds” (hish­tal­mut) are also com­mon but not manda­tory – the em­ployer usu­ally pays 7.5% of gross salary and the em­ployee 2.5% up to pre­scribed lim­its.

The em­ployer deducts his cost for tax pur­poses and the em­ployee is ex­empt and can use the money for any pur­pose if no with­drawals are made for six years.

Self-em­ployed con­tri­bu­tions: The self-em­ployed must by law (since 2017) con­tribute 4.45% up to half the aver­age na­tional salary, and there­after 12.55% of in­come up to the na­tional aver­age salary into a pen­sion-un­em­ploy­ment fund. If the in­di­vid­ual is also em­ployed, em­ployee and em­ployer con­tri­bu­tions count to­ward this re­quire­ment.

A vol­un­tary study fund ar­range­ment is avail­able to the self-em­ployed. They can con­tribute 7% and deduct 4.5% as an ex­pense within pre­scribed lim­its.

Tax breaks: Is­rael pro­vides a com­plex set of tax de­duc­tions and tax cred­its for pen­sion con­tri­bu­tions. Tax de­duc­tions for priv­i­leged mem­bers: First, the amount paid up to 11% of in­come up to NIS 104,400 per year mi­nus “as­sured in­come” is de­ductible. “As­sured in­come” is pen­sion­able salary on which an em­ployer funds a pen­sion.

Sec­ond, the amount paid up to 7% of “ad­di­tional in­come” is de­ductible on con­tri­bu­tions ex­ceed­ing NIS 19,020 (priv­i­leged mem­ber min­i­mum con­tri­bu­tion), up to the lower of: as­sured in­come up to NIS 104,400, or, to­tal tax­able in­come up to NIS 261,000, less as­sured in­come or NIS 104,400, whichever is higher.

If the con­tri­bu­tions ex­ceeds 12% of “ad­di­tional in­come,” a fur­ther 4% de­duc­tion is pos­si­ble, i.e., 11% in­stead of 7%. Tax de­duc­tions for non-priv­i­leged mem­bers: Self-em­ployed: The amount paid up to 7% non-salary in­come up to NIS 146,400 for the year. But if the in­di­vid­ual is also an em­ployee, this amount is re­duced by the lower of NIS 104,400 or salary, whichever is lower.

If the con­tri­bu­tions ex­ceeds 12% of in­come, a fur­ther 4% de­duc­tion is pos­si­ble, i.e., 11% in­stead of 7% of in­come up to NIS 146,400 = NIS 16,104.

Em­ploy­ees: The lower of the amount paid, up to 5% of non-as­sured salary up to NIS 104,400; 5% of tax­able salary in­come up to NIS 261,000 mi­nus as­sured in­come.

Higher lim­its ap­ply if the non-priv­i­leged mem­ber was aged over 50 at the be­gin­ning of the year.

No de­duc­tion is al­lowed if as­sured in­come ex­ceeds NIS 261,000 for the year. Tax credit for priv­i­leged mem­ber: A 35% tax credit is al­lowed for amounts con­trib­uted to­wards pen­sion and life in­sur­ance, up to lim­its.

If there is no salary in­come, the limit is 5% of in­come up to NIS 208,800 for the year. If there is as­sured (pen­sion­able) salary in­come, the limit is 7% of such as­sured in­come up to NIS 208,800 mi­nus NIS 104,400 or as­sured in­come, whichever is less, if there are also self-funded pen­sion con­tri­bu­tions. Tax credit for non-priv­i­leged mem­ber: A 35% tax credit is al­lowed for amounts con­trib­uted to­wards pen­sion and life in­sur­ance up to lim­its. If there is no salary in­come, the limit is 5% of in­come up to NIS 146,400 for the year.

If there is salary and other in­come, the limit is 7% of such salary in­come up to NIS 104,400 and busi­ness in­come up to NIS 146,400 mi­nus NIS 104,400 or salary in­come, whichever is less. Ma­jor share­hold­ers: Ma­jor share­hold­ers (10+%) of com­pa­nies should con­sider pen­sion fund­ing and sev­er­ance fund­ing within pre­scribed lim­its, plus side­plan fund­ing un­der Amend­ment 190 of the In­come Tax Or­di­nance.

Sev­er­ance pay fund­ing re­gard­ing ma­jor share­hold­ers is not de­ductible as a cor­po­rate ex­pense above 8.33% of salary or NIS 12,230 per year. Life in­sur­ance and dis­abil­ity fund­ing: A 25% or 35% tax credit for life in­sur­ance pre­mi­ums is avail­able on upon to 5% of en­ti­tling in­come within com­plex lim­its. To sum up: Th­ese rules are com­pli­cated and open to al­ter­na­tive in­ter­pre­ta­tions. Al­ways con­sult a qual­i­fied Is­raeli pen­sion/in­sur­ance spe­cial­ist.

The writer is a cer­ti­fied pub­lic ac­coun­tant and tax spe­cial­ist at Har­ris Con­sult­ing & Tax Ltd.

Newspapers in English

Newspapers from Israel

© PressReader. All rights reserved.