Israel seeks to compensate for war expenses by imposing new taxes
The Finance Committee of the Israeli Knesset approved the main reform in the 2025 budget by adopting the draft law on the retained profits tax, despite the rejection of business organizations, as part of its effort to compensate for war expenses, according to what the Israeli newspaper Globes reported.
And “retained earnings” are the percentage of profits achieved by companies over previous periods that were not distributed to shareholders as cash dividends, but rather were kept within the company to be used for expansion or payment. obligations or other investment purposes.
The majority of Knesset members in the committee voted in favor of the law, which will enable the state to collect taxes on approximately 150 billion shekels from profits on personal service companies.
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Among the tax increases, the value-added tax will rise in 2025 from 17% to 18%.
The newspaper quoted chartered accountant Ai Maman, partner in the accounting firm “Rabinovich Evan Maman,” as saying, “The Ministry of Finance wants to compensate for the financial deficit resulting from the war.” Thus, it actually forces shareholders to distribute dividends even if they did not plan to do so.”
The Ministry of Finance has devised a new method for calculating the corporate tax that will be applied to companies as of In 2025, two tax rates will be applied to profits: a corporate tax on profits that represent up to 25% of business volume, and a marginal rate on profits that exceed this rate equivalent to the tax rate payable by shareholders.
As a result of this calculation method, the company’s shareholders will be able to achieve much lower profits in the coming years.
And “the rules will apply The new law applies to companies in which the number of shareholders reaches five people and whose annual sales volume is less than 30 million shekels, and holding or investment companies that have large passive shareholders. This includes personal service companies, freelance professions, partnerships of accountants and lawyers, and medium-sized companies,” says chartered accountant Ai Maman.
Earlier, Fitch lowered the rating. Israel’s credit card is "A+" to "A", indicating the worsening geopolitical risks as the war in Gaza continues, amid threats of it moving to other fronts.
Fitch Ratings Agency said " Public finances have been damaged and we expect a budget deficit of 7.8% of GDP in 2024 and debt to remain above 70% of GDP in the medium term. The war on Gaza and Lebanon, Israel spent tens of billions of shekels ($1 = 3.7154 shekels) to spend on defense, equipment and manpower, after hundreds of thousands were called into service. precaution, and pay compensation to those affected.
It is noteworthy that the new year’s budget in Israel 2025 imposed austerity measures with the aim of reducing the deficit from 8.5% of the current gross domestic product, which is higher than the target. In 2024, which amounts to 6.6%, to 4% of GDP by reducing spending and increasing taxes, achieving about 40 billion shekels (about 10.8 billion). Dollar”.
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