Israel To Close National Insurance Loophole

by Robert Lee, Tax-News.com, London

05 November 2002

Speaking at the weekend, Deputy Director General of the Israeli National Insurance Institute (NII), Yisrael Zahavi revealed that the government plans to close a loophole which allows high income earners and the self-employed to substantially reduce their National Insurance liabilities.

Changes implemented in June 2001, when then NII abolished the ceiling for National Insurance and Health Insurance payments (previously set at five times the average wage), led to many high earning and/or self-employed taxpayers contributing as much as 10% more of their income in tax.

According to reports, many chose to avoid this by establishing companies and drawing the majority of their earnings from the company as dividends, which are currently exempt from NII payments.

However, according to Mr Zahavi, changes being examined by the National Insurance Institute would mean that if a person's passive income (i.e. income from dividends, savings, rent, or interest) constitutes more than 25% of their total income, both wages and passive income would become subject to NII contributions.

He went on to add that, under the terms of the new proposals, individual taxpayers whose passive income exceeds 50% of the average wage in Israel (approximately NIS 7,000 per month at current estimations), will also find that it is subject to NII payments.

Recommended