Israel Caps Executives’ Salaries

March 30, 2016 Taxation in Israel

These won't get you far in Israel.JERUSALEM – Fifty high-level executives of banks and financial institutions in Israel will soon face salary cuts, as new tax rules are brought in to cap excessive pay packets.

Earlier this week the parliament of Israel approved tax changes aimed at capping the salaries of high-level executives at a maximum of ILS 2.5 million (approx. USD 657 thousand) in order to reign in income inequality.

Any salary payments of over ILS 2.5 million per year paid by a bank or financial institution will no longer be deductible when calculating corporate income tax obligations of the business.

The new regulations will also apply to small financial institutions which do not pay such high salaries, but still have a wide pay disparity between top-level and bottom-level workers, as any salary which more than 35 times higher than the lowest salary in the company will also not be deductible.

The payment cap will also include the personal expenses claimed by the executive.

The new regulations were passed with 56 members of parliament voting yes, no members voting no, and no member abstaining.

It is estimated that approximately 50 individuals in Israel will see their salaries cut due to the new rules.

Israel is regarded as having some of the worst levels of inequality among any OECD country, with research released last year showing that the national Gini Index is approximately 0.360 and that more than 18 percent of the population living under the poverty line.

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