Employer Tax Contributions

Tax Type	Rate	Base
Income Tax Withholding	Progressive (5%-15%)	Employee's Taxable Income
Social Security Contribution	9.8% (Employer), 10.4% (Employer)	Employee's Gross Salary (up to 10x minimum wage cap)
Workers' Compensation Insurance	Varies by industry	Not specified

Filing & Compliance

• Employers must register with the relevant tax authority and social security institution upon establishing operations and hiring employees.
• Income tax withheld and social security contributions are typically filed and paid monthly.
• Employers are required to submit annual reports detailing total wages paid and income tax withheld.

Employee tax deductions in Palestine are complex, influenced by Israeli control over tax revenues and varying based on employment location.

Income Tax

• Employees within Palestine: Subject to income tax according to the following annual brackets:

  • ILS 1 - 75,000: 5%
  • ILS 75,001 - 150,000: 10%
  • ILS 150,001 and above: 15%

• Employees in Israel or Israeli Settlements: Israel deducts income tax, a portion of which is transferred to the Palestinian Authority. The exact percentage transferred varies based on employment location (Israel vs. settlements) as defined by agreements and Israeli law. Additional deductions are imposed by Israel, ostensibly to offset various costs and as punitive measures. These deductions are a significant point of contention and impact the Palestinian Authority's budget.

Withholding Tax (WHT)

• Residents: WHT applies to payments exceeding ILS 2,500. The rate depends on the WHT certificate issued by the Tax Department, or defaults to 10% if no certificate is provided.

• Non-Residents: A 10% WHT is applied to payments made to non-residents.

Social Security and Other Deductions

For Palestinian workers employed in Israel, deductions are made for social security, health insurance, and other benefits by the Israeli authorities. These deductions are estimated to be about 23% of the worker's wages. However, the precise amount varies based on the employee's sector of employment.

Value Added Tax (VAT)

While not a direct employee deduction, the current VAT rate of 17% in Israel (potentially rising to 18% in 2025) affects the cost of goods and services and therefore indirectly impacts employees' real income.

Challenges and Current Situation

The Palestinian Authority faces significant challenges due to Israeli deductions from clearance revenues, a vital source of funding for its budget. These deductions impact the government's ability to meet financial obligations, including public sector salaries. Local revenues are also under pressure due to economic hardships in Gaza. The Palestinian Authority is taking steps to address these fiscal challenges, including seeking the release of withheld funds and optimizing resource allocation.

It's important to note that the tax situation in Palestine is dynamic and subject to change due to the ongoing political and economic circumstances. As of February 5, 2025, this information reflects the latest available data, but ongoing developments may affect these figures.