Company Cars in Israel: A Taxable Benefit That Can Cost Employees More
Company cars provided in Israel, often seen as a perk including fuel and maintenance, are treated by tax authorities as part of an employee's income. A "usage value" is added to the employee's pay stub, subject to income tax, National Insurance (Bituah Leumi) contributions, and health tax, even though the employee doesn't receive this amount directly. For cars registered since January 1, 2010, the monthly usage value is calculated as 2.48% of the car's original catalog price, rounded to the nearest 10 shekels. This calculation is based on the list price, not the discounted price the employer paid. The car's age does not affect this calculation.
There are caps on the taxable value: 583,100 shekels for 2025 and 596,860 shekels for 2026. If the car's list price exceeds these limits, the taxable amount does not increase further. Alternative fuel vehicles receive monthly discounts: 560 shekels for hybrids, 1,130 for plug-in hybrids, and 1,350 for fully electric cars in 2026. A proposed reform to adjust these discounts for plug-in hybrids and electric cars was recently shelved.
The actual tax burden depends on the employee's marginal tax rate. For a usage value of 3,000 shekels, an employee with a 20% tax rate pays about 600 shekels monthly in income tax, while someone with a 47% rate pays around 1,410 shekels. This is in addition to Bituah Leumi and health tax payments (12.17% on income between 7,703 and 51,910 shekels).
Consequently, the real cost of the benefit can be significantly higher than anticipated. An employee earning 20,000 shekels monthly with a car valued at 180,000 shekels might see their net salary reduced by approximately 1,925 shekels per month (23,000 shekels annually), an effective tax rate of 43% on the benefit, even if their marginal tax rate is 31%. This makes company cars unsuitable for many, especially considering the tax is the same regardless of mileage driven. Employees are advised to consult salary specialists to understand the exact cost, net salary reduction, and potential cash alternatives before accepting a company car.
