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Hiring in Israel
Israel, officially known as the state of Israel, is a country in Western Asia. Tel Aviv is the economic and technological center. Jerusalem is the capital and the largest city of Israel. Israel is a developed economy with the second largest number of startup companies and several multinational companies. Its main trading partners are the US, China, Hong Kong, Turkey and Russia. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Israel’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. Labor Code stipulates that employees are entitled to 10 to 23 days of annual leave. Residents are taxed on their worldwide income. Non-residents are taxed on Israeli-source income. Global PEO’s or Employer of Record facilitate companies by ensuring compliance with Israel’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- New employees can work a suitable probationary period of between one and 12 months depending on the terms of their contract of employment or collective agreement.
Annual Leave
- Israeli employees have the right to paid annual leave, the length of which depends upon the period of service of the employee.
- The minimal period required by law is between 10 and 23 days per year.
Public Holidays
- First day of Passover (8th to 9th April)
- Seventh-day of Passover (14th to 15th April)
- Yom Ha'atzmaut (28th to 29th April)
- Shavuot (28th to 29th May)
- Rosh Hashanah (18th to 20th September)
- Yom Kippur (27th to 28th September)
- First day of Sukkot (2nd to 3rd October)
- Shemini Atzeret (9th to 10th October)
Maternity Leave
- Pregnant women are entitled to seven weeks of maternity leave at full pay provided that they were employed by the company for the previous six to ten months.
- The employee is also entitled to receive the same position upon returning.
- Women who have worked more than ten months receive fourteen weeks of paid leave. Half of that time can be taken prior to the birth of the child.
Paternity Leave
- Male employees receive an eight-day paternity leave following the birth of their child.
- This includes three paid vacation days and five days of sick leave paid by the employer.
Sick Leave
- Employees have the right to receive sick leave at a rate of one and a half days for each month of employment with the right to accumulate up to 90 days.
- Employees are not entitled to any payment for the first day of sickness
- For the second and third days, employees are entitled to 50% of the salary
- From the fourth day onward, 100% of salary
- It should be noted that it is common for some industries to pay full salary for sick leave from day one
Work Hours
- The standard work week in Israel is Sunday through Thursday, although non-Jewish people may choose Friday, Saturday, or Sunday as their main weekly holiday.
- Jewish people may not work on Saturday unless their employer is open on Saturdays with a special permit.
- The work week may not exceed 43 hours, allocated over 5 or 6 days of work, provided that each workday does not exceed 9 hours of work.
Overtime
- Employees are entitled to overtime pay which is calculated on a daily basis.
-
- For the first 2 overtime hours, the remuneration is 125% of the regular wage
- For any additional hour of work as well as for work during the weekly day of rest, remuneration shall amount to 150% of the regular wage.
- Some companies pay a global monthly amount as compensation for overtime pa
Notice Period
- The employer or employee must provide written notice before the termination.
- The minimal statutory period of prior notice for dismissal and for resignation of employees whose salaries are paid on a monthly basis is:
-
- One day during the first six months of employment
- 6 days plus an additional 2.5 days for every month worked from the seventh month for employees who have worked 6 months to 1 year
- 30 days after completion of the first year of employment
Severance
- Other than in certain cases set out under applicable law, an employee who continuously works for the same employer or at the same place of work for at least 12 months and is dismissed (or resigns in circumstances which qualify as constructive dismissal) is entitled to severance pay.
- In general, the amount of severance pay is calculated by multiplying the employee's last month's salary prior to his or her dismissal, by the number of years worked by such employee (or any part thereof).
- It should be noted, however, that since 2008 employers are obligated to contribute certain amounts towards severance pay, on a monthly basis, to the employee's pension insurance fund.
- Such amounts are deducted from the employee's entitlement to severance pay upon termination.
- In certain cases, the law further allows an employer to increase contributions towards severance pay.
- In such cases the amount accumulated in the insurance fund is considered as being paid to the employee in lieu of paying severance pay.
- In these cases, no outstanding obligation is incumbent on the employer upon termination.
13th / 14th Month Pay
- No
- There is no statutory requirement to pay the 13th or 14th month salary.
- Some employees do pay the 13th month salary but it is rare.
income tax
- Israeli tax residents are taxable on their worldwide income.
- Non-resident individuals are subject to income tax on Israeli-source income and to capital gains tax on capital gains from assets situated in Israel.
- Taxation of individuals is imposed in graduated rates ranging up to 47%.
- Additionally, a 3% surtax applies on annual taxable income exceeding 649,560 Israeli shekels (ILS), resulting in a 50% maximum income tax rate.
- Non-residents are taxed at the same rates as Israeli residents.
- A minimum tax rate of 31% generally applies to certain classes of passive income not derived from business or employment earned by a taxpayer under age 60.
- The annual tax brackets are an aggregation of the monthly brackets in force during the year, which are periodically updated for inflation.
- The annual bracket amounts for 2020, expressed in Israeli shekels, are as follows:
|
Annual taxable income (ILS) |
Tax on column 1 (ILS) |
Tax on excess (%) |
|
|
Over (column 1) |
Not over |
||
|
0 |
75,960 |
0 |
10 |
|
75,960 |
108,960 |
7,596 |
14 |
|
108,960 |
174,960 |
12,216 |
20 |
|
174,960 |
243,120 |
25,416 |
31 |
|
243,120 |
505,920 |
46,545 |
35 |
|
505,920 |
651,600 |
138,525 |
47 |
|
651,600 |
206,995 |
50 |
|
deductible expenses
Employment Expenses
- Employees are entitled to relatively few deductions.
- However, subsistence expenses if required to travel out of town and subsistence expenses abroad may be deducted in accordance with detailed rules.
- Contributions to an approved provident fund and a training fund are deductible up to predetermined limits for the self-employed and certain employees.
Personal Deductions
- Mortgage interest and medical expenses are not deductible.
- Charitable contributions are not deductible, but a tax credit may be allowed
- Tax credits and deductions are granted for certain payments for life insurance premiums and payments to provident and pension funds.
Personal Allowances
- In Israel, personal allowances take the form of tax credits
- Residents are entitled to personal tax credits against their tax liabilities according to their status.
- Each point is worth ILS 219 per month, with resident individuals being entitled to a minimum of 2.25 points.
- Additional points are granted for, among other items, dependent children, new immigrants, and single-parent families.
- Foreign residents are not entitled to personal tax credits.
|
Deductible Expenses |
|
|
Employment Expenses |
|
|
Personal Deductions |
|
|
Personal Allowances |
|
immigration
- A foreign national may work in Israel only if he or she enters the country with a permanent residence visa or a temporary residence visa or holds a B1, B4 or A1 visa.
- An applicant and his or her employer can apply for a work permit valid for 2 years, 1 year, 90 days or 45 days.
- An applicant and his or her employer must file certain items to obtain a work permit and a B1 work visa.
- The B1 work visa is always issued for a maximum period of one year and may be renewed annually, assuming that the employer and employee comply with the terms of the work permit.
- The following are examples of the items that must be filed (other forms or submissions may be required):
-
- Recommendation of the Ministry of Interior
- Employee’s certificate of valid medical insurance
- Salary letter with verification of the expert’s salary threshold (twice the average salary in the Israeli market, approximately USD5,750; amount is subject to change and needs to be checked)
- An employer’s undertaking that assures the employee’s departure on termination of the employment contract
- The employee’s accurate personal data, including his or her passport number, curriculum vitae (CV) and diploma (police clearance and medical checks are being requested by the Israeli embassy or consulate during the consular procedure)
- Letter from an Israeli employer or other Israeli party, explaining the reasons why the employee’s presence is needed
- Affidavit on a specified form concerning the above items
- The following can apply for a B1 visa:
-
- An Israeli-based employer
- A foreign employer that has business ties or has entered into a service agreement with an Israeli-based entity.
- As of January 2019, the amount of government registration fees for a work permit and B1 work visa application (per principal applicant for one year) is approximately USD3,160.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
B1 Work Visa |
|
1 year (can be renewed) |
|
|
B4 Visa |
|
3 months |
|
|
A1 Visa |
|
3 years (can be extended) |
|
value added tax
- The current rate of VAT is 17%.
- Exports of goods and certain services and various other transactions are zero-rated, and certain transactions are exempt.
|
VAT |
|
|
Standard Rate |
17% |
|
Zero Rate |
0% |
withholding tax
Dividends
- Dividends paid to a non-controlling foreign resident company or individual (i.e. a person that holds less than 10% of the shares of the Israeli payer) are subject to a 25% withholding tax; otherwise, the rate is 30%
- These rates may be reduced under a tax treaty
- Dividends distributed by a preferred enterprise to a resident or nonresident shareholder are taxed at a 20% rate
- Dividends distributed by an approved/benefited enterprise to a resident or nonresident shareholder generally are taxed at a 15% rate if the distribution is made from profits attributable to the approved enterprise, or at a reduced rate of 4% on the alternative incentive track if distributed to a nonresident company
- Dividends distributed by a preferred technological enterprise or a special preferred technological enterprise to a nonresident company out of technological earnings are taxed at a rate of 4%, which may be reduced under an applicable tax treaty
- Dividends paid to an Israeli resident individual generally are subject to withholding tax at 25%
- A 30% rate applies where at the time of recipient of the dividend or at any time during the preceding 12 months, the individual held at least 10% of the shares of the payer company
Interest
- Corporate income tax (currently 23%) will be withheld from interest payments to a resident or nonresident recipient that is a “body of persons”; the rate is 25% for interest paid to a nonresident individual
- The withholding tax rate on interest paid to nonresident may be reduced under an applicable tax treaty
- A 0% withholding tax may apply to interest on certain public bonds held by foreign residents
- The withholding tax rates applicable to interest paid to a resident individual are as follows: -
- 20% on interest paid by a provident fund (15% where the interest is derived from amounts deposited in the fund before 8th May 2000)
- 25% on bank interest (15% where the interest is payable in respect of an asset that is not index-linked)
- 35% on interest paid on debentures or government bonds issued before 8th may 2000 to a recipient who at the time of payment of the interest or at any time during the preceding 12 months, held less than 10% of the shares of the payer;
- 47% where the recipient of the interest at the time of receipt of the interest or at any time during the preceding 12 months held at least 10% of the shares of the payer, is an employee of the payer, or provides services or sells products to the payer
Royalties
- Withholding tax is levied on royalty payments to nonresidents entities and individuals at 23% and 25% respectively
- Royalty payments made to resident entities and individuals are subject to withholding tax at 20% or 30%, depending on the circumstances
- The withholding tax rate on royalties paid to nonresidents may be reduced under an applicable tax treaty
Fees for Technical Services
- Withholding tax is levied on technical service fees paid to nonresident entities and individuals at 23% and 25% respectively
- The withholding tax rate on technical service fees paid to nonresidents may be reduced under an applicable tax treaty
- Withholding tax is levied on technical services paid to resident entities and individuals at 20% where the recipient can demonstrate that it maintains books of accounts and has filed returns; otherwise, the rate is 30%
|
Type of Payment |
Residents |
Nonresidents |
||
|
Company |
Individual |
Company |
Individual |
|
|
Dividends |
0%/15%/20% |
15%/20%/25%/30% |
4%/15%/20%/25%/30% |
15%/20%/25%/30% |
|
Interest |
23% |
15%/20%/25%/35%/47% |
0%/23% |
0%/25% |
|
Royalties |
20%/30% |
20%/30% |
23% |
25% |
|
Technical Service Fee |
20%/30% |
20%/30% |
23% |
25% |
termination
- Employment may be terminated by resignation, dismissal, retirement, death, or the expiration of a limited period of employment.
- Dismissal entitles the employee to receive severance pay, however, there are certain circumstances in which the dismissed employee is not entitled to receive severance, i.e. with cause.
- The employer or employee must provide written notice before the termination.
- The minimal statutory period of prior notice for dismissal and for resignation of employees whose salaries are paid on a monthly basis is:
-
- One day during the first six months of employment
- 6 days plus an additional 2.5 days for every month worked from the seventh month for employees who have worked 6 months to 1 year
- 30 days after completion of the first year of employment
- Other than in certain cases set out under applicable law, an employee who continuously works for the same employer or at the same place of work for at least 12 months and is dismissed (or resigns in circumstances which qualify as constructive dismissal) is entitled to severance pay.
- In general, the amount of severance pay is calculated by multiplying the employee's last month's salary prior to his or her dismissal, by the number of years worked by such employee (or any part thereof).
statutory benefits
- These are mandatory benefits as postulated by law
- These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, and severance pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Maternity Leave |
|
Paternity Leave |
|
Sick Leave |
|
Overtime Pay |
|
Notice Period |
|
Severance Pay |
|
Social Security Benefits |
payments and invoicing
- Tax returns are filed on a calendar-year basis.
- A resident taxpayer may not be required to file a tax return for 2019 where tax is withheld at source from one’s wages and at the prescribed levels from other specified sources (e.g. rent, dividends, interest, and capital gains) unless one of the following exceptions apply in which case the individual would be required to file a tax return (detailed rules apply; certain further exceptions may also be applicable):
- Wages exceeded ILS 653,000.
- The taxpayer or spouse are subject to the 3% surtax (income exceeds 649,560)
- Any of the following categories of income exceeded ILS 339,000:
-
- Rental income
- Foreign income
- Non-exempt foreign pension income.
- Certain other income (detailed definitional rules apply).
- Income from the sale of traded securities (turnover) exceeded ILS 2,538,000.
- Interest income exceeded ILS 647,000.
- The taxpayer together with one’s spouse and children under age 18 at any time during the year owned:
-
- shares of a foreign non-publicly traded company
- foreign assets having a value of at least ILS 1,883,000, or
- deposits with a foreign banking institution of ILS 1,883,000 or more.
- The taxpayer is the settlor or beneficiary of a trust during the tax year.
- The taxpayer received a distribution (direct/indirect) from a trust or from the creation of a trust an amount of more than ILS 100,000 (cash/equivalent), even if not subject to tax in Israel.
- These amounts are periodically updated.
- Married couples are permitted to file separate or joint returns.
- In the latter case, a separate calculation may still be obtained for tax on income from personal exertion in any business or vocation or from employment, provided the income is from independent sources.
- A non-Israeli tax resident employee will generally not be required to file an Israeli income tax return if proper withholdings are remitted to the tax authorities, the employee's annual income does not exceed ILS 649,560, and the employee has no other Israeli-source income.
- Payroll withholding of income and social tax is statutory, irrespective of the residence of the employer or employee.
- In general, withholding taxes in respect of salary payments effected from the 14th day of one month to the 13th day of the following month are payable on the 15th day of that following month.
- Tax advances are required to be paid by an individual for interest, dividends, capital gains, and rental income in amounts and according to specific deadlines set out in detailed Israeli tax rules.
- Self-employed individuals are generally required to make monthly or bimonthly advance tax payments, usually based on a percentage of turnover.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Israel ranked 35th in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% |
|
| Christmas Bonus Over Vacations % |
0% |
| Severance per Year % |
Employees are entitled to severance pay equal to one month's pay after completion of one year of employment (8.33% of annual salary) |
| Vacations % | Employees are entitled to 14 days of annual leave (4.12% of annual salary) |
| Notice % |
Employees are entitled to 12 days of notice after one year of service (3.29% of annual salary) |
| Christmas Bonus Over Notifications% | 0% |
| Vacations Plus% | 0% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 15.74% |
employer accruals
Additional information (Country Accruals)
| National Insurance contribution | 3.55% |
| Maternity | 12 weeks |
| Christmas Bonus | 8.33% |
| Vacations | 5.75% |
| Description | Employers are obligated to pay national insurance contributions based on a percentage of each employee’s income on a monthly basis. Employers are responsible for withholding employees’ contributions from wages and remitting these together with the employer’s own contributions. The employer’s contribution rates (current as of January 2021) for Israeli-resident employees are 3.55%, up to monthly income of ILS 6,331, and 7.6% on the difference between ILS 6,331 and the maximum monthly income of ILS 44,020. Property taxes Real estate capital gains Transfer tax Stamp taxes Payroll taxes Employer’s national insurance contributions For non-resident employees, the employer rates are significantly lower and are 0.59%, up to monthly income of ILS 6,331, and 2.65% on the difference between ILS 6,331 and the maximum monthly income of ILS 44,020. The minimal national insurance payments for non-resident employees do not provide any retirement benefit for the non-resident but generally provides a certain element of work accident coverage. When an irregular salary payment in excess of one quarter of the usual salary is made, special provisions apply to the computation of social charges by which the application of this payment is equally attributed to the current month and to the past 11 months. Israel has social security totalisation agreements with 18 countries that may allow for an exemption from Israeli national insurance throughout the employment period of the employee in Israel.
|
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | The minimal period required by law is between 10 and 23 days per year. | This equals 6.3% (23/365 days) of annual income |
| Maternity Leave | Pregnant women are entitled to seven weeks of maternity leave at full pay provided that they were employed by the company for the previous six to ten months. |
This equals 13.46% (7/52 weeks) of annual income |
| Paternity Leave | Male employees receive an eight-day paternity leave following the birth of their child. This includes three paid vacation days and five days of sick leave paid by the employer. |
This equals 2.2% (8/365 days) of annual income |
| Sick Leave | Employees have the right to receive sick leave at a rate of one and a half days for each month of employment with the right to accumulate up to 90 days. Employees are not entitled to any payment for the first day of sickness For the second and third days, employees are entitled to 50% of the salary From the fourth day onward, 100% of salary |
This equals 50% of 0.54% (2/365 days) of annual income. Plus 23.8% (87/365 days) of annual income |
| Overtime | Employees are entitled to overtime pay which is calculated on a daily basis. • For the first 2 overtime hours, the remuneration is 125% of the regular wage • For any additional hour of work as well as for work during the weekly day of rest, remuneration shall amount to 150% of the regular wage. |
Depends on the number of overtime hours worked |
| Severance | In general, the amount of severance pay is calculated by multiplying the employee's last month's salary prior to his or her dismissal, by the number of years worked by such employee (or any part thereof). | This equals 8.33% (1/12 months) of annual income |
| Social Security | National insurance contributions are generally payable on taxable income as calculated for income tax purposes. The rates are as follows: - Monthly income up to ILS6,164 - 3.55%; Monthly income from ILS6,164 to ILS43,890 - 7.6% | This equals 3.55% of 6,164 ILS. Plus 7.6% of 6,606 ILS |
