Your guide to doing business in Israel
Located on the south-eastern shores of the Mediterranean, with an infrastructure promoting international trade and commerce, Israel is one of Asia and the Middle East’s most economically prestigious countries. In recent years, strong exports, consumer spending and investment have helped Israel’s economy grow - a trend built on the country’s high performing technology and pharmaceutical sectors. Beyond those sectors, Israel’s economy is diverse, with the agricultural, financial services, manufacturing and tourism sectors all contributing significantly to its profile. With corporate tax reduced to 23%, Israel continues to push to attract a range of international business interests. Israel is a parliamentary republic, and is a member of the United Nations, the WTO and OECD. In 2018, Israel was ranked 58 on the World Bank’s Ease of Doing Business Survey.
Israel is actively encouraging international organisations to invest in the country, and in 2017, ranked 3rd in the region on the World Bank’s ‘Ease of Doing Business’ survey. With a range of incentives to consider, why should businesses invest in Israel?
Israel is widely considered to be one of the most advanced countries in Southwest Asia in both economic and industrial development. With a robust and growing economy, the country is a leading exporter of technology and pharmaceuticals, with the world's largest number of start-ups, and NASDAQ-listed companies, in the world outside of North America.
Beyond lucrative exports of pharmaceuticals, fruit, military equipment, and diamonds, Israel’s technology and science sector includes world-leading companies working to develop water conservation, solar energy, and geothermal energy. Major enterprise organisations have opened research and development facilities in Israel, including Microsoft, Intel, Apple and Google. The cultivation of innovative start-ups within Israel has drawn comparisons with the Silicon Valley tech-boom.
The Israeli Companies Law (ICL) defines a company as a corporation formed and registered in Israel, in accordance with the Israeli law.
It is necessary to register the company with the Registrar of Companies. While Hebrew and Arabic are the official languages of Israel, in practice, the Registrar will generally accept corporate documents in English. However, the Company Registrar does require that the Articles of Association be translated into Hebrew.
In order to register a business with the Registrar of Companies the following documents must be submitted:
The fee for registering a company is currently 2,700 NIS.
After the registration is complete, the registrar will issue a certificate of incorporation and a company number.
An Israeli lawyer is required to verify the company documents. A lawyer will usually handle the process for most requests and will represent the company at the Companies Registrar Office as well.
Once the company has been registered with the Registrar, it must be registered with the appropriate Tax Authorities.
Registration as a company should be made at the tax authority upon commencement of operations. The filing number is usually the same one as the one issued by the Registrar of Companies. Registration is made using form 4436, which includes basic details of the company. Most companies limit the personal liability of their members, usually in the form of shares. In this case, the term "Limited" (or the abbreviation "Ltd.") must appear as part of the full name of the company.
A company may be registered as a "Private Company" or a "Public Company", with securities registered on a Stock Exchange. Both types of company must present annual reports, including audited financial statements to their shareholders.
A company incorporated overseas may establish a branch or local office in Israel as long as it is registered as a foreign company with the Registrar of Companies within a month of its establishment.
If the company uses the term "limited" as part of its name, then it must display its name and the name of the country in which it is incorporated on every invoice, letter, announcement, advertisement or other official publication. In order to register, a foreign company must submit all the necessary documents to the Registrar of Companies. There is no requirement to publish financial statements of a private company.
More information for Tax and Registration can be found at the following links:-
It is not mandatory to have an in-country bank account to process the payroll. Salary and 3rd party payments can be made on behalf of the company. Monthly payments to the authorities are made cheques and in shekels. Payments to employees are made using bank transfers or cheques. Bank transfers are usually within the same day in Israel.
There are not very many banks in Israel. Moreover, the Israeli banks have set special branches for foreign residents who wish to open a bank account in Israel, this also applies to local companies that have foreign shareholders.
The standard bank opening hours are 08:30 to 12:30 on Sundays to Fridays and 16:00 to 18:00 on Mondays and Thursday afternoons. Some branches are closed on Fridays or Sundays.
Working hours in Israel are generally 08:00 to 17:00 on Sundays to Thursdays. Companies that work on Fridays are generally open from 08:00 to 13:00.
The working week for employees 18 years of age or over who are employed full time consists of 42 hours. It is illegal to make an employee work more than 12 hours a day or 16 overtime hours a week.
Different rules apply for employees classified as part time, handicapped, absent and apprentices. All employees are entitled to a weekly rest period of at least 36 hours - on Friday, Saturday and/or Sunday, depending on their religion.
Employees are entitled to overtime pay after 8:36 hours on four of the five working days and after 7:36 on the fifth (or any other chosen by the employer) working day (in a 5-day workweek) or after 8 hours (in a 6-day workweek). For the first two hours of overtime each day, payment is 125% of the regular hourly wage; for each additional hour, the rate is 150% of the regular hourly wage.
Israel lies on the south-eastern edge of the Mediterranean sea, bordered by Lebanon and Syria to the north, Jordan to the east, and Egypt to the south-west. Founded in 1948 as a democratic Jewish state by the United Nations General Assembly, today Israel is a developed country with one of the highest standards of living in the region. Israel’s climate is varied, with hot Mediterranean summers and mild, wet winters, while its territory includes fertile areas of grassland, sun-soaked stretches of coast, and even arid desert regions. Israel is home to an abundance of plant and animal species, and has a variety of nature reserves. Thanks to its scenic beaches and natural beauty, rich historic heritage, and religious significance, Israel is an extremely popular destination for holidaymakers and tourists from all over the world.
Full Name: Israel
Population: 8.88 million (World Bank, 2018)
Major Language: Hebrew and Arabic
Currency: Israeli New Shekel
Main Industries: High-Technology Products, Pharmaceuticals
Internet Domain: .il
International Dialling Code: +972
Good morning Yom tov
Good evening Erev tov
Do you speak English? Haltatakallamu alloghah alenjleziah
Good bye Shalom
Thank you Rav todot
See you later Nitra’e bekarov
The financial year in Israel runs from 1st January to the 31st December.
Income tax is deducted from the salary by the employer and transferred to the tax authorities.
Note: The employer is required to pay to the authorities various fees to attain the permission to employ migrant workers. The employer should not deduct any such fees from the salary.
Self-employed individuals pay income tax on taxable income at rates ranging from 10% to 50%, plus national insurance up to 16.16% on the first NIS 43,890 of monthly income. However, 52% of these national insurance payments are deductible for income tax purposes in the year they are paid, resulting in an effective combined maximum 57%, decreasing to 48% beyond NIS 43,890.
Taxes of up to 50% are levied on most domestic Israeli expenses, unless the recipient holds confirmation from the Israeli tax authority allowing a lower rate.
Israeli banks must withhold tax, generally at rates of 25-31%, on remittances from Israel, unless the remittance is related to imported goods.
An exemption or reduction in tax withholding may be obtained for certain cases such as when a treaty applies or when the payments are for services that are rendered entirely abroad.
Failure to withhold will result in a denial of the relevant expense and possible penalties.
An employer is required to open a withholding tax file and withhold income tax from employment remuneration paid to employees, for work performed in Israel.
The withholding tax file should be opened with the tax authorities prior to making remuneration to employees or payments to other recipients.
Income tax is paid to the authorities every month.
These payments must be made by the 16th day after the month's end and can be paid at a bank or post office.
Late payments generate a penalty.
Employers provide all employees with annual earnings and deductions statement.
Every Israeli resident aged 18 and over is obliged under law to be insured by National Insurance and to pay the National Insurance contributions, except for a housewife (a married woman who is not employed outside the household) and for a person who first became an Israeli resident over the age determined by law (the age increased gradually from 60 to 62).
Every resident of Israel aged 18 and over is also obliged to be covered by Health Insurance and to pay the health insurance contributions to the National Insurance Institute together with the national insurance contributions. A housewife is exempt from payment of health insurance, with the exception of a housewife who is an old-age pension recipient or whose spouse receives a supplement to his old-age pension.
Every insured person must be registered in one of the four healthcare funds and is entitled to the health services defined by law.
Payment rates of national insurance and health insurance are calculated according to the insured’s earned and unearned income, and according to their work status (employee, self-employed, unemployed, student, etc.).
Payments will not be less than the minimum specified by law and will not be more than the maximum income ceiling for insurance contributions.
A resident who does not work and has no income will pay the minimum insurance contribution of NIS 175 (as of 01.01.2019) per month.
An insured person is obligated to pay insurance contributions for any period he/she is temporarily absent from Israel.
Fees are deducted from a foreign employee's salary and cover the following:
The rate of national insurance deduction for a foreign employee is 0.04% for the first NIS 6,164 of his salary, and 0.87% of every shekel above NIS 6,164.
You can find detailed information on National Insurance benefits and deductions on the National Insurance Institute website.
Housing and Health Insurance: additional deductions for a foreign employee include housing expenses and health insurance costs. The employer may also deduct from the employee’s salary, sums that the employee owes them (such as loans and recruitment fees), but only if the employees agrees in writing to such a deduction.
The Israeli Tax Year is generally the calendar year. Subsidiaries of foreign public companies may sometimes use a different fiscal year.
The employer must give each employee a Form 106, which is an annual statement of wage and tax, to the end of March. The employer also has to give to the Income Tax Authority Form 126 to the end of April. The employer also has to give to the National Insurance Institute Form 126 to the end of July, January and April.
Taxes to be filed include:
All companies doing business in Israel are required to file audited annual tax returns and financial statements within 5 months after their fiscal year. Extensions may be obtained. Filings may sometimes be spread over a period of up to 13 months after the tax year-end.
Companies must also file monthly returns on accounts accompanied by tax payments. Bimonthly returns are sometimes acceptable for small businesses.
These filings and payments must be made by the 15th day after the month's end and can be paid at a bank or post office.
Late payments generate a penalty.
It generally takes 3-4 days to set up a new employee on payroll.
The information required to register a new start are:
Upon termination, the employer must compensate the employee for accrued and unused vacation days. The redemption must be calculated in accordance with the level of salary being paid to the terminated employee at the time of termination.
Payroll in Israel is made on a monthly basis: wages can be paid in cash, cheque or by electronic transfer. Employers' monthly payroll obligations include standard deductions such as National Insurance, Social Security and Income Tax. Income tax in Israel is determined at a progressive rate:
Up to 6,220
6,221 - 8,920
8921 - 14,320
14,321 - 19,900
19,901 - 41,410
41,411 - 53,333
Israeli payroll involves a variety of extra withholding obligations including the Mandatory Pension plan, the Educational Fund (designed to facilitate professional development) and further social security compensation if an employee is absent from work due to Israeli Army reserve duties. Foreign companies employing international employee populations should lso consider residency status when determining tax obligations: ‘resident’ taxpayers are taxed on Israeli and worldwide income, while ‘non-residents’ are taxed only on income earned within Israel.
Israeli law also stipulates a Public Transport Allowance must be paid to employees by employers, unless that cost is suitably reflected in the base salary (or by the provision of a car allowance).
Since navigating Israel’s tax legislation can be complicated for foreign businesses, it may be advisable to engage a third-party payroll provider to develop a global payroll solution. A global payroll provider represents a way to achieve payroll compliance quickly, and ensure employees in Israel and other international territories are paid accurately.