Our guide to Payroll in Israel

Doing Business in Israel

Investment in the Israel

Israel is widely considered to be one of the most advanced countries in Western 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 largest number of start-ups and NASDAQ-listed companies in the world outside of North America.

Beyond lucrative exports of pharmaceuticals, fruit, military technology 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.

General Information

Full Name: Israel

Population: 9.9 million

Capital: Jerusalem

Major Language(s): Hebrew, Arabic and English

Currency: Israeli New Shekel

Main Exports: High-Technology and Biotechnology Products, diamonds, Pharmaceuticals and chemicals.

Internet Domain: .IL

International Dialling Code: +972

How To Say

Hello: Shalom

Good morning: Boker tov

Good evening: Erev tov

Do you speak English? To a male: Ata dover anglit?To a female: At doveret anglit?

Goodbye: Shalom

Thank you: Toda

See you later: Nitra’e bekarov 

2026 National Public Holidays

Name: Date, Weekday

Tu Bishvat: February 1-2, Monday

Purim: March 2-3, Monday Tuesday

Passover (First day): April 1-2, Wednesday - Thursday

Passover (Seventh day): April 7-8, Tuesday - Wednesday

Memorial Day: April 21, Tuesday

Independence Day: April 22, Wednesday

Shavuot: May 21-23, Thursday - Saturday

Tisha B'Av: July23, Thursday

Rosh Hashanah: September 11-13, Friday- Sunday

Yom Kippur: September 20-21, Sunday - Monday

Sukkot (First day): September 25-26, Friday - Saturday

Shmini Atzeret: October 2, Friday

Simchat Torah: October 3, Saturday

Hanukkah (First day): December 4, Wednesday

Registering the Entity at the VAT authority

After completing the legal side of registration of an entity in Israel the company must be registered in VAT

If the Israeli subsidiary has only foreign directors it is regarded by the tax authorities and VAT as foreign entity in spite of being an Israeli registered company.

For this process VAT requirement from a foreign entity is to have an Israeli resident and citizen personally liable and responsible.

If it is an Israeli subsidiary with at least one Israeli director, it is automatically accepted by VAT authorities. The Israeli director is responsible for VAT and all other activities

In case there are only foreign directors in the Israeli subsidiary, VAT will not register the company without an Israeli resident and citizen who acts as a guarantor for this company in VAT.

Without VAT registration the company will not be able to do business in Israel.

The initial requirement of VAT is that the company will have a bank account in an Israeli bank (including commercial foreign branches of foreign banks).

There are two reasons for this requirement:

1. For transferring refunds from the VAT to the entity.
2. To enable the VAT to put a foreclosure if there is any amount that is due. The entity should open a bank account before registration with the VAT. It is a little bit difficult to do it with only foreign directors.

There should be a board resolution to open a bank account approved signed and the signature must be approved by an Israeli lawyer or consul on the notice forms of this resolution prepared by the bank. Approved passport by a notary and apostil is also required and the residence address of the directors. If they are Americans forms w8 and w9 as relevant are also required.

The second requirement is to provide the VAT authorities with Document evidencing the right to use the premises serving as registered office.

Registering the Entity at the Tax Authorities, specifically Israeli Tax Authority (ITA) for corporate tax, employer and employee tax and National Insurance

Once the entity is registered at the "Registrar of Companies" and VAT authorities, it should be registered as Employer at National Insurance and Income Tax Authorities for making all payroll taxes' payments and reports filing.

Documents Required

The necessary documents (incorporation forms – signed as described above) are:

1. Company registration application - in Hebrew and in English.
2. The standard Article of association of the Israeli company - in Hebrew and in English
3. Directors' statement - in Hebrew and in English.

Additional documents to be submitted to the Israeli Registrar of Companies:

1. Apostilled Certificate of Incorporation of the parent company.
2. If there is more than one shareholder, all the shareholders must sign a shareholder statement – the statement must be signed before an Israeli lawyer (with an Israeli license number) or before the Israeli consul (in the Israeli consulate in the foreign country).
3. Notarized approval of the validity of the parent entity that will own the shares of the Israeli company.
4. Approval of the company registrar fee payment.

Documents required for the “fast” route option: after the Israeli entity will be opened in order to transfer the shares to the parent company he will need to submit to the Israeli Registrar of Companies the following documents:

1. Apostilled Certificate of Incorporation of the parent company.
2. Notarized approval of the validity of the entity that will own the shares of the Israeli company.
3. In order to add additional directors – copy of the new directors' passports approved by an apostil.

Registering the Foreign Entity (Branch) at the "Registrar of Companies"

The process with the registrar of companies is similar of registration of a subsidiary.

Registration the Entity at the VAT authority

After completing the legal side of registration in Israel the entity must be registered in VAT

For this process VAT requirement from a foreign entity is to have an Israeli resident and citizen personally liable and responsible (can be the same person as described above).

The initial requirement of VAT is that the company will have a bank account in an Israeli bank (including commercial foreign branches of foreign banks).

There are two reasons for this requirement:

1. for transferring refunds from the VAT to the entity.
2. To enable the VAT to put a foreclosure if there is any amount that is due. The entity should open a bank account before registration with the VAT. It is a little bit difficult to do it with only foreign directors.

There should be a board resolution to open a bank account approved signed and the signature must be approved by an Israeli lawyer or consul on the notice forms of this resolution prepared by the bank. Approved passport by a notary and apostil is also required and the residence address of the directors. If they are Americans forms w8 and w9 as relevant are also required.

The second requirement is to provide the VAT authorities with Document evidencing the right to use the premises serving as registered office.

Registering the Entity at the Tax Authorities, specifically Israeli Tax Authority (ITA) for corporate tax, employer and employee tax and National Insurance

Once the entity is registered at the "Registrar of Companies" and VAT authorities, it should be registered as Employer at National Insurance and Income Tax Authorities for making all payroll taxes' payments and reports filing.

Documents Required

Application for registration shall be submitted to the Registrar within one month after the establishment of place of business, and enclose the following documents:

1. A copy of the article of association of the company with a translation into Hebrew, the translation should be verified by a notary (signatures are not required to appear on the copy of the regulations).
2. List of directors of the company, including passport number and place of issuing the passport.
3. The name, address and ID number (or passport number in case of a foreign resident) of a person living in Israel, who is authorized to receive on behalf of the company Judicial documents and messages.
4. A copy of a written permission empowering a person normally resident in Israel to act on behalf of Israeli company (a general power of attorney).
5. Certificate of incorporation from the State of origin signed by apostil and a document showing that the company is active (in terms of registration) as at the date of the request.
6. Receipt for payment of Registration Fee.

Entities Without a Legal Register (Employer File)

Note: This option is available only in case the business activity does not create permanent establishment and enables the foreign company to be registered only as employer

In cases where the business activity does not create a permanent establishment the foreign entity may be able to be registered only as employer and open an employer file at the income tax and national insurance authorities for making all payroll taxes' payments and reports filing.

If a local CPA evaluates based on investigation of all different elements that the foreign company can claim of not creating a permanent establishment, the company will issue a statement letter declaring that the first year of activity will be a "trial period" during which the company will estimate whether or not the business activity is going to create a permanent establishment. With this letter and the below listed documents the company can be registered as employer.

The company will not have to open bank account or be registered at the Registrar of Companies or VAT and can manage all payroll related payments through an agent that is legally allowed to manage a trust bank account (CPA and Law firms are authorized to manage a trust bank account).

Documents Required

For initiating this process the following document are requested

1. Certificate of Incorporation.
2. Articles of association of the company.
3. Signed Representation letter to an Israeli representative personally which explains the local business activity of the foreign company and covers at least temporary the permanent establishment issue.
4. Signed limited POA and waiver of liabilities assigned to the Israeli representative personally.

Once the company's employer file number is issued, payroll can be processed and payroll taxes can be paid and reported

Registration of the new company with the appropriate tax authorities should be made 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 official 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 companies must present annual reports, including audited financial statements to their shareholders. However, there is no requirement to publish financial statements of a private company.

A company incorporated overseas may establish a branch or a 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. In order to register, a foreign company must submit all the necessary documents to the Registrar of Companies.

If the company uses the term "limited" as part of its name, then it must display its name (and the name of the country it was incorporated in) on every invoice, letter, announcement, advertisement and any other official publication.

More information regarding tax and registration can be found at the following links:

• Israeli Registrar of Companies

• Israeli local bank

• Israel Tax Authority

• National Security

Banking

It is not mandatory to have an in-country bank account to process the payroll. Salary and third-party payments can be made on behalf of the company. Monthly payments to the authorities are made by bank transfers in shekels. Monthly payments to the authorities can be made only from an in-country bank account. Payments to employees are made using bank transfers. Bank transfers are usually made within 1-2 business days in Israel.

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 Week

Working hours in Israel are generally from 08:00 AM to 17:00 PM, Sundays through Thursdays. Businesses that operate on Fridays are generally open from 08:00 AM to 13:00 PM.

A full-time working week for employees who are 18 years of age or over consists of 42 working hours. It is illegal to make an employee work more than 12 hours per day or more than a sum of 16 overtime hours a week.

Different rules apply for employees classified as working part-time, workers with disabilities, minors and apprentices (in some professions). All employees are entitled to a weekly rest period of at least 36 hours - on Friday, Saturday or Sunday, depending on their religion.

In a 5-day workweek, employees shall be entitled to overtime pay after 8:36 hours of work on four of the five working days and after 7:36 hours on the fifth (or any other chosen by the employer) working day. In a 6-day workweek, employees shall be entitled to overtime pay after only 8 hours.

Overtime payment shall be calculated on a daily basis, as follows:

Payment for the first two hours of overtime each day shall be 125% of the regular hourly wage of the employee; payment for each additional hour of work shall be 150% of the employee regular hourly wage.

Employment Law

Youth Employment Law 1953 generally forbids the employment of children who have not yet reached the age of 15 or who are subject to compulsory education under the Compulsory Education Law 1949.

Under section 2 of the Youth Employment Law 1953 it is permissible to employ a child who has reached the age of 15 and who works as an apprentice under the Apprenticeship Law 1953; a child age 15 who has completed his compulsory education; and a child age 14 whose employment has been approved by the Minister of Labour and who has been excused from compulsory education. Employers of youths of compulsory school age are required to release them from work to attend school, without debiting their salary, during school days and hours. Failure to fulfil these obligations is a criminal offense of the Compulsory Education Law 1949.

Holiday Accrual / Calculations

Employees are entitled to 16-31 days including weekends of paid annual leave each year, depending on their seniority with the same employer.

In addition, each employee is also entitled to nine paid religious holidays a year according to his religion or the Jewish calendar, as he chooses.

Employees are entitled to annual paid vacation days. The yearly entitlement per the law, is set according to their seniority and to the number of days a week they work.

Employment contracts and company's policy may provide the employees with better conditions and this data must be communicated to Yarel during implementation or whenever a change occurs.

Vacation days taken must be tracked and reported by the client to the partner according to the attendance report format provided during implementation or through a different format as long as it includes required information.

Maternity Leave

The maternity allowance is designed to compensate the new mother for the loss of her salary or income during the time she is not working, due to the pregnancy and childbirth.

Women are entitled to either 8 or 15 weeks of paid leave (depending on the number of months she paid National Insurance fees prior to the birth) + 11 weeks of non-paid leave.

In order to receive the maternity allowance, employees must fill out and submit a claim (via E-mail, at the post office, in person or electronically using the NII website) to the National Insurance Institute branch closest to their place of residence, along with certification of birth from the hospital and payslips. The employer may transfer this data via the Internet, instead of the employee.

Paternity Leave

The father can take up to seven days of leave together with the mother at any time during her maternity leave. In this case, the mother will be paid for 14 weeks and the father for one week.

• The mother is allowed to transfer part of her maternity leave to the father. In this case He may only use the second half – meaning, the first 6 weeks after the delivery must be used by the women. The following 6 weeks or part of it may be used by the man.

His spouse (the mother) has given her consent in writing.

• His spouse (the mother) has worked during this period.

Sickness

The Sick Pay Law (and certain other related laws) sets the right of any employee 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 illness; for the second and third day of illness, employees are entitled to 50% of their daily salary; and from the fourth day onward, 100% of their daily salary. However, in several industries it is common to pay full salary for sick leave, starting from day one.

Army Reserve Service

Army Reserve Service is mandatory in Israel. Therefore when employee is absent from work due to reserve duty, his salary should not be impacted.

Employer must pay the employee his normal salary during this period and make all legal accruals (vacation, sick and convalescence) and social funds' contributions.

The employer will then claim the funds paid during the employee's reserve duty service from national insurance.

The process of claiming back the funds is as follows:

Employee will provide certificate of the service period.

Employer will submit stamped "refund of military reserve duty claim" + the abovementioned certificate (original copy) to national insurance office.

Upon receiving the refund (transferred directly to the company's bank account) the employer must check if there are any differences due to the employee (the amount transferred by national insurance may be higher than the amount paid by the employer due to service bonuses paid by NI and due to method of calculation).

Income Tax

Income tax is deducted from the salary by the employer and transferred to the relevant tax authorities.

Note regarding migrant workers: The employer is required to pay the authorities various fees in order to attain the necessary permits to employ migrant workers. The employer should not deduct any such fees from the salary of these workers.

Self-employed individuals are required to pay income tax on taxable income at rates ranging from 10% to 50%, plus national insurance and health tax of up to 6.92% on the first NIS 7,703, and 15.79 on any additional income exceeding the sum of NIS 7,703 up to a limit of NIS 51,910

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 in certain cases, for example: when a treaty applies or when the payments are for services that are rendered entirely abroad.

Failure to withhold tax properly will result in a denial of the relevant expense and possible penalties.

For the purpose of withholding tax, an employer is required to open a withholding tax file with the Israeli IRS prior to making remuneration to employees or payments to other recipients. The employer is then required to withhold income tax from employment remuneration paid to employees (and any benefits given to the employee), for work performed in Israel.

Income tax is paid to the authorities every month. Therefore, the employer must transfer the deducted tax via on line methods orbank so it arrives to the authorities by the 15th day after the month's end. Late payments generate a penalty. Employers are also required to provide all employees with annual earnings and deductions statements ‘ form 106.

Social Security

All Israeli residents aged 18 and over are obliged by law to insure themselves with the Israeli NII (National Insurance Institute, in Hebrew: Bituach Leumi) by paying the National Insurance contributions, with two exceptions:

• A housewife (a married woman who is not employed outside of the household)
• 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. Once again, 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. Thus, insured residents must be registered in one of the four healthcare funds and are entitled to different health services by law.

Payment rates of national insurance and health insurance are calculated according to the insured’s earnings, and according to their work status (employee, self-employed, unemployed, student, etc.). Payments will not be less than the minimum percentage specified by law and will not exceed 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 266 (as of 01.01.2026) per month.

An insured person is obligated to pay insurance contributions for any period he/she is temporarily absent from Israel.

As for foreign employees, National Insurance fees are deducted from their salary and shall cover the following:

• Work-related injuries
• Maternity allowance
• Unpaid wages or severance pay in case your employer becomes insolvent (see below)

The rate of national insurance deduction for a foreign employee is 0.04% for the first NIS 7,703 (as of 2026) of his salary, and 0.87% of every additional shekel above NIS 7-,703.

You can find detailed information on National Insurance benefits and deductions on the National Insurance Institute website.

Additional deductions that can be made from a foreign employee's salary include housing expenses and health insurance costs. The employer may also deduct sums that the employee owes them (such as loans and recruitment fees), but only if the employee agrees in writing to such a deduction.

The employer is legally obliged to arrange accommodation for a foreign employee. The law further details the required standards and costs of employees’ residence.

Rates of National Insurance (Social Security) and Health Insurance for residents of Israel are as follows:

See attached updated tables to insert and edit into the doing business file

Reporting

The Israeli tax year is generally the calendar year. Subsidiaries of foreign public companies may sometimes use a different fiscal year.

Yearly

By the end of March of each year, the employer must provide every employee with a 106 Form, which is an annual statement of wage and tax. The employer also has to submit to the IRS a 126 Form by end of April, and a 126 form to the NII by the end of July, January and April.

Withholdings to be included in the submitted forms above are:

• Company corporate Tax yearly prepayments - a percentage of the company's monthly sales revenue
• Supplementary company corporate tax prepayments with respect to certain non-deductible expenses
• Tax withheld from salaries and remittances to suppliers when applicable
• Value Added Tax (VAT)
• National Insurance

All companies doing business in Israel are required to file an audited annual tax returns and financial statement within 5 months after the end of each fiscal year. An additional grace period for transmittal may be obtained.

Filings may sometimes be spread over a period of up to 13 months after the tax year-end.

Monthly

Companies must also file monthly returns, corporate tax 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.

Payroll

Wages and salaries are paid on a monthly basis. Payments can be made in cash, cheque or electronic bank transfer. Payments in cash or cheque are limited .

The most common payment systems in Israel are:

1. Bank transfer
2. Masav - banking clearing house system

Reports

Payroll reports are kept for 7.5 years.

New Employees

It generally takes 3-4 days to set up a new employee on payroll.

The information required to register a new employee are:

• Personal and demographic data: name, address; proof of address and identification no.;
• Tax information;
• Salary data; including all employment terms (vacation and sick entitlements)
• Hr/payroll data,
• Family members’ info,
• Employee’s health insurance,
• Hr/salary data: employee salary, premiums, bonuses and/or allowances, dispense voucher, job title, cost centre, location, department, work hours, type of employment contract, vacation and sick entitlements)
• Form 101 - workers declaration to be filled by the employee at the beginning of employment and at the beginning of each tax year, and after any change in form details. the employee must attach to the 101 form a photocopy of his Israeli ID card and any certificates that are needed to provide tax entitlements.
• Bank account info.
• If the employee has a company car – then we must receive the car license which includes the car model for taxes.
• Pension funds details – employer must start pension contributions after completing 3 or 6 months of employment depends on if the employee had previous pension plans or not.

Leavers

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.

• Pension: Mandatory (6% employee, 6.5% + 6% employer)
• Travel Allowance: Up to NIS 22.60/day or monthly bus fare
• Recuperation Pay: NIS 378 × 5–10 days/year (paid June–Sept)
• Share Schemes: Taxed on gains
• Bonuses, Benefits: Taxable (e.g., housing, insurance)
• Company Car: Car license required for tax calculations
  
  

Visas & Work Permits

There are two types of Israeli work permits that a foreigner can receive from the Ministry of Interior:

• An open (B1) work permit, allowing a person to work without restrictions, other than a one-year (renewable) time limit
• A restricted work permit, initiated by a sponsoring Israeli Employer, limiting employment to the specific company

The B1 permit is open for renewal should the requirements be met, and provide the job seeker with complete flexibility.

The visa process can take from weeks to months to complete. The employment contract and letter from the employer stating that they are interested in hiring the applicant is helpful in the process. The B1 Work Permit only suggests that the applicant is eligible for work. This visa is for a person whose stay in Israel is approved for a limited period for the purpose of work. This visa is given to experts and artists, among others, and is granted solely with the approval of the Ministry of the Interior.

The applicant pays the fee when the application is submitted to one of the population administration offices of the Ministry of the Interior. Upon receipt of approval from the Ministry of the Interior, an interview with the applicant is performed, and the following documents are requested from the applicant:

• A Verified Certificate of good conduct
• Certification of Medical Examinations performed in clinics or hospitals recognized by the mission and the results of blood tests.
• A declaration of the taking of a fingerprint (the State of Israel has begun to take a fingerprint from foreign workers who enter the country to work) and a photograph.
• A completed Application for a Visa
• Two Passport Pictures

Following acceptance of the documents above, a B1 Work visa will be issued for the employee.

The validity of the B1 Work visa will be in accordance with the guidelines of the Ministry of Interior. The worker must enter Israel within the period specified in the visa and stay in the country as specified in the visa. A person who receives such a visa may apply to one of the population administration offices of the Ministry of the Interior to extend the visa.

Key updates in 2026

In Israel, several key changes to personal income tax, social security, and employment law are in effect for 2026:

Personal Income Tax Rates:

• The taxation of individuals is imposed at graduated rates, ranging up to 47%. Additionally, a 3% surtax applies on annual taxable income exceeding 721,560 Israeli shekels (ILS), resulting in a maximum income tax rate of 50%.

Corporate Tax:

• The standard corporate tax rate in Israel is 23%.
• Companies officially registered in Israel are taxed on income received globally, while foreign company branches in Israel are taxed on income accrued in Israel.
• There are different taxation rules for dividends, depending on their source.
• Some enterprises meeting certain criteria may be eligible for reduced tax rates, such as 7.5% in priority areas and 16% in other areas.

Value-Added Tax (VAT)

• The standard VAT rate in Israel is 18%, with some types of tourism services exempted.
• Starting from January 1, 2026, invoices above NIS 10,000 before VAT must bear invoice numbers allocated by the Israeli Tax Authority (ITA) for the customer to recover input VAT. This threshold will decrease to NIS 5,000 by January 2028.

Small Businesses and VAT

• For the years 2024-2026, the maximum annual revenue for an exempt dealer (Osek Patur) for VAT purposes will be NIS 122,833 per annum.
• Starting in 2024, a freelancer with annual revenue up to NIS 122,833 may elect to be a Small Dealer (Osek Zair) and claim a flat expenses deduction of 30% of revenues for income tax purposes.

Residential Rental Income

• Landlords of Israeli residential homes can elect to pay a flat rate of tax at 10% of gross rental income, with no deduction for expenses or depreciation. Starting in 2023, expenses of up to NIS 90,000 per year may be deducted if these expenses relate to the rental of an only home in Israel under specific conditions.

• These are some of the significant changes affecting personal income tax, social security, and employment law in Israel for 2026. It's important for individuals and businesses to stay informed and consult with tax professionals for specific advice and compliance.

Further Information

For more information, or assistance with Israel Tax inquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.