Israel

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.

General Information

• Full Name: Israel
• Population: 9.55million (World Bank, 2022)
• Capital: Jerusalem
• Major Language: Hebrew and Arabic
• Currency: Israeli New Shekel
• GNI Per Capita: US $54,650 (World Bank 2022)
• Main Industries: High-Technology Products, Pharmaceuticals
• Internet Domain: .il
• International Dialling Code: +972

How Do I Say in Hebrew?

• 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

Dates and Numbers

Dates are usually written in the day, month and year sequence. For example, 1 July 2021 or 1/7/21.

Numbers are written with a period to denote thousands and a full stop to denote fractions. For example, 3.000.50.

On the southeastern shores of the Mediterranean, Israel represents a gateway to the Middle East and is one of the region’s most significant economic and political powers. Israel is a developed parliamentary republic with high standards of living and social care and a strong infrastructure promoting international trade and commerce.

Israel's robust economy, known for its technological innovation and entrepreneurship, makes it an ideal destination for businesses aiming to establish a strong foothold in the Middle East and beyond.

The country's strategic location serves as a bridge between Europe, Asia, and Africa, providing unparalleled access to global markets.

Israel's commitment to research and development is evident in its world-class universities and research institutions, fostering a culture of innovation that permeates various sectors, from IT and biotechnology to agriculture and water technology.

The government's supportive policies, including incentives for startups and R&D projects, further enhance Israel's appeal as a business destination. Furthermore, Israel's diverse and multicultural workforce is highly skilled, particularly in the STEM fields, offering businesses a rich talent pool to drive growth and innovation.

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.

Israel's dynamic economy offers a wide array of investment opportunities, especially in high-growth sectors that leverage the country's strong innovation ecosystem. The technology sector, particularly cybersecurity, artificial intelligence, and fintech, continues to attract significant investment. The life sciences industry, including pharmaceuticals and medical devices, is another area where Israel excels, driven by cutting-edge research and a conducive regulatory environment.

Renewable energy and water technology are also key sectors, reflecting Israel's focus on sustainability and resource management. The government's investment-friendly policies, coupled with robust intellectual property protections and a vibrant startup scene, make Israel an attractive destination for venture capital, private equity, and strategic investments. Investors can benefit from the country's resilience, adaptability, and forward-thinking approach to business and technology.

Israel is a prime target for foreign direct investment (FDI) due to its reputation as a startup nation and its track record of innovation. The country's FDI landscape is diverse, spanning various sectors that capitalise on Israel's competitive advantages. Key areas for FDI include:

• High-Tech and Innovation: Israel's high-tech sector, particularly in cybersecurity, software, and telecommunications, is a major magnet for FDI. The country's thriving ecosystem of startups and innovation hubs offers lucrative opportunities for foreign investors looking to tap into cutting-edge technologies and innovative business models.
• Life Sciences and Healthcare: The life sciences sector, including pharmaceuticals, biotechnology, and medical devices, is another focal point for FDI. Israel's strong research capabilities, combined with a supportive regulatory framework, make it an attractive destination for investments in healthcare innovation and R&D.
• CleanTech and Renewable Energy: Israel's focus on sustainability and resource efficiency has spurred growth in the cleantech sector, encompassing renewable energy, water technology, and environmental solutions. FDI in this sector supports the development of sustainable technologies and contributes to global efforts to combat climate change.
• Manufacturing and Export-Oriented Industries: Foreign investors are also drawn to Israel's manufacturing sector, particularly in industries that leverage the country's technological expertise and export capabilities. This includes advanced manufacturing, electronics, and defense-related production.

Israel's proactive approach to fostering FDI, along with its strategic initiatives and commitment to innovation, positions the country as an attractive destination for foreign investors looking to capitalise on growth and success in a dynamic market.

The Israeli Companies Law (ICL) defines a company as a corporation formed and registered in Israel, in accordance with 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:

• Form No.1 of the Company Registrar – An application form to register a company
• Signed affidavits by the first shareholders and directors of the company
• Articles of Association, which set forth rules of conduct for the company. Should a company not submit its own articles of association, then the standard articles which are listed in the Companies Law will be in force for this company

The fee for registering a company is currently 2,653 NIS.

After the registration is complete, the registrar will issue a Certificate of Incorporation and a company number.

An Israeli lawyer is required in order to verify the company's 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.

The first step in order to register at the tax authorities starts by opening a local bank account. With out a local bank account you cannot be registered at the VAT authorities and following at the corporate level. And employer level.

The most common legal entities are:

• Israeli Company/Subsidiary (Limited Liability, Company Limited by Shares)
• Foreign Entity (Branch Office)
• Entities without a Legal Register (Opening only "Employer File", normally this is a type of Representative office)

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

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

1. An open (B1) work permit, allowing a person to work without restrictions, other than a one-year (renewable) time limit
2. 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.

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 cheques and in shekels. Payments to employees are made using bank transfers or cheques. Bank transfers are usually made within the same day 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.

The financial year in Israel starts on 1st of January and ends on 31st of December.

Income Tax

Income tax is deducted from the salary by the employer and transferred to the relevant tax authorities. Please see below a table of income tax rates:

1. An employee with an annual income of 721,560 NIS (60,130 NIS per month) will be taxed an additional 3%.
2. The monthly value of a credit point is 242 NIS
3. The table above shows the monthly figures, however income tax is processed on an annual accumulative basis so the annual figures are * 12
4. The table above reflects the taxes before any tax credits and tax credit points which vary among employee

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 5.97% on the first NIS 6,331, and 17.83% on any additional income exceeding the sum of NIS 6,331 up to a limit of NIS 45,075.

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 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, bank or the Post Office so it arrives to the authorities by the 16th 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.

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 177 (as of 01.01.2020) 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 6,331 (as of 2020) of his salary, and 0.87% of every additional shekel above NIS 6,331.

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:

1. National Insurance is calculated on a monthly basis and the table above shows the figures per month
2. For irregular pay elements (not processed every month such as bonuses) the calculation will be done as if the payment/BIK was paid during the last 12 months
3. The table above reflects the percentages applicable for most employees as they reflect employees at the age of 18 to retirement. There might be different percentages under exceptional circumstances 

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

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.

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 Tax Installments - a percentage of the company's monthly sales revenue
• Supplementary company tax installments 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.

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 center, 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
• Employment contract stating conditions between the employer and the employee, including salary components, insurance and funds etc. Employment terms are sufficient. It can be provided in our "new hire" data gathering template
• 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
• Employee consent for electronic payslip 

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.

It is legal to issue payslips electronically, along as consent has been obtained from the employee in writing.

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 up to 11,000 ILS.

The most common payment systems in Israel are:

• Bank transfer including Zahav system (designated for immediate, faster transfer)
• Masav (banks' automated clearing house, which settles electronic debit and credit instructions

The main users of these various payment systems are mostly commercial banks and large financial institutions. Private users and the public use these means of payment directly and need to use the inter-bank payment systems for the transfer of money from bank to bank.

Reports

Payroll reports are kept for 7 years.

Youth 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 aged 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 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. This is normally between 16-28 days. 

In addition, each employee is also entitled to nine paid religious holidays a year according to their religion or the Jewish calendar, as they choose.

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

Female employees are entitled to paid maternity leave to compensate for the loss of salary or income during their absence from work due to pregnancy and childbirth.

The length of paid maternity leave is generally 15 weeks. However, if a woman has been employed for at least 12 months by the same employer or in the same workplace (even if the employer has changed), she is entitled to 26 weeks of maternity leave, divided into paid and unpaid periods. Women are entitled to an additional 11 weeks of non-paid leave, allowing for an extended period to care for the newborn.

The maternity allowance from the Social Insurance Authority is computed based on the average salary for social insurance contributions within the 6 months before the maternity leave. This amount is then multiplied by the duration of the paid leave period (e.g., 15 weeks).

For prenatal appointments and pregnancy tests, allowances are also provided. The total number of pregnancy test days should not exceed 5 days. The allowance for this period is calculated based on the average salary for social insurance contributions before the pregnancy test, divided by 24, and then multiplied by the total number of pregnancy test days.

In case of a miscarriage, the allowance is calculated based on the total number of days indicated in the certificate from the hospital. 

To receive the maternity allowance, employees must submit a claim to the National Insurance Institute (NII) along with the required documentation, such as certification of birth from the hospital and payslips.

The claim can be submitted via email, at the post office, in person, or electronically using the NII website. Employers can also transfer this data on behalf of the employee via the Internet, simplifying the process.

Paternity Leave

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.

National Service

The national minimum wage in Israel for 2024 will increase to NIS 5,880 per month starting from April 2024.

The hourly minimum wage will be NIS 32.3 per hour.

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

There are multiple statutory holiday schedules within Israel. Below are the statutory national holidays in Israel for 2024.

Employee benefits in kind are not required by law. However, if granted to the employee, they must be taxed accordingly.

Employee share schemes may be found in public companies; the gain is taxed.

Expenses

Travel Allowance: Employees that require transportation to get to their workplace are entitled to travel allowance in addition to their salary. The allowance shall not exceed the sum of NIS 22.60 per day or the cost of a prepaid monthly bus ticket.

Recuperation Pay: Upon completion of one year of work for the same employer, employees are entitled to recuperation pay from their Employer. The daily rate is NIS 378 multiplied by 5-10 days (depending on the length of the employment period). Recuperation pay is usually paid to the employees once or twice a year between June and September, but may be paid monthly.

Pension and Managers Insurance 

Employees are entitled to pension insurance based on their salary. The Mandatory Pension Law became affective in 2008 and based on this law an employer is obliged to make pension contributions once the employee completes 6 months of employment or in case he/she has an existing policy - after 3 months and backdated to the first day of employment.

Different pension/managers insurance schemes are accepted in the labor market and they result from employer-employee agreements. Please see the summarising table below:

• * depends on the employee's age and health, most employees are insured between 0.7 - 1.5 of their salaries. As long as Employer contribution towards Saving and towards disability insurance does not exceed 7.5%
• ** currently (2024) - 10,551 ILS
• Note: Severance deposits are based on the calculation of 8.33% * 12 months = 100% of salary per year.  It is in accordance with the severance payment law in Israel which defines the employer's severance compensation liability in case of dismissal under the formula of one salary per year multiplied by the number of years of employment.

Education Fund/Professional Training Fund

This is non mandatory and is considered as a benefit to for an employee as per the agreement with the employer.

In case there is such an agreement the percentages are 2.5% employee contribution and 7.5% employer contribution. Contribution can either be made from the full base salary or up to the law's exempt ceiling which is 15,712 ILS monthly. In case the contribution exceeds the ceiling, the employee must pay taxes on the difference (it is BIK - benefit in kind).

Originally it used to pay for employees education/professional training but it is currently just a saving fund. Employees are entitled to withdraw funds after 3 years for studies and after 6 years for any reason without any taxes. 

The common options are:

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 698,280 Israeli shekels (ILS), resulting in a maximum income tax rate of 50%
• The annual tax brackets for 2023, which are likely similar for 2024, are structured in such a way that the rate increases with the level of income, ranging from 10% to 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​​

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.