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 recently reduced to 25%, and plans for a further reduction to 24% in 2017, 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.

Why Invest in Israel?

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?

  • Economic development: In 2010, Israel joined the Organisation for Economic Cooperation and Development. Its economic development has been swift and, outside North America, it hosts the largest number of start-ups and NASDAQ companies in the world.
  • Tech sector: The technology sector is one of Israel’s most successful investment targets. Tech products make up the majority of industrial exports (and a substantial amount of total exports) and tech companies populate the Israeli stock market. In the U.S markets, Israel has more listed tech companies, in innovation fields such as cyber-security, big data, fintech, and health and life sciences, than any other country in the world.
  • Financial resilience: The Israeli economy has shown remarkable resilience. In the wake of a market collapse in 2000, the government introduced reforms to open up financial services, privatise state-owned companies, and increase entry to a variety of industries. At 5%, Israel’s unemployment rate is now one of the lowest in the world.
  • Foreign investment: Israel’s Foreign Investment and Industrial Cooperation Division leads initiatives to attract foreign investment with support available for every stage of the investment process. A range of tax breaks and other financial incentives are available for foreign businesses hoping to set up in Israel.
  • Geographic advantage: Israel acts as a continental gateway, with access to markets in the Middle East, Asia, North Africa, and Europe, and tens of millions of consumers. Israel hosts several modern international sea ports and busy international airports which connect to destinations in every corner of the globe.

Foreign Direct Investment 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.

Registering a Company & Establishing an Entity in Israel 

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 and Tax authorities. While Hebrew and Arabic are the official languages of Israel, in practice, corporate documents in English will generally be accepted by the Registrar. 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.
  • Memorandum of Association, which establishes the corporate identity and principal objectives of the company, shareholders' responsibility and shares issued.
  • 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 Ordinance will be in force for this company.

The fee for registering a company in Israel is currently 2,640 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. Usually a lawyer will 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:-

Banking for Business in Israel

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.

The standard bank opening hours in Israel are 8.30am to 12.30pm on Sundays to Fridays and 4.00pm to 6.00pm on Mondays and Thursday afternoons.

Working Days and Working Hours in Israel

Working hours in Israel are generally 8.00am to 17.00pm on Sundays to Thursdays. Companies that work on Friday will are generally open from 8.00am to 1.00pm.

The working week for employees 18 years of age or over who are employed full time consists of 43 hours. Employing more than 12 hours a day or 15 overtime hours a week is illegal.

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 (in a 5-day work week) or after 8 hours (in a 6-day work week). 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.

Basic Facts about 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.

Full Name: Israel

Population: 8.547 Million (World Bank, 2016)

Capital: Jerusalem

Major Language: Hebrew and Arabic

Currency: Israeli New Shekel

Main Industries: High-Technology Products, Pharmaceuticals

Internet Domain: .il

International Dialling Code: +972

Hello Shalom

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

Income Tax & Social Security in Israel

The financial year in Israel runs from the 1st January to the 31st December.

Income Tax in Israel 

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 16.23% on the first NIS 43,370 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 57.3%, decreasing to 48% beyond NIS 43,370.

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 15th 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.

Social Security in Israel

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 increases 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 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 171 (as of 01.01.2018) per month.

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

National Insurance in Israel (In Hebrew: Bituach Leumi)

Fees are deducted from a foreign employee's salary and cover the following:

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

The rate of national insurance deduction for a foreign employee is 0.04% for the first NIS 5,678 of his salary, and 0.87% of every shekel above NIS 5,678.

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

Housing and Health Insurance: additional deductions 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.

Reporting Tax in Israel

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

Yearly:

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 InsuranceInstitute Form 126 to the end of July, January and April.

Taxes to be filed include:

  • 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 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.

Monthly:

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.

New Employees in Israel

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

The information required to register a new start are:

  • Personal Demographic Data: Name, Address; Proof of Address and Identification;
  • Tax Information;
  • Salary Data;
  • HR/Payroll Data,
  • Family Members,
  • 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
  • New Employee Forms Completed and Registration with Authorities:
  • Form 101 - Workers Declaration to be filled out by employee at the beginning of employment and of each tax year, and after any change in form details.
  • Employment contract stating conditions between the employer and the employee, including salary components, insurance and funds, etc.
  • Bank account.

Leavers in Israel

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

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:

Salary (Shekels)

Tax Rate

Up to 6,220

10%

6,221 - 8,920

14%

8921 - 14,320

20%

14,321 - 19,900

31%

19,901 - 41,410

35%

41,411 - 53,333

47%

Over 53,333

50%

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.

The full guide is available in PDF format for registered users.

Register for free