Market Entry Guide Israel.
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- Introduction
- Modes of Setting up a Business in Israel
- Procedures for Immigration
- Social Security System in Israel
- Free Trade Zones/Free Ports in Israel
- Incentives and Benefits to Investors
- Overview of Banking Sector
- Recruitment of Local Staff
- Taxation
- Appendix
- Evalueserve Disclaimer
1 Introduction
Download PDF
- Introduction
- Modes of Setting up a Business in Israel
- Procedures for Immigration
- Social Security System in Israel
- Free Trade Zones/Free Ports in Israel
- Incentives and Benefits to Investors
- Overview of Banking Sector
- Recruitment of Local Staff
- Taxation
- Appendix
- Evalueserve Disclaimer
1 Introduction
A part of the Middle-East region, Israel is located on the eastern shore of the Mediterranean Sea. It is a parliamentary democracy with a president as head of state. The Knesset is Israel’s legislative authority and operates in a plenary session through 12 standing committees. The government is headed by a prime minister and is responsible for managing internal and external affairs as well as the Knesset.1 The country has 7,5 million inhabitants (June 2011); Jews form 76 percent of the population, followed by Muslims (approximately 16 percent) and Christians (around 3 percent). Hebrew and Arabic are the official languages of Israel; however, English and Russian are widely spoken. The New Israeli Shekel (ILS) is the official currency denomination used in the country.2
Israel has a technologically advanced market economy with a strong high-tech sector. High-technology electronics and biomedical equipment, metal products, processed foods, chemicals, and transport equipment are the main industries in Israel. With a strong services sector, Israel is among the leading destinations for diamond cutting and polishing.3
Israel’s large trade deficit is balanced out by large transfer payments from abroad and by foreign loans, The US acts as the major source of military aid to the country and approximately half of the Israeli government’s external debt is owed to the former.
The economy suffered at the start of this decade (2001-02) primarily because of the Palestinian conflict and difficulties with the high-technology sector. However, once this was overcome, Israel’s GDP grew by approximately 5 percent per year from 2004–07. Due to its prudent fiscal policy, liberalizing reforms and a resilient banking sector, Israel’s economy easily recovered from the global financial crisis of 2008–09. Its GDP (purchasing power parity) recorded a growth of 0,5 percent in 2008, increasing from EUR 158,3 billion to EUR 159,1 billion in 2009. Services are the leading sector, representing about 65 percent of GDP in 2009, followed by the industrial sector, which contributes 32 percent. The GDP reached 4,5 percent in 2010.
In 2010, Israeli exports were valued at EUR 42,17 (USD 55,84) billion while imports stood at EUR 43,75 (USD 57,93) billion. In 2010, the country’s major import partners were the US, China, Germany, Switzerland, Belgium, the UK, Italy, and the Netherlands, with the US, Hong Kong, India and Belgium ranked as the major export partners. The export portfolio of Israel includes machinery and equipment, software, cut diamonds, agricultural products, chemicals, textiles and apparel, while imports include raw materials, military equipment, investment goods, rough diamonds, fuels, grain, and consumer goods.4
Israel attracts foreign investment in the high technology sectors, including communications, Internet software, biotechnology, medical instrumentation and the banking and insurance sector. The leading foreign investors in Israel are countries such as Germany, France, Italy, the UK and the US.5 According to a report by the UN Conference on Trade and Development's Annual World Investment Report, foreign direct investment (FDI) in Israel was recorded at EUR 3,89 billion (USD 5,15 billion) in 2010 compared to EUR 3,35 billion (USD 4,44 billion) the previous year, registering a raise of 16 percent.6
The following report aims to discuss the most important issues pertaining to the administrative, legal and financial aspects of setting up businesses and hiring personnel, as well as the living conditions in Israel.
2 Modes of Setting up a Business in Israel
This section discusses the common investment vehicles available to foreign investors, the procedures to be followed in order to establish them and the related regulations for each investment mode.
Starting a new business in Israel is quite simple compared to other countries in the Middle East. The country was ranked the 27th (out of 133) most competitive economy in the Global Competitive Index (in 2009–10) by the World Economic Forum (WEF).7
There are seven primary modes for establishing an enterprise in Israel. Table 1 lists the most common modes of setting up business entities in Israel by foreign investors and the legal particularities involved in each process.
Table 1: Different Ways of Setting up Business in Israel
| MODES OF SETING UP A BUSINESS | DEFINITION/EXPLANATION |
|---|---|
| Private Company |
|
| Public Company |
|
| Foreign Company (Branch) |
|
| Partnership |
|
| Self Employed |
|
| Cooperative |
|
| Non-profit Organisations |
|
Source: Invest in Israel - Starting a Business in Israel
2.1 General Overview – Steps for Company Registration
The procedure for starting a business in Israel consists of the following major steps listed in Table 2.8
Table 2: Procedures for Starting a Business and Related Costs
| S NO |
STEPS | DURATION (DAYS) |
COST IN EUR (ILS) |
|---|---|---|---|
| 1 | Obtain the company registration documents that need to be certified by a lawyer | 3 | EUR 354,28 (ILS 1,753)+ 16% VAT (recommended minimum fee by the Israel Bar) |
| 2 | Submit the documents with the Registrar of Companies | 1 | EUR 503,43 (ILS 2,491) + EUR 0,40 (ILS 2) for each page in the Articles of Association |
| 3 | Register for taxes with the Ministry of Finance | 15 | - |
| 4 | Register for VAT with the Ministry of Finance | 1 | - |
| 5 | Register for National Insurance | 14 | - |
Source: The World Bank Group
Following registration, the Registrar will issue the company with its Certificate of Incorporation and a company registration number (9 digits). After the company has been registered with the Registrar and commenced its operations, it must be registered with the appropriate tax authorities. Tax registration is made using Form 4436, which includes basic details about the company.9
An Israeli lawyer is required to verify the company documents. The lawyer handles and processes the requests for registration and represents the company at the Companies Registrar office. A certified public accountant is required for tax related filings. The entity is required to pay a registration fee of EUR 453,51 (NIS 2.244). 10
2.2 Documents Required to Register the Company11
The documents that must be submitted to register the company (as Step 1 of company registration) are mentioned below:
Form No.1 of the Company Registrar required to register a company
Copy of the articles of association of the company, which should enclose the following details:
Name of the company
Aims of the company
Specifics relating to the registered share capital; and those relating to limitation of liability
Application to the Registrar of Companies which is signed by the shareholders of the business
Written statement by the directors, including a declaration of their willingness to act in such a role
Written declaration by the shareholders
Certified copy of shareholders’ documents of incorporation; in case the shareholder is incorporated overseas
If a director is not an Israeli resident, a certified copy of the personal details as they appear in their passport needs to be submitted.
Although, Hebrew and Arabic are the official languages for Israel, relevant documents for registering a company in English are also accepted.
2.3 Other Documents Required12
To register for corporate tax, the promoter must file the company’s deed and identity certificate of registration.
To register for VAT, the promoter needs to file the following documents:
- Certificate of Incorporation
- Identity documents for all directors
- Lease agreement
- Other information
The company should open a bank account since the VAT authority generally requires a bank account for VAT refund purposes.
2.4 Average Time (in days) Required for Setting up a Business
According to Doing Business, a project supported by the World Bank, Israel ranks 34th (Doing Business 2012 ranking) among the 183 economies (countries, regions and cities) in the world it studied.
Table 3 lists World Bank data related to starting a business in Israel.
Table 3: Starting a Business in Israel
| DATA RELATED TO STARTING A BUSINESS | YEAR – 2011 |
|---|---|
| Rank | 43 |
| Procedures (number) | 5 |
| Duration (number of days) | 34 |
| Cost (% of GNI per capita) | 4,4 |
| Minimum Capital Required (% of GNI per capita) | 0 |
Source: World Bank – Doing Business
According to a World Bank report, the average time taken to start a business in Israel is high compared to other regions. Figure 1 illustrates the obstacles inherent to starting business ventures in various countries.
Figure 1: Obstacles in Starting Businesses in Various Countries (2010)
World Bank – Doing Business 2010 –Israel
3 Procedures for Immigration
3.1 Visa in Israel
Foreign nationals visiting Israel are required to carry their visa and a passport, which is valid for at least six months, when they enter the country.13 However, Israel has visa exemption agreements with several countries. Those from certain countries in Europe, North and South America are not required to apply for a visa to enter Israel – they are issued a tourist visa upon entry. The Minister of the Interior of Israel is in charge of implementing the laws that specify the conditions for entering Israel.14 Ben Gurion Airport, located 20 kilometre from Tel Aviv and 40km from Jerusalem, is the busiest international airport in the country.
Israel’s visa and work permit regulations are discussed in later sections. Some salient points to be considered while applying for an Israeli visa are given below:
People with no nationality must hold a valid laissez-passer, as well as a visa back to the country that issued it.
Generally, a visitor is entitled to stay in Israel for a maximum of three months.15
3.1.1 Types of Visas Issued by the Israeli Authorities
Table 4 provides information about various types of visas issued by the Ministry of Interior.
Table 4: Different Types of Visa and Issuance Requirements
| TYPES OF VISA | DURATION | TO WHOM IT IS ISSUED | MAJOR REQUIREMENTS/CONDITIONS |
|---|---|---|---|
| Immigration visa | n/a | Jews who want to immigrate to Israel |
|
| A/1 Temporary Resident visa | n/a | Person who is eligible for immigration (Aliyah) and has completed the examination processes |
|
| A/2 Student visa | Up to one year and for multiple entries and exits | People who want to study in Israel in elementary, high schools, academic institutions, yeshivot and youth institutions of the Jewish Agency |
|
| A/3 Clergy visa | Validity of the visa will be in accordance with Ministry of Interior guidelines, with the option of renewal only in Israel | Clergymen for the purpose of fulfilling their clerical duties among their religious communities in Israel |
|
| A/4 visa | n/a | Spouses and children of recipients of A/2 or A/3 visas Bottom of Form |
|
| B/1 Work visa | Validity of the B visa will be in accordance with Ministry of Interior guidelines | For working individuals, experts and artists Bottom of Form |
The applicant must enter and exit Israel within the period of time specified in the visa. For visa extension the person can apply to one of the population administration offices of the Ministry of the Interior. |
| B/2 Visitor’s visa | 3 months from the date of issue | Person who wishes to stay in Israel for only a short time |
|
Source: Israel Ministry of Foreign Affairs - Visas
|
Working Visa The employer (including employment agencies) needs to obtain a valid work permit for the person. The following procedure needs to be followed:
|
Source: Invest in Israel – Work Permit
3.1.2 Information around Visa Extensions16
If a person wishes to extend their visa, they need to pay the relevant fee to the Ministry of the Interior, which holds the authority to extend a person’s stay. The visa can be extended at the following addresses of the Ministry, as depicted in Table 5 below.
Table 5: Addresses where Visa can be Extended
| CITY | ADDRESS (PHONE NUMBERS) |
|---|---|
| Jerusalem | 24 Hilell Street (+972 (2) 6294726) |
| Tel Aviv | 125 Menachem Begin Street (+972 (3) 5193305) |
| Haifa | 15 Pal-Yam (+972 (4) 8633333) |
| Eilat | Ha-Tamarim Street, City Center, 2nd Floor (+972 (8) 6381333) |
| Tiberias | 23 Zaki Elkhadif (+972 (4) 6729111) |
| Ben-Gurion Airport | (+972 (3) 9774200) |
Source: Go Israel – Extension of Stay
For further information, please log on to the Ministry of the Interior’s Internet site.
3.2 Average Living Costs for Expatriates
According to the Mercer 2011 study in 2010, Tel Aviv, Israel is ranked as the 24th most expensive city in the world.17 Some examples of the cost of living in Israel are listed below:18
A meal in an inexpensive restaurant costs approximately EUR 9,49 (USD 12,56).
A bottle (0,33 litres) of Coca Cola costs approximately EUR 1,70 (USD 2,25).
Taxi fares for a 5km trip within the city centre in Israel EUR 6,67 (USD 8,82).
Monthly rental for serviced apartments (one bedroom) in the city centre is EUR 596,55 (USD 789,92).
According to “The Expat Focus Guide to Moving Abroad”, Israel has been ranked as the 126th most expensive place out of 182 countries for expatriates to stay in. This has been calculated on the basis of number of basic expenses. The cost of education is reasonable although a large number of expats educate their children privately rather than in state facilities. Healthcare costs in Israel are not excessive and every citizen has access to healthcare facilities. However, the cost of non-essential items such as stationary is relatively high.19
4 Social Security System in Israel
4.1 Overview
The National Insurance Institute is responsible for providing all permanent residents (including non-citizens) with a broad range of benefits, including unemployment insurance, old-age pensions, maternity grants and allowances, child allowances, income support payments, etc. The social security benefits available are detailed in Table 6 below:20
Table 6: Social Security Benefits Offered
| BENEFITS | EXPLANATION |
|---|---|
| Accident Injury | A person, who is injured in an accident and has lost the ability to function due to that accident, is entitled to the benefit that is paid for a maximum of 90 days for the loss of functioning capacity. |
| Maintenance (Alimony) | The benefits are paid to assist women and children who are residents of Israel, who are not receiving payments from the person obliged to do so, despite a court judgment about maintenance payments. |
| Domestic Violence | The benefits are paid to a child who has been orphaned and the State Attorney has determined that one of the parents were killed by their spouse. |
| Prisoners of Zion and Families of Martyrs | The benefits are available to a resident and citizen of Israel who has been recognised by the competent authority as a prisoner of Zion, or a relative of a prisoner of Zion held in prison, or a family member of a martyr. |
| Righteous Gentiles | The person recognised by the memorial authority Yad Vashem as a righteous gentile, and residing in Israel, as well as family members of a righteous gentile, is entitled to benefits. |
| Victims of Hostilities | Victims of hostilities and their families are entitled to such benefits. These benefits are designed to help them recover from their loss. The benefits include monthly benefits, rehabilitation, annual grants and lumpsum grants, etc. |
| Burial Expenses | Any person who dies and is buried in Israel, and every resident of Israel who dies outside of Israel, is entitled to receive burial expenses to cover the costs of burial and related services. |
| Children Allowance | The benefits are paid to parents to assist with the expenses involved in raising children. The allowance is paid monthly and is linked to the number of children in the family. |
| Counselling Service for the Elderly | The counselling service is designed to assist the elderly and their families in resolving problems facing the elderly. These services are provided by trained volunteers who have retired. The services are made available at all branches of the National Insurance Institute. |
| Disability |
Such benefits are paid in the following circumstances:
|
| Disabled child | Such benefits are paid to a disabled child between the age of 91 days and 18 years depending on the disability and the extent of dependence on others. |
| Employees’ Rights Consequent to Bankruptcy or Corporate Liquidation | An employee is entitled to receive payment of a salary and severance pay if the employer has filed for bankruptcy or corporate liquidation. |
| Income Support | An income support benefit is available to individuals and families in Israel who are not capable of earning even a basic minimum income for subsistence. |
| International Conventions on Social Security | This benefit helps avoid dual insurance payments by Israelis living and working abroad. It also helps protect the rights of people moving from one country to another. |
| Long-term Care |
Long-term benefit is provided to the following groups:
|
| Maternity | An allowance compensates the new mother for the loss of her salary or income during the time she is not working, due to pregnancy and birth. |
| Mobility | This benefit provides various forms of assistance to people with impairments that limit their mobility. |
| Old-Age | Old-age pension ensures a regular monthly income for the elderly in Israel. |
| Reserve Service | The benefits are available to a person who is called up for reserve duty under the Security Service Law, and to anyone who is called up for training under the Emergency Labour Service Law. |
| Survivors | The insurance system provides benefits to –a widow, widower and orphans, of an Israeli resident who has deceased. |
| Unemployment | Unemployment benefit provides a person who has become unemployed against his or her will with an income for a limited period, so they can search for a job. |
| Vocational Rehabilitation | Under the vocational rehabilitation programme, guidance and training is provided to disabled and widows in order to help them find suitable employment. Social services are provided to people injured at work or as a result of a hostile action. |
| Volunteer’s Rights | Benefits are available to volunteers injured during and due to voluntary activities, including injury on the way to or from the volunteering site, as well as dependents of volunteers who die as a result of injuries. |
| Work Injury | The insurance compensates someone who is injured at work for the loss of salary or income for the period after the injury when they are unable to work. Also, the injured person is entitled to receive medical treatment for the results of his injury, free of charge. |
| Compensation for Polio Victims | The insurance compensates polio victims who are residents of Israel. They are entitled to lump-sum compensation as well as a monthly pension or grant, in accordance with the level of disability or mobility limitation. |
| Compensation for Blood Transfusion Victims | Under the Compensation for Blood Transfusion Victims (AIDS) fund, people with the AIDS virus as a result of a blood transfusion or blood products received from a public health service, between December 31, 1981 and January 1, 1987, are entitled to compensation. |
| Compensation for Radiation Victims | Under the Israel Tinea Capitis Compensation Law, people (or their survivors) whose health was damaged as a result of irradiation against ringworm, which was performed from January 1, 1946 to December 31, 1960, by an entity specified in legislation, are entitled to payment. |
| Grant to Discharged Soldiers Performing Vital Work | A one-time grant is paid to soldiers who are discharged from compulsory service or to women who have completed 24 months of national service. The beneficiary should have worked for 6 full months in what is considered to be vital work. |
| Attendance Allowance for the Disabled | Attendance allowance is offered to a person up to retirement age who is insured by the National Insurance Institute and requires a great deal of assistance by another person for routine activities, or who requires constant supervision to prevent a danger to their lives or to the lives of others. |
Source: National Institute of Israel - Benefits
4.2 Social Security and Health Insurance
Israeli residents are required to pay health insurance contributions, determined on the basis of their occupation and their sources of income. Employers deduct a certain amount from employees’ salaries and along with their own contributions, submit it to the National Insurance Institute. For the insurance, a copy of the form submitted to the withholding tax office is transferred to the National Insurance Institute and the same filing number is used by both authorities. Rates of National Insurance (Social Security) and Health Insurance for salaried employees are set out in Table 7 below:21
Table 7: Rates of Social Security and National Insurance
| Up to 60% of the Average Salary 4,678 NIS (US$ 1,301) (EUR 945.42) | |||
|---|---|---|---|
| Contribution | Employee | Employer | Total |
| Social Security | 0,4% | 4,98% | 5,38% |
| Health Insurance | 3,10% | -- | 3,10% |
| Total | 3,5% | 4,98% | 8,48% |
| Over 60% and up to 5 times the Average Salary * | |||
|---|---|---|---|
| Contribution | Employee | Employer | Total |
| Social Security | 7% | 5,68% | 12,68% |
| Health Insurance | 5% | -- | 5% |
| Total | 12% | 5,68% | 17,68% |
*Average salary is taken to be ILS 7,798 (for 2008) or EUR 1,571.
Source: Invest in Israel - Guide to Start Business in Israel
4.3 Employee Social Benefits in Israel22
The cost of social benefits to be contributed by a company varies depending on the industry. The standard benefits for high-tech and medium technology sectors are discussed in this section.
4.3.1 High-Tech Sector
Companies operating in high-tech sectors in Israel offer the following social benefits to employees.
Main Package – The social benefits are given in Table 8 below:
Table 8: Benefits Available (as a percentage of gross salary)
| EMPLOYER CONTRIBUTION | PERCENTAGE |
|---|---|
| Provident Fund | 5,00% |
| Severance Pay | 8,33% |
| Disability | 2,24% |
| Social Insurance | 5,68% |
| Advanced Training Fund | 7,50% |
| Total | 28,75% |
Source: Invest in Israel - Employee Social Benefits
*An employee contributes their share to the provident and the social insurance fund.
Additional Benefits Required by Law – The additional benefits available to an employee are discussed in Table 9 below:
Table 9: Benefits Available
| BENEFITS | AMOUNT |
|---|---|
| Transportation (excludes company car holders) | EUR 3,60 per day (~ EUR 79,20 per month) |
| Convalescence Pay | EUR 269,30 - EUR 538,50 per annum |
| Vacation | 12-24 days per annum according to seniority |
| Sick Leave | 18 days per annum. Cumulative right of 90 days. |
| Transportation (excludes company car holders) | EUR 3,60 per day (~ EUR 79,20 per month) |
| Convalescence Pay | EUR 269,30 - EUR 538,50 per annum |
Source: Invest in Israel - Employee Social Benefits
Possible Additional Benefits – The possible additional benefits available to an employee are available in Table 10 below:
Table 10: Benefits Available
| BENEFITS | AMOUNT |
|---|---|
| Company Car (for managers and senior employees) | ~ EUR 769,40 per month |
| Cellular Phone service | EUR 30,80 - 46,20 per month |
| Options/Bonuses | According to company policy |
Source: Invest in Israel - Employee Social Benefits
4.3.2 Medium Technology Industry Sector
Companies operating in the medium-technology industry sector in Israel offer the following social benefits to employees:
Main Package –The social benefits are given in Table 11 as a percentage of gross salary.
Table 11: Benefits Available (as a percentage of gross salary)
| EMPLOYEE CONTRIBUTION | PERCENTAGE |
|---|---|
| Provident Fund | 6,00% |
| Severance Pay | 8,33% |
| Social Insurance | 5,68% |
Source: Invest in Israel - Employee Social Benefits
Benefits Required by Law – The additional benefits available to an employee are listed in Table 12.
Table 12: Benefits Available
| BENEFITS | AMOUNT |
|---|---|
| Convalescence Pay | EUR 269,30 – 923,20 per annum |
| Transportation (excludes company car holders) | EUR 3,60 per day (~EUR 79,20 per month) |
| Vacation | 12-24 days per annum according to seniority |
Source: Invest in Israel - Employee Social Benefits
Possible Additional Benefits – The possible additional benefits available are listed in Table 13.
Table 13: Benefits Available
| BENEFITS | AMOUNT |
|---|---|
| Company Car (for managers) | ~ EUR 769,40 per month |
| Disability | 2,24 % |
| Advanced Training Fund | 7,50 % |
Source: Invest in Israel - Employee Social Benefits
Some other social benefits common to both of the sectors discussed above are:
Holiday gifts (Jewish New Year and Passover)
Meals provided by the company
Legal counsel should be consulted to establish the exact level of social benefits that must be offered to employees when establishing a company in Israel.
5 Free Trade Zones/Free Ports in Israel23
The Red Sea port city of Eilat is the only free-trade zone in Israel. Apart from that, there are three other ports that offer free trade.
They are:
Haifa Port (including Kishon)
Port of Ashdod and
Port of Eilat
The Israeli government plans to expand and upgrade the major ports of Haifa (in the north) and Ashdod (in the centre). Although the quality of warehousing (including cold storage) in all major ports and trade zones is good, current capacity may become inadequate with increasing demand.
6 Incentives and Benefits to Investors
The State of Israel supports both local and foreign investment by providing a wide range of incentives and benefits to investors in industry, tourism and real estate. There are nine types of incentives offered to investors, for instance, investment incentives, R&D incentives, support for R&D centres of foreign companies, employment grants, film production benefits, start-up incubators, training support programmes, etc. The following sections describe some of the major incentives provided by the government to attract investment into the economy.24
6.1 Investment Incentives25
The Law for the Encouragement of Capital Investment defines the investment incentives. The Israel Investment Centre (IIC) coordinates the investment incentives. The incentive programme has two main sections:
The Grants programme – Managed by the Israel Investment Centre (IIC), a department of the Ministry of Industry, Trade and Labour.
The Automatic Tax Benefits programme – Administered by the tax authorities.
In order to receive incentives, the project should fulfil the following criteria:
International competitiveness
Minimal designated investment
High-added value
Registration of the company in Israel
Once the above-mentioned criteria are fulfilled, the enterprise can gain the Approved Enterprise status from the IIC if it chooses the grants programme. It can also gain the Preferred Enterprise status from the tax authority if it chooses one of the tax benefits programmes.
The grants offered by the government vary for different regions, which are divided on the basis of priority.
Priority Area A includes:
The Galilee
Jordan Valley
The Negev
Jerusalem (for hi-tech enterprises)
Priority Area B includes:
Lower Galilee
Northern Negev
The rest of the country is categorised as Area C.
6.1.1 Grants Programme
While calculating the grant, the government considers the original cost of land development and investment in buildings (except in Area C), in machinery and equipment. Installation and related expenses are included in the costs. The grant is calculated as a percentage of the cost incurred. The percentages are given in Table 14 below:
Table 14: Percentages According to Priority Areas
| PROJECT TYPE | PRIORITY AREA A* |
PRIORITY AREA B |
|---|---|---|
| Industrial projects Up to EUR 10.1 million (ILS 50 million) ** | 24% | 10% |
| Industrial projects Above EUR 10.1 million (ILS 50 million) | 20% | 10% |
| Investment in hotels and other accommodations | 24% | - |
| Other tourist enterprises | 15% | - |
Source: Invest in Israel – Investment Incentives
* Plus an additional grant of up to 8 percent for companies locating in the south (Negev Law) and an exemption from company tax for first two years of benefits
** Or located in a town defined as lowly developed in socio-economic terms
Around 20 percent of the approved programme for industrial projects should be completed within two years from the date of approval.
6.1.2 Tax Benefits
Under the grant programme, companies receive tax benefits for seven-consecutive years, starting from the first year that the company earns taxable income (grants are not considered income). Further, an Approved Investment located in Priority Area A is entitled to a complete tax exemption for the first two years.
Tax benefits are directly proportional to foreign control in the enterprise. More information pertaining to tax benefits can be obtained from Invest in Israel - Investment Incentives.
6.2 R&D Incentives26
The Office of the Chief Scientist (OCS), a part of the Ministry of Industry, Trade and Labour of Israel, is committed to implementing the government’s policy of encouraging and supporting industrial R&D in Israel. The Law for the Encouragement of Industrial R&D governs the actions of the OCS. The OCS spends around EUR 226,56 (USD 300) million on approximately 1,000 projects (by 500 companies) each year.
It offers conditional grants of up to 50 percent of the approved R&D expenditure. Companies are under obligation to repay grants through royalty payments if the project turns outs to be commercially successful.
International support programmes include bi-national funds that enable joint research projects with other countries. These funds and their websites are listed in Table 15 below:
Table 15: Bi-national Funds and their Websites
| FUND NAME | COUNTRIES | WEBSITES |
|---|---|---|
| BIRD | Israel-USA | www.birdf.com |
| CIIRDF | Israel-Canada | www.ciirdf.ca |
| SIIRD | Israel-Singapore | www.siird.com |
| BRITECH | Israel-Britain | www.britech.org |
| KORIL | Israel-Korea | www.koril-rdf.or.kr |
| VISTECH | Israel-Australia (Victoria) | NA |
Source: Invest in Israel - R&D incentives
Israel has signed several R&D agreements with countries such as Austria, Belgium, Ireland, Germany, Holland, France, Hong Kong and China. Apart from the OCS programmes, some other major domestic programmes are listed below:
The Technological Incubators
The Heznek-Seed Fund
The Tnufa Programme
The Magneton and Noffar programmes
The Magnet Programme
For more information please refer to Invest in Israel - R&D incentives.
7 Overview of Banking Sector
7.1 Introduction of Retail Banking
After several reforms in the 1990s, Israel has a stable banking industry supported by a sound public and private banking environment and independent financial and monetary regulatory bodies.27
The Bank of Israel (BOI), the country’s central bank, was established in 1954. Governed by the Bank of Israel Law, the major responsibilities of the BOI include:28 29
Managing monetary policy
Holding and managing the foreign currency reserves of the State
Supporting the orderly activity and stability of the financial markets
Acting as banker to the Government
Regulating the economy’s payment and clearing systems
Issuing currency, regulating and guiding the cash system within the economy
Supervising and regulating the banking system
Acting as an adviser to the Government on economic matters
Collating and disseminating information and data on Israel’s economy
Representing Israel’s interests at international financial institutions
For more details on the functions of the BOI, refer to Bank of Israel - Functions
There are 38 banking establishments operating in Israel, including 24 commercial banks, 6 mortgage banks, 5 financial institutions, two joint service companies and 3 foreign banks.30
Table 16 lists the names of all banking establishments.
Table 16: Names of Banking Establishments
| ORDINARY BANKING CORPORATIONS (24) | FOREIGN BANKS (3) | MORTGAGE BANKS (6) | FINANCIAL INSTITUTIONS (5) | JOINT SERVICE COMPANIES (2) |
|---|---|---|---|---|
| Arab Israel Bank Ltd | Citibank N.A | Discount Mortgage Bank Ltd | “Hesech” Kupat Hisachon Lehinuch Ltd, Haifa | Bank Clearing Center Ltd |
| Bank Hapoalim B.M. | HSBC Bank plc | Leumi Mortgage Bank Ltd | Eshnav-Issuing Company of Tefahot Israel Mortgage Bank Ltd | Automatic Bank Services Ltd |
| Bank Leumi Le-Israel B.M. | State Bank of India | Mishkan-Hapoalim Mortgage Bank Ltd | Gahelet- Gmul Hisachon Lehinuch Ltd | |
| Bank Massad Ltd | Tefahot Israel Mortgage Bank Ltd | Mashavim-United Mizrahi Bank Issuing Company Ltd | ||
| Bank of Jerusalem Ltd | The First International Mortgage Bank Ltd | Otzar Hashilton Hamekomi Ltd | ||
| Bank of Israel | Atzmaut Mortgage and Development Bank Ltd | |||
| Bank Otsar Ha-hayal Ltd | ||||
| Bank Polska Kasa Opieki Tel Aviv (Bank Pekao) Ltd | ||||
| Bank “Yahav” Le-Ovdei Hamdina Ltd | ||||
| Euro-Trade Bank Ltd | ||||
| Israel Discount Bank Ltd | ||||
| Global Investment Bank (B.H) Ltd | ||||
| Mercantile Discount Bank Ltd | ||||
| Israel Bank of Agriculture Ltd | ||||
| Israel Continental Bank Ltd | ||||
| Kupat Haoved Haleumi Leashrai Vehisachon Benetania Ltd | ||||
| Hayashir Harishon | ||||
| Poalei Agudat Israel Bank Ltd | ||||
| Postal Bank of Israel | ||||
| Trade Bank Ltd | ||||
| The First International Bank of Israel Ltd | ||||
| UBank Ltd | ||||
| Union Bank of Israel Ltd | ||||
| United Mizrahi Bank Ltd |
Source: Nefesh B’Nefesh
The five large bank holding companies in Israel are Hapaolim, Leumi, Discount Bank, Mizrahi and Bein Leumi (the First International Bank of Israel). According to the General Agreement on Trade in Services (GATS), entry into the Israeli banking system is free of restriction. Therefore, several foreign banks have established a presence in Israel, among them Standard Chartered, HSBC and Citibank are the most notable.31
The contact details of major banks are provided in Appendix II.
7.2 Procedure for Opening a Bank Account32 33
A person/foreigner who wishes to open a bank account in Israel has to follow the steps listed below:
Receive Aliyah to recognise the formal act of moving to live in Israel.
Visit the nearest Misrad Hapnim (Ministry of Interior), to receive an Israeli national ID card (Teudat zehut) along with the following documentation:
- Immigrant certificate (Teudat oleh) received at the person’s port of entry
- Proof of Jewishness (if relevant)
- Two passport photos
- Passport
After receiving the teudat zehut, visit the bank with the following documents:
- Teudat zehut
- Passport from the country of origin
- Cash, credit card, or cheque to make deposit in your bank account
- And EUR 10.1 (ILS 50) has to be deposited
Israeli banks do not issue cheques for new accounts. However, chequebooks can be requested under the following pre-conditions:
The requester has been with the bank for three months;
The requester has had no overdrafts.
Aliyah describes the return of the Jewish people from exile in the Diaspora back to Israel and a person making Aliyah is called an Oleh.34 The procedure for getting an Aliyah is available on Changing Status from Tourist to Oleh.
8 Recruitment of Local Staff
There are various recruitment channels available in Israel, including online recruitment, head-hunter agencies, media advertisements (newspapers, brochures, and magazines), and internal references. Some local newspapers that could be referred to are Maariv and Yediot newspapers (Friday edition).35
Table 17 below lists the major recruitment agencies in Israel and their websites:
Table 15: Bi-national Funds and their Websites
| Major Recruitment Agencies | WEBSITES |
|---|---|
| Marksman recruitment agency | www.marksman.co.il |
| Kishurim | www.kishurim.com |
| Reed recruitment services | www.reed.co.uk/LocalJobs/Israel |
| Manpower Israel | www.manpower.co.il |
For more headhunters and employment agencies refer to Hareshima – Employment.
8.1 Brief Overview of Labour Laws
Employment relations in Israel are guided by several sources, including constitutional rights (as determined by the Basic Laws); statutory rights (set out in statutes and regulations); rights set by collective agreements and extension orders of collective agreements; and individual labour contracts.
The National Labour Court is the main judicial body developing labour and social security laws. International standards (especially ILO conventions) and EU standards are used by the government and courts as guidelines; however, they are not restricting.36
Table 18 gives a brief explanation of the Labour Laws in Israel.
Table 18: Labour Laws in Israel
| LABOUR LAWS | DEFENITION/EXPLANATION |
|---|---|
| Basic Law: Human Dignity & Liberty | The law intends to protect human dignity and liberty. |
| Basic Law: Freedom Of Occupation | The law intends to offer every Israeli national or resident the right to engage in any occupation, profession or trade. |
| Collective Agreements Law |
A collective agreement between an employer or an employer’s organisation and an employees’ organisations covers the following aspects of employment:
|
| Employment Service Law | Under the law, Employment Service shall collect information as to the situation and trends of development on the labour market. It cooperates with other bodies to ensure vocational training and vocational guidance. It is also concerned with advising young people on career choices. It directs them towards a suitable job and monitors their placement and the continuance of employment. |
| Foreign Workers (prohibition of unlawful employment and assurance of fair conditions) Law | A foreign worker is neither a citizen nor a resident of Israel. To employ a foreign worker, an employer has to comply with all provisions of sections 1B to 1E. |
| Employment of Employee by Manpower Contractors Law | The law encompasses the employment terms and the license requirements of manpower contractors. |
| Hours of Work and Rest Law | The law lays down the guidelines for working hours and the weekly rest period for employees. It states that a working day shall not exceed 8 working hours. |
| Sick Pay Law | The law lists the benefits an employee is entitled to in case of sickness and the various conditions to receive benefits. |
| Sick Pay (absence because of child’s sickness) | Under the law, the employee is entitled to receive benefits in case a child falls ill or suffers from an incurable disease. The law clearly states the entitlements for an employee in this situation. |
| Sick Pay (absence because of parent’s sickness) | If an employee or his spouse has a parent that is 65 years or older, then the employee is entitled to 6 days of leave against his accumulative sick leave. The precondition for this to apply is that the spouse should also be an employee and should not be absent from work by virtue of his or her entitlement under this law. |
| Sick Pay (absence because of spouse’s sickness) | Under the law, an employee can receive 6 days leave against their accrued sick leave in case a spouse falls ill. |
| Annual Leave Law | The law discusses an employee’s annual leave entitlement and the number of days that can be taken based on their tenure and other conditions. |
| Employment of Women Law | The law discusses the employment conditions for women such as night working conditions. It also encompasses points such as maternity and adoption leave. |
| Male and Female Workers (equal pay) Law | The law aims at maintaining equality between male and female workers in terms of salary, other rewards related to employment, and assigning work. |
| Prevention of Sexual Harassment Law | The law talks about sexual harassment in work places and the actions that should be taken by employers in such cases. |
| Wage Protection Law | The law discusses wage payments, inclusive wage and both the way and the timing of payments. It also details conditions for wage payments in case of a deceased employee. |
| Youth Labour Law | The law sets out the employment conditions for children. It details the age at which a child can be employed, sectors in which they can be employed and the medical examinations required for children. |
| Apprenticeship Law | The law covers the principles of apprenticeships and the relevant details. |
| Discharged Soldiers (reinstatement in employment) Law | The law deals with the employment opportunities available to discharged soldiers and their relatives. It also sets out the application procedure to apply for employment. |
| Settlement of Labour Disputes Laws | The law covers the arbitration of disputes that have not been settled within a certain period. |
| Severance Pay Law | Under the law, a person is entitled to severance pay from the employer who has ended the employment service. The law defines the conditions under which the employee is entitled to a severance pay. |
| Protection of Employees (exposure of offences of unethical conduct, and improper administration) Law | Under the law, an employer must not dismiss an employee who has submitted a complaint against his employer or against any other employee or who has supported another employee that is making a complaint. |
| Encouragement of Ethical Conduct in the Public Service Law | The law encourages public servants to make complaints against wrongful practices or any infringement of ethical conduct. The complaint is recorded and the necessary authority is required to investigate. |
| Employment (equal opportunities) Law | The law ensures that the employer does not discriminate between employees based on gender, sexual tendencies, personal status, age, or race. |
| Single Parent Family Law | The law details the benefits available to a single parent. This includes preferential treatment for vocational training and the admittance of his or her children to day nurseries. |
| Equal Rights of Persons with Disabilities Law | The law aims at protecting the dignity and freedom of disabled people, ensuring an active participation in society and enabling them to live a life with maximum independence, privacy and dignity |
| Male and Female Workers (equal retirement age) Law | The law seeks to ensure that the retirement age for male and female workers is the same. |
| Minimum Wage Law | The law sets out information about the minimum wage a worker is entitled to and the calculation of the minimum wage payable. |
| Accidents and Occupational Diseases (notification) Ordinance | The law discusses the benefits available to an individual in case of injury or accident at the work place or in case the person suffers from any occupational diseases. |
| Labour Inspection (organization) Law | The Labour Inspection Service is responsible for labour safety, vocational hygiene and welfare in the workplace. It also details the fines and penalties imposed for breaches of these conditions. |
| National insurance law (consolidated version) | NA |
Source: Ministry of Industry Trade and Labour - Labour Laws
The major statutes affecting labour law in Israel are as follows37:
Hours of Work and Rest Law – A work day should not exceed 8,5 hours while the work week should not exceed 45 hours.
Equal Opportunities Employment Law – The employer is required to pay equal wages to male and female workers for similar work.
Severance Law – The employer is required to pay one month’s wage for every year of employment to a person who has been employed by the same employer for one year or at the same location, and has been dismissed.
Minimum Wage Law –The minimum wage is EUR 828,61 (NIS 4.100) per month for local and foreign employees.
Work Safety Ordinance and Labour Inspection (Organisation) Law – The employer should ensure the safety of workers in the work place.
Settlement of Labour Disputes Law – the arbitration of disputes that have not been settled within a certain period.
In Israel, the normal working week is five days, starting on Sunday and ending on Thursday (or Friday midday for businesses that normally work on Fridays).
8.2 Average Salary Range
The median salary ranges (per year) by job, employer type, years of experience, city and company size in Israel in 2011, as per the Payscale website, are presented in Tables 19-23.
Table 19: Median Salary by Job in Israel for 2011
| Job | MEDIAN SALARY (ILS) | MEDIAN SALARY (EUR) |
|---|---|---|
| Software Engineer/Developer/ Programmer | 189.915 | 38.381,82 |
| Senior Software Engineer/Developer/ Programmer | 265.112 | 53.579,14 |
| Software Engineer | 235.725 | 47.640.02 |
| Mechanical Engineer | 153.291 | 30.980,11 |
| Chief Executive Officer (CEO) | 429.729 | 86.848,23 |
Source: PayScale - Salary Survey for Country - Israel - 2011
Table 20: Median Salary by Employer Type in Israel for 2011
| EMPLOYER TYPE | MEDIAN SALARY (ILS) | MEDIAN SALARY (EUR) |
|---|---|---|
| Company | 187.128 | 37.818,57 |
| Private Practice/Firm | 164.457 | 33.236,76 |
| College/University | 90.364 | 18.262,56 |
| Government – State and Local | 121.375 | 24.529,89 |
| Other Organisations | 121.272 | 24.509,07 |
| Foundation/Trust | 221.626 | 44.790,61 |
| Non-profit Organisation | 108.800 | 21.988,48 |
| Hospital | 90.000 | 18.189 |
| Government – Federal | 125.781 | 25.420,34 |
| Franchise | 84.000 | 16.976,4 |
| Self-employed | 122.084 | 24.673,18 |
| Contract | 156.000 | 31.527,6 |
| Team | 144.000 | 29.102,4 |
| School/School District | 135.501 | 27.384,75 |
Source: PayScale - Salary Survey for Country - Israel - 2011
Table 21: Median Salary by Years of Experience in Israel
| EXPERIENCE | MEDIAN SALARY (ILS) | MEDIAN SALARY (EUR) |
|---|---|---|
| Less than 1 year | 90.000 | 18.189 |
| 1–4 years | 118.239 | 23.896,1 |
| 5–9 years | 191.946 | 38.792,29 |
| 10–19 years | 253.149 | 51.161,41 |
| 20 years or more | 248.696 | 50.261,46 |
Source: PayScale - Salary Survey for Country - Israel - 2011
Table 22: Median Salary by City in Israel for 2011
| CITY | MEDIAN SALARY (ILS) | MEDIAN SALARY (EUR) |
|---|---|---|
| Tel Aviv | 183.681 | 37.121,93 |
| Jerusalem | 122.287 | 24.714,2 |
| Haifa | 170.927 | 34.544,35 |
| Herzliya | 231.737 | 46.834,05 |
| Rehovot | 207.333 | 41.902 |
| Netanya | 228.000 | 46.078,8 |
| Ashdod | 128.930 | 26.056,75 |
Source: PayScale - Salary Survey for Country - Israel - 2011
Table 23: Salary by Company Size in Israel for 2011
| NUMBER OF EMPLOYEES | MEDIAN SALARY (ILS) | MEDIAN SALARY (EUR) |
|---|---|---|
| 1–9 | 114.474 | 23.135,2 |
| 10–49 | 170.475 | 34.453 |
| 50–199 | 197.996 | 40.014,99 |
| 200–599 | 179.232 | 36.222,79 |
| 600–1.999 | 182.714 | 36.926,5 |
| 2.000–4.999 | 220.890 | 44.641,87 |
| 5.000–19.999 | 232.186 | 46.924,79 |
| 20.000–49.999 | 247.213 | 49.961,75 |
| 50.000+ | 265.582 | 53.674,12 |
Source: PayScale - Salary Survey for Country - Israel - 2011
9 Taxation
9.1 Tax System in Israel38
The taxation system in Israel consists of two components, namely business taxation and personal taxation. The following sections detail the various components and the respective tax rates.
9.1.1 Business Taxation
In Israel, the principle taxes include income tax, capital gains tax, VAT and land appreciation tax. Although most companies use the calendar year for tax purposes, some may use a different tax year depending on their own circumstances. Within five months of the end of the tax year, a company is required to file an annual tax return.
Taxable Income and Rates
The corporate income tax rate is levied on the income of Israeli residents (if the corporation is controlled and managed from Israel or organised under the laws of Israel) and on the income of non-Israeli residents accrued from Israel.
The tax regime does not differ for different forms of business. The branch or the subsidiary of a foreign company is subject to tax on income derived from operations in Israel and capital gains.
Based on annual financial reports, taxable income is calculated using generally accepted accounting principles and making the necessary adjustments such as inflation and currency appreciation. Income from operations can be divided into ordinary income, capital gains or passive income, such as dividends and interest. Although current revenue expenses are deductible, private and capital expenses are not when calculating taxable income.
The basic corporate income tax rate is 24 percent of net taxable income, which is expected to be reduced to 18 percent in 2016.
Capital Gains Taxation
Capital gains tax is levied on Israeli residents who are engaged in the sale or transfer of tangible and intangible property (in Israel or abroad). The tax rate depends on:
Nature of the seller
Purchase date
Nature of the asset
The general capital gains tax rate is 24 percent. Corporations are taxed at a rate of 24 percent on the gains from the sale of shares, while the inflationary component of the gain is excluded from tax.
Capital gains tax is exempted in the following scenarios:
Capital gains on the sale of Israeli securities acquired between July 01, 2005 and December 31, 2008 by the residents of countries that have a tax treaty with Israel, provided that the gains are not accounted to a PE of the seller in Israel.
Capital gains from the sale of Israeli securities purchased by non-residents on or after January 01, 2009.
However, no exemption is provided for the following cases:
Shares in companies whose assets consist primarily of real property (i.e. land or buildings)
Shares being sold were purchased from a related party or by way of certain tax-deferred reorganisations
Shares were held via PE
When a non-resident selling entity is 25 percent or more controlled by Israeli residents
With holding tax
A withholding tax is levied on dividends, interest, royalties and wage tax or social security contributions.
Dividends
Dividends paid to a non-controlling foreign resident (holding less than 10 percent of the company’s shares) are subject to a 20 percent withholding tax or else the standard rate is 25 percent. A withholding tax of between 4 percent and 15 percent is levied on dividends from profits of approved enterprises, depending on the type of investment. This rate might be reduced if Israel has tax treaties.
Interest
A withholding tax at the rate of 15 percent, 20 percent or 25 percent is levied on most interest payments made by Israeli corporations to non-residents, based on the type of loan and whether the recipient is an individual or a body of persons. The rate might be reduced in the case of new tax treaties.
Royalties and Fees
Unless reduced under a new tax treaty, royalties and other payments are subject to a 24 percent withholding tax.
Foreign Income and Tax treaties
Direct foreign tax credits are granted for foreign taxes paid on non-Israeli sources of income. Israel has tax treaties with more than 40 countries, including Austria, Belarus, Belgium, Brazil, Bulgaria, China, Germany, India, US, UK and Japan. Under the tax treaties, Israel has different withholding tax rates on dividend, interest and royalties with different countries. For more details on the withholding tax rates under the tax treaties refer to Deloitte - International Tax and Business Guide - Withholding Tax.
Turnover and Other indirect taxes and duties
Most goods and services, including all imports, are subject to Value Added Tax (VAT). The standard VAT rate is 16 percent (as of 1 January 2010). The following items have a zero VAT rate:
Exported goods
Intangible goods
Provision of certain services to non-residents
Tourism services
Transport of cargo to and from Israel
Sale of goods and services to Eilat free-trade zone
Sale of fresh fruit and vegetables
Goods and services exempted under VAT include certain leases, the transactions of very small businesses except for real estate transactions, and the sales of goods where the input VAT was not deductible. Instead of VAT, financial institutions are supposed to pay taxes on wages and profits at a rate of 16 percent. Furthermore, a wage tax of 7,5 percent applies to non-profit organisations.
Other taxes
The other taxes applicable in Israel are as follows:
Land Appreciation Tax is applicable to the sale of real estate. The increase in value, in real terms, derived from the purchase date up to November 2001, is subject to corporate tax (for companies) or marginal individual tax rate (for individuals). The balance of the increased value is taxed at a rate of 25 percent (for companies) and up to 20 percent for individuals.
Acquisition tax is applicable on specific imports or local industrial production. The amount is collected from local manufacturers 30 days after the month in which the goods are sold and from the importer when the goods are cleared through customs.
Customs Duty i.e. a duty levied on imports
Excise Tax are applicable on goods such as fuel and tobacco
Municipalities also levy certain property and business taxes in Israel; stamp duty on signed documents no longer exists as it was abolished in 2006, while there is no capital tax or net worth tax.
Transfer Tax is not levied, while a purchase tax of 5 percent is paid by purchaser with few exceptions on apartments.
Environmental Tax is not there in Israel
9.1.2 Personal Taxation
In 2003, the Israeli tax system shifted from territorial to a personal system. The types of taxes applicable to residents and nonresidents are listed below:
Table 24: Types of Taxes applicable to residents and non-residents
| TYPES OF RESIDENTS | DEFINITION | TAXES APPLICABLE |
|---|---|---|
| Israeli Resident |
A person is considered a resident if the following conditions are fulfilled:
|
|
| Non- Resident |
A person is considered a non-resident if the following conditions are fulfilled:
|
|
Source: Deloitte - International Tax and Business Guide - Israel
9.1.2.1 Taxable Income and Rates
Personal income tax is applicable to Israeli residents on their worldwide income, including employment income, business income, income from dividends, interest, rent, royalties, pension income, fringe benefits, cost of living allowances, passive income from bank deposits and savings in Israel and abroad. Capital gains from the sale of Israeli securities purchased by non-residents on or after 1 January 2009 are exempted from tax.
Personal income tax (for both the employed and self-employed) rate is from 10 percent to 45 percent.percentpercent The basic rates of company tax on net taxable income is 24 percent and is expected to be reduced to 18 percent in 2016. The tax rates on unearned income are 15 percent on nominal interest payments, 20 percent on interest payments that are index-linked and 20 percent on dividends. Shareholders holding more than a 10 percent share of a company are required to pay a 25 percent tax on dividends and consumer price index-linked interest payments and 20 percent on unlinked payments.
Investments in households are subject to a 20 percent capital gains tax while major shareholders holding more than a 10 percent share of a company are subject to a 25 percent rate.
The personal income tax rates for 2010 on individual income are given in Table 25 below:
Table 25: Tax Rates for Individual Income
| INCOME (ILS) | INCOME (EUR) | TAX RATE (%) |
|---|---|---|
| 1-60.840 | 0,2021-12.295,76 | 10% |
| 60.841-103.920 | 12.295,97-21.002,23 | 14% |
| 103.921-168.840 | 1.002,43-34.122,56 | 23% |
| 168.841-254.880 | 4.122,77-51.511,25 | 30% |
| 254.881-482.760 | 51.511,45-97.565,8 | 33% |
| 482.761 and over | 97.566 and over
|
45% |
Source: Worldwide-Tax.com - Israel Income Tax and Tax Laws
The tax rates for passive income are available in Table 26.
Table 26: Tax Rates for Passive Income
| InCOME (ILS) | INCOME (EUR) | TAX RATE (%) |
|---|---|---|
| 1-152.640 | 0,2 – 30.758,50 | 30% |
| 152.641-472.080 | 30.758,7 – 95.128,80 | 33% |
| 472.081 and over | 95.249,90 and over | 45% |
Source: Worldwide-Tax.com - Israel Income Tax and Tax Laws
In Israel, a mandatory health tax is deducted at source at a rate of 3,1 percent for monthly income up to EUR 926,50 (ILS 4.598) and 5 percent up to EUR 16.070,40 (ILS 79.750) (as from August 01, 2009).
Special Expatriate Tax Regime
Expatriate experts are levied a tax at a rate of 25 percent up to the ceiling. However, other expatriates are subject to ordinary tax rates.
Capital Taxes
In Israel, local taxes are levied on property, while there is no inheritance tax, wealth tax or estate duty.
9.1.3 New Tax Reform for New Immigrants and Returning Citizens39
In order to ease the return of Israelis living abroad and the absorption of new immigrants, the Ministry of Immigrant Absorption initiated a new reform. The benefits of the new reform are as follows:
New tax status for returning residents
The tax benefits given to returning residents will increase. The individuals applicable for the new status are as follows:
- Resided overseas for at least 10 years from the date they left Israel
- Resided overseas for 5 years and returned to Israel during 2007-2009
- Were considered foreign residents on January 01, 2007
Tax Exemptions for Companies Managed by Returning residents or New Immigrants
Israeli taxes will not be imposed on returning residents or new immigrants who own and manage a foreign company that is active abroad, or own its shares. Therefore, the company will pay taxes only on the revenue it generates is in Israel.
Exemption from Reporting Earnings Whose Source comes from Abroad
Returning residents or new immigrants, and their companies are not required to report earnings that are generated abroad. Only income from operations in Israel and from Israeli investments and assets that are generated following Aliyah or return to the country, are subject to reporting and taxation.
Expansion of tax benefits for returning citizen and new immigrant
No tax will be levied on income generated outside Israel by returning residents and new immigrants for 10 years.
Pension benefits for returning residents and new immigrants
New immigrants are not required to pay taxes on their pensions while returning residents are not required to pay taxes on their pension for a period of 10 years.
Tax benefits for new immigrants
For new immigrants tax deductions will be based on the following division:
- During the first 18 months - 3 tax credit points
- During the following year - 2 points
- During the third year - 1 point
Tax benefits for new immigrants on interest from foreign currency deposits
Interests on foreign currency deposits for new immigrants are tax free for 20 years, provided that the source of those deposits was the capital they possessed prior to their immigration, and which was deposited in an Israeli banking institution.
An adjustment year
Under the reform, new immigrants and returning residents are allowed to fill an application form for an adjustment year. During that year, they will not be considered Israeli citizens for tax purposes, and in case they decide to stay in Israel at the end of the year, they will enjoy the benefits under the new tax reform.
10 Appendix
Appendix I: Useful Links and Addresses
| TYPE OF ORGANISATION | ADDRESS | CONTACTS | WEBSITE |
|---|---|---|---|
| MINISTRIES, AGENCIES aND SERVICES IN INDONESIA | |||
| Luxembourg Trade and Investment Office - Tel Aviv | 113 Hashmonaim St. Tel Aviv 67133 Israel |
Tel: +972 3 6225 445 Fax: +972 3 6225 448 Mr. Itai HORSTOCK E-mail: Itai@gnv-group.com Mrs. Yael IDAN E-mail: Yael@gnv-group.com |
www.investinluxembourg.co.il |
| Israel Ministry of Foreign Affairs | 9 Yitzhak Rabin Blvd. Kiryat Ben-Gurion Jerusalem 91035 |
E-mail: feedback@mfa.gov.il Tel: +972 (2) 53 03 111 |
www.mfa.gov.il/MFA |
| Ministry of Immigrant Absorption | 1 Kaplan St. Kiryat Gen-Gurion P.O.B. 13061 Jerusalem 91130 |
E-mail: info@moia.gov.il Tel: +972 (2) 67 52 696/7 |
www.moia.gov.il/Moia_en/ |
| Ministry of Finance | 1 Kaplan St. Kiryat Ben-Gurion P.O.B. 13195 Jerusalem 13195 |
E-mail: webmaster@mof.gov.il Tel: +972 (2) 53 17 111 |
www.mof.gov.il |
| Ministry of Industry and Trade | 5, Bank of Israel Street Kiryat Ben-Gurion Jerusalem 91009 |
E-mail: NA Tel: +972 (2) 66 62 299 |
www.moit.gov.il |
| Ministry of Labor and Social Welfare | 2 Kaplan St. Kiryat Ben-Gurion P.O.B. 915 Jerusalem 91008 |
E-mail: NA Tel: +972 (2) 67 52 311 |
www.molsa.gov.il (Hebrew) |
| National Insurance Institute | 13 Weizmann Blvd. Jerusalem 91909 |
E-mail: NA Tel: +972 (2) 67 09 211 |
www.btl.gov.il |
| Ministry of Public Security | Kiryat Hamemshala P.O.B. 18182 Jerusalem 91181 |
E-mail: NA Tel: +972 (2) 53 09 999 |
www.mops.gov.il |
| Embassy of Belgium in Tel Aviv, Israel | Hahilazon Street, 12 52522 Ramat Gan (Tel Aviv) |
E-mail: TelAviv@diplobel.fed.be Tel: +972 (3) 61 38 130 |
www.diplomatie.be/telaviv/ |
| Embassy of Israel, Brussels | 40 avenue de l’Observatoire 1180 Brussels |
E-mail: info@brussels.mfa.gov.il Tel: +32 (2) 373 55 00 |
http://brussels.mfa.gov.il/mfm/web/main/missionhome.asp?MissionID=110 |
Appendix II: Useful Addresses and Contact Details of Banks
| Mizrahi Tefahot Bank Ltd | P.O.B. 3450, 7 Jaboutinsky St |
Tel: +972 (3) 75 59 000 |
| Arab Israel Bank Ltd | P.O.B. 207, 48 Bar Yehuda |
Tel: +972 (4) 82 05 222 |
| Bank Hapoalim B.M | P.O.B. 27, 50 Rothschild Blvd |
Tel: +972 (3) 56 73 333 |
| Discount Mortgage Bank Ltd | P.O.B. 2844, 16-18 Simtat Beit Ha’shoeva St |
Tel: +972 (3) 71 07 333 |
| Leumi Mortgage Bank Ltd | P.O.B. 69, 31-37 Montefiori St |
Tel: +972 (3) 56 48 444 |
| Hesech- Kupat Hisachon Lechinuch Ltd | P.O.B. 4639, 38 He’chalutz St |
Tel: +972 (4) 86 72 262 |
| Automated Banking Services Ltd | P.O.B. 11361, 5 Druyanov St |
Tel: +972 (3) 52 64 646 |
Source: Bank of Israel – List of Banking Corporations
11 Disclaimer
The Government of the Grand Duchy of Luxembourg declines all responsibility regarding the use of information featured in this document. The contents are provided for information purposes only. They contain information which is not necessarily complete, exhaustive, precise or up to date. In the event of discrepancies between the texts of this publication and the original documents, the original documents as officially published shall apply. This publication may refer to external sites over which the Government of the Grand Duchy of Luxembourg has no control and for which it declines all responsibility.
Luxembourg for Business
19-21 Boulevard Royal
L-2914 Luxembourg
Grand Duchy of Luxembourg
info@luxembourgforbusiness.lu
www.luxembourgforbusiness.lu
DECEMBER 2011
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