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Payroll & Tax in Israel

Israel payroll & taxation

In both 2015 and 2016, Israel made paying taxes more costly for companies by increasing the profit tax rate and by increasing the corporate income tax rate, the rate for social security contributions paid by employers for the upper wage bracket and municipal taxes.

Your Payroll Options in Israel

Remote Payroll

A remote payroll system is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Israel. Under Israeli Law, companies registered in other countries are allowed to obtain a license to do business and have employees in the country.

Local Payroll Administration

In some cases, a company will register their business in Israel under one of the forms available: Private Limited companies, Public companies and Branches; but prefer to have another company administering its payroll.  This can be accomplished through a payroll provider.

It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Israel may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a Israeli payroll, and can fulfil all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Israeli employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Israel to a GEO, like Shield GEO. This is possible for both foreign workers and Israeli nationals. This is the easiest, fastest and safest way to payroll staff in Israel.

Shield GEO manages all aspects of payroll for workers in Israel, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Israel

Information Explanation
Currency ?

NIS (Approx. 0.26 USD)

Employee Information Required ?

The information required to register a new start are as follow:

  • 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.
Social Security Registration ?

Payment rates of national 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 166 (as of 01.01.2014) per month.

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

Documentation Required for New Employees ?

A contract shall contain all the mandatory data by law;

  1. Full name and address of the employer and the employer’s tax i.d.
  2. Full name and address and teudat zehut # of the employee.
  3. Employee’s position and duties, as well as his/her direct supervisor.
  4. Employee’s daily work hours/days of the week including lunch break and on who’s time the break is.
  5. The employee’s salary (hourly rate/monthly rate), travel expense reimbursement, over-time hours.
  6. Allotment of vacation and sick days.
  7. Social benefits, including pension plan.
  8. Any additional benefits

Tax Figures

Information Explanation
Corporate Income Tax ?

25% on taxable profits, effective January 1, 2016.

Income Tax Rate ?
Grossed income Tax Rate (%)
0-63,240 NIS 10
63,241-108,000 NIS 14
108,001-167,880 NIS 21
167,881-239,760 NIS 31
239,761-501,480 NIS 34
501,481-811,560 NIS 48
811,561 and above 50

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.

Israeli banks must withhold tax, 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.

Sales Tax ?

VAT: 18%

Withholding Tax ?

Subject to any foreign tax treaty, the standard dividend withholding tax is 20% for shareholders who hold under 10% of the company and 25% for 10%-or-more “material shareholders.” Dividends payable to Israeli companies are tax-exempt.

Payments

Information Explanation
Frequency of Salary Payment ?

In Israel, employees are paid monthly. Since there are 52 weeks per year, but only 12 months, some employers pay a 13th month salary.

Invoice / Payslips required ?

It is mandatory to issue payslips to all employees, regardless of the amount paid to them, their work location (in regard to the main office) or their status (permanent, temporary). The payslip must include:

  • The employer’s legal name and address;
  • Tax reference number;
  • The employee’s name and address;
  • Teudat zehut number (Israeli I.D. #);
  • Itemised description of all payments, deductions, funds as well as vacation day and sick day accruals, used days and opening and closing balances just to name a few.
Minimum Wage ?

“The minimum wage” per month means 47.5 percent of the average wage as on the 2nd Nisan, 5747 (1st April, 1987), updated and increased by Law.

Daily wage for worker employed 5 days a week: NIS 214.62 (as of Apr 01, 2015) .
Daily wage for worker employed 6 days a week: NIS 186.00 (as of Apr 01, 2015) .
Hourly wage: NIS 25.00 (as of Apr 01, 2015) .
Monthly wage:NIS 4,650.00 (as of Apr 01, 2015) .

Employee Entitlements

Information Explanation
Working on Sundays ?

An employee’s weekly rest shall be not less than 36 consecutive hours in the week.

The weekly rest shall include:

  • in the case of a Jew, the Sabbath day;
  • in the case of a person other than a Jew the Sabbath day or Sunday or Friday, whichever is ordinarily observed by him as his weekly day of rest.

An employee shall not be employed during his weekly rest, unless such employment has been permitted.

 

Employee Protection and Anti-discrimination Rights ?

An employer shall not discriminate among his employees or among persons seeking employment on account of their:

  • sex;
  • sexual tendencies;
  • personal status;
  • age;
  • race;
  • religion;
  • nationality;
  • country of origin;
  • views;
  • party or duration of reserve service.
Time Off Work ?

The duration of the annual leave, in respect of a working year with the same employer or at the same place of employment shall be as follows:

  •  in respect of each of the first four years – 14 days;
  •  in respect of the fifth year – 16 days;
  •  in respect of the sixth year – 18 days;
  •  in respect of the seventh year – 21 days;
  •  in respect of the eighth year and onwards – one additional day per working year up to a period of leave of 28 days.

The days of leave shall include not more than one weekly rest for seven days of leave.

 

Medical Leave ?

A worker absent from work in consequence of sickness shall, subject to the maximum period of entitlement, be entitled to receive from his employer:

  •  from the fourth day of his absence as aforesaid, a payment under this Law in respect of the period of his sickness (such payment hereinafter referred to as “sick pay”);
  •  in respect of the second and the third day of his absence as aforesaid, half the amount of the sick pay.

Employment Termination

Information Explanation
Resignation / End of Service Payment ?

Where a woman resigns from her employment, within nine months after giving birth, in order to take care of her child, her resignation shall for the purposes of this Law, be deemed to be dismissal. The same shall apply to a woman who, either alone or jointly with her husband, had received a child under thirteen years of age for adoption and who resigns, within nine months from receiving the child for adoption in order to take care of him, provided that an adoption order is made either before or after the resignation.

The above provisions shall apply, mutatis mutandis, to a male employee if he meets one of the following requirements:

  •  his spouse was an employee for at least six consecutive months immediately before the date of his resignation; for this purpose, a period of discontinuance of employment in which the employee-employer relationship continued shall also be regarded as a period of employment;
  •  he has sole custody or charge of the child owing to invalidity or illness of his spouse;
  •  the employees spouse was a self employed woman for a period of at least 12 consecutive months immediately prior to the birth of or immediately before the child was received for adoption, as the case may be and she did not cease her employment in order to care for the child.

 

Severance / Redundancy Pay ?

A person who has been employed continuously for one year or, in the case of a seasonal employee, has been employed for two seasons in two consecutive years, by the same employer or at the same place of employment and has been dismissed is entitled to receive severance pay from the employer who has dismissed him.

Where, after an employee had passed from one place of employment to another under the same employer, the employers have changed at this present place of employment, such employee shall be entitled to receive severance pay from the previous employer in respect of his period of employment with him, or at the previous place of employment, as if he had been dismissed on the date of the change of employers.

If the new employer, by a written undertaking to the employee, has assumed responsibility for the severance pay which the employee would have been entitled to receive from the previous employer, the previous employer shall be exempt from the payment of severance pay, and the employee’s period of employment with the previous employer or at the previous place of employment shall, for the purposes of this Law, be deemed to have been a period of employment at the present place of employment.

Termination of Employment ?

The minimal statutory period of prior notice for dismissal and for resignation of employees whose salaries are paid on a monthly basis is one day during the first six months of employment; 2.5 days during the following six months of employment; and 30 days after completion of the first year of employment. The prior notice period cannot overlap with annual vacation.

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