Tax Figures
Corporate Income Tax
25% on taxable profits, effective January 1, 2016.
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.
Time to prepare and Pay Taxes
235 hours
Payroll
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.
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.
Setting up payroll in Israel
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;
- Full name and address of the employer and the employer’s tax i.d.
- Full name and address and teudat zehut # of the employee.
- Employee’s position and duties, as well as his/her direct supervisor.
- Employee’s daily work hours/days of the week including lunch break and on who’s time the break is.
- The employee’s salary (hourly rate/monthly rate), travel expense reimbursement, over-time hours.
- Allotment of vacation and sick days.
- Social benefits, including pension plan.
- Any additional benefits.
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) .
