With easy access to both Europe and the Middle East, Israel can be a good location for international contractors to find new clients and projects, either short or long term. Like most countries, Israel has specific laws and regulations that pertain to self-employed contractors.
If you are planning on working in Israel as an independent contractor, you may need some background to get you started. This guide explains the essentials, as well as a few of the unique rules you will face contracting in Israel.
Your Options for Getting Paid as a Contractor in Israel
To get paid as an independent contractor in Israel you will need to qualify and register as a self-employed (atzmai). This means opening files with three offices: 1) income tax 2) value added tax and 3) National Insurance Institute (NII). In addition, some business types will require a license.
Qualifying as a self-employed is an important step, and you should make every effort to not appear as a ‘de facto’ employee of your client. This means invoicing as a business, making all of the required registrations and tax payments, as well as maintaining some degree of autonomy in your work.
When you set up your contracts, you will need to designate the currency of payment, method (wire, check, etc.) and timing. If you don’t want to go to all of the trouble this entails you can also use an umbrella company in Israel to handle payments for you, as well as all statutory contributions, tax withholding, and helping you get a work permit.
Social Security in Israel
Once you have your contracts and payment method set up, you will have to pay social security in Israel, even if you are still making contributions in your home country. Once you have registered with NII, payments are made monthly, and cover basic health services, child allowances and maternity benefits.
The social security contribution rates are 5.97% to 17.83% depending on income level.
Do you need a visa to work in Israel?
Any foreign national working in Israel will need a work permit, and if you are self-employed you may need to find an umbrella company to help you sort that out. In effect, you become the ‘employee’ of the umbrella company and they can sponsor the permit for you.
Tax Payments in Israel
The income tax in Israel for both employees or self-employed range from 10% to 46%, and must be paid monthly against the year-end tax bill. You will also need to pay VAT on 15.5% on all revenues as a self-employed contractor, but you can deduct VAT that you pay on business related expenses during the year.
If you make less than a certain amount each year, you may be exempt from VAT taxation, so it is worth checking the current threshold as this could have an effect on your net monthly income.
Are you a tax resident in Israel?
There are two tests for tax residency in Israel 1) if you are present for 183 days in the calendar year or 2) if you are present for 30 days in the current year and 425 cumulative days in the two preceding years. The good news is that new tax residents in Israel are exempt for 10 years from paying tax on income earned abroad. However, you may still have to pay taxes at home on your Israeli income, and will need to look to a tax treaty to avoid double taxation.
Double Taxation Treaties
Not every country has a tax treaty with Israel that offsets double taxation of workers, including the US, which means to avoid double taxation some contractors will have to set up an Israel corporation. There are some countries however that do have double taxation treaties, including the UK and Germany, which means you will be taxed in either Israel or at home, but not both.
When you add up the income taxes, VAT and insurance, even with a treaty your total net income may only be 50% of your contract rate. Keep this in mind when negotiating your rates with potential clients.
Hi, I'm Campbell and I'm the General Manager of Contractor Taxation! If you're looking at contracting in Israel and are looking for a way to maximise your take home pay with minimum hassle, drop me a message. I'll personally ensure that you're referred to an umbrella company who can best address your needs.
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