Taxation of foreign experts in Israel

1. Taxation of foreign expert under Israeli Domestic Law:

A foreign expatriate is considered to be a foreign expert in Israel if he complies with the following conditions:

He was invited from abroad by an Israeli resident, who is not a manpower contractor or a manpower broker, in order to provide a service for that resident in a field in which the foreign expatriate has special expertise;
His stay in Israel is lawful;
During the entire period of his stay in Israel he is occupied in the field of his special expertise;
For his employment in the field of his expertise he is paid a salary in an amount that exceeds 10, 800 NIS multiplied by the number of months of his stay, and taxes are lawfully deducted from his pay.

A foreign expert, as described above, is entitled to deduct the following expenses, in respect of the period of his stay in Israel, but not more than the period of the first 12 months of his stay in Israel-

The amount spent for lodgings or rent paid for the dwelling he rented (upon proof of documents or receipts for the verification of those expenses). The expenses include electricity, water, gas, and property tax for the rented apartment.
Per diem in an amount not to exceed 260 NIS per day spent in Israel. This amount is usually adjusted to index increases under Section 120B of the Ordinance.

Such foreign expert is taxable in Israel on all income earned, sourced and derived in Israel regardless whether the income is received in Israel or not. This income is taxed at regular graduated tax rates.

If a foreign expert earns less than 10,800NIS per month, he is generally classified as an eligible foreign resident. He does not enjoy the special deductions, mentioned above, but does receive the residency tax credit.

Application should be made to the Ministry of Labor to obtain a special visa, "B-1-foreign expert". This process takes 2-3 months and must be done before coming to Israel.

The employer has to pay an annual fee for employing a new foreign expert from 10%-20%, depending on the field of industry. In certain cases the Ministry of Labor grants exemption of such fee.

2. Taxation of " Approved foreign specialist" under Israeli Domestic Law: An Approved specialist is defined as a foreign resident who has been invited to work in an approved Enterprise. Such expatriate is taxed at a 25% flat rate for a period of three years unless an extension is provided for an additional two years. A working permit "B-1" visa is required like a foreign expert, explained above. Please note that this application process is easier and quicker than a foreign expert.

3. Taxation of foreign resident under the International Tax Treaties: An individual, who is a tax resident of the USA and performs services in Israel, is taxable in the USA and exempt in Israel if all the following conditions are satisfied:

He spent less than 183 days in Israel during the tax year,
His compensation is paid by a US employer,
His compensation is not borne by a Permanent Establishment of the US employer in Israel,
He pays US income tax on the compensation.

Thus, if an individual stays in Israel for more than 183 days, Israel has the first right to tax him on any income sourced in Israel

4. Taxation of foreign journalists in Israel Foreign journalists, who are members of the Foreign Press Association in Israel, are entitled to the same special deductions as a foreign expert, mentioned in (1) above. However, those deductions are allowable for a period of 36 months for a foreign journalist.

In addition, a foreign journalist is taxed on any Israeli source earned income at a flat rate of 25%.

5. Bituah Leumi: It is important to note that any foreign expatriate working in Israel and employed by a foreign employer is not insured by Bituah Leumi (National Insurance Institute) in Israel.

If a foreign expatriate is employed by an Israeli employer, he is subject to Bituah Leumi, but at lower tax rates than an Israeli resident if he comes from a non-Treaty country. He is insured for worker's compensation only and no other coverage. Private health insurance will be necessary.

If he comes from a Treaty country, he pays regular Bituach Leumi taxes and receives all the coverage. Treaty here refers to the Social Security Treaty, not the Income Tax Treaty. Currently there is no such Treaty between Israel and the USA.