In Israel, employers are obligated to contribute a portion of their employees' wages towards social security benefits. This includes contributions to National Insurance (NI) and potentially additional social security benefits such as pension and disability insurance.

National Insurance Contributions

National Insurance is a mandatory social security program in Israel that provides benefits such as unemployment, disability, old-age pensions, and survivor's benefits. Employers are required to contribute to NI on behalf of their employees, with the contribution rate depending on the employee's monthly income.

Contribution Rates:

• For monthly income up to ILS 7,522 (as of January 2024), employers contribute 3.55% of the employee's monthly salary.
• For monthly income above ILS 7,522, employers contribute 7.6% on the portion of the salary exceeding ILS 7,522, and 3.55% on the first ILS 7,522. There's a maximum monthly income threshold (ILS 49,030 as of January 2024) on which NI contributions are calculated.

For instance, if an employee earns a monthly salary of ILS 15,000, the employer's NI contribution would be calculated as follows:

• Contribution for the first ILS 7,522: ILS 7,522 * 3.55% = ILS 268.41
• Contribution for the remaining ILS 7,478 (15,000 - 7,522): ILS 7,478 * 7.6% = ILS 568.45
• Total employer NI contribution: ILS 268.41 + ILS 568.45 = ILS 836.86

Health Insurance Contributions

In Israel, employers are not required to contribute directly towards employee health insurance. Health insurance is a separate system funded by employee contributions and government subsidies.

Additional Social Security Contributions

In addition to National Insurance, some employers might contribute to additional social security benefits for their employees. These can include:

• Pension: Since 2008, a compulsory employment pension plan exists for most employees. The minimum employer contribution rate is currently around 6.5% of the employee's salary (up to a certain wage threshold). However, some employers might contribute a higher percentage depending on their agreements with employees or collective bargaining agreements.
• Disability Insurance: Employers can choose to contribute to additional disability insurance plans on behalf of their employees, though it's not mandatory. The total employer contribution for pension and disability combined cannot exceed 7.5% of the employee's salary.

Employers should consult with an Israeli payroll specialist or accountant to determine the specific employer social security contributions applicable to their business and employees.

In Israel, employees have various mandatory and optional deductions withheld from their salaries before receiving their net pay.

Mandatory Deductions

• Income Tax: This is the primary tax levied on an employee's salary. The tax rate is progressive, meaning it increases as the income level rises.

• National Insurance: Employees contribute to National Insurance (NI) for social security benefits. The contribution rate is based on a portion of the employee's monthly salary.

• Health Insurance: Employees contribute a fixed monthly amount towards health insurance. The exact amount depends on the specific health plan they are enrolled in.

Optional Deductions

• Pension: While employer contributions to pension plans are becoming more common, some employees might choose to contribute additional amounts voluntarily towards their retirement savings.

• Union Dues: Employees who are members of a labor union might have union dues deducted from their salaries.

• Employee Savings Plans: Some employers offer salary sacrifice schemes where employees can opt for a portion of their pre-tax salary to be directed towards employer-sponsored savings plans.

Understanding VAT implications is crucial when providing or receiving services in Israel. The current standard VAT rate in Israel is 17%. This rate applies to most taxable goods and services. Businesses with an annual turnover exceeding a specific threshold (currently ILS 99,893 as of January 2024) must register for VAT. Registered businesses charge VAT on their taxable supplies and can claim input tax credit for VAT paid on their business purchases.

VAT on Services Supplied in Israel

If you supply services in Israel, you are generally liable to charge VAT at the standard rate of 17%, regardless of the nationality or location of your customer. Certain services are exempt from VAT or subject to a 0% VAT rate. These include financial services (e.g., banking, insurance), educational services, medical and dental services, public transportation services, and exports of services (services supplied to customers outside Israel). It's important to note that the exemptions and zero-rating can be complex and depend on the specific nature of the service. For example, some professional services might be exempt for individuals but taxable for businesses. Consulting with an Israeli tax advisor is recommended to determine the VAT treatment for your specific services.

VAT on Imported Services

If you purchase services from a supplier outside Israel, you might be liable for import VAT at the standard rate of 17%. However, there are exceptions depending on the type of service and any applicable tax treaties between Israel and the supplier's country. Businesses registered for VAT can generally claim input tax credit for import VAT paid on business-related services.

VAT Invoicing Requirements

If you are a VAT-registered business supplying services in Israel, you must issue VAT invoices to your customers. These invoices must include details like supplier and customer information, description of the service, and VAT amount charged. Proper VAT invoicing is essential for claiming input tax credit and ensuring compliance with tax regulations.

Israel offers a variety of tax incentives to attract foreign investment and stimulate business activity in specific sectors. These incentives range from reduced corporate tax rates to grants for fixed asset investments.

Encouragement of Capital Investments Law

This law provides reduced corporate tax rates for approved businesses operating in designated development areas. The specific tax rate depends on the location and the type of enterprise. Rates can range from as low as 5% to 25% for a period of 7 to 15 years.

Benefits:

• Reduced corporate tax rate
• Grants for fixed asset investments (up to 32% of the investment)
• Faster depreciation allowances on qualifying assets

Eligibility:

• Businesses operating in designated development areas
• Minimum investment thresholds in fixed assets
• Meeting specific job creation or R&D criteria (depending on the program)

Strategic Investment Program

This program targets large multinational companies with significant investment plans. Companies fulfilling specific criteria can benefit from a reduced corporate tax rate of 5% in development area A and 8% elsewhere for up to 10 years.

Benefits:

• Reduced corporate tax rate
• Streamlined approvals process

Eligibility:

• Large multinational companies
• High investment thresholds in R&D and job creation

Angel Investors Law

This program offers tax benefits to individuals investing in qualified Israeli R&D startups. Investors can deduct the full amount of their investment from their taxable income.

Benefits:

• Full tax deduction for investments in approved R&D companies

Eligibility:

• Investment in qualified Israeli R&D startups

Additional Incentives

• Tax benefits for intellectual property (IP): Companies developing IP in Israel can enjoy reduced tax rates on income derived from royalties, patents, and other intellectual property.
• Tax credits for donations: Businesses can receive tax credits for donations to approved charitable organizations.
• Reduced tax rates for specific sectors: Certain industries, such as tourism and high-tech, may benefit from lower corporate tax rates or other tax breaks.