Israel at a Glance
Pensions and Taxation in Israel
Even if you are still young and have a long career ahead of you, you should not neglect to consider the impact of your time as an expatriate in Israel on your pension planning. However, if you are among the olim – Jewish immigrants making aliya to Israel – you don’t have to worry about social security that much. Israel’s National Insurance provides coverage for all citizens, permanent residents, and Jewish migrants who were at most 60 years old when they arrived in the country.
National Insurance and Old-Age Pensions
During your working life as a salaried employee, you simply pay insurance contributions that are deducted from your paycheck. The self-employed pay these national insurance fees from their own pocket. So do the unemployed if they would like to ensure that they achieve the qualifying period for receiving a state pension.
You usually need to have paid five years of insurance contributions during the last ten years or contributed for 12 years in total. If you fulfill these conditions, you then have to take an income test once you reach the retirement age.
If your income – e.g. from capital gains – is above a certain threshold, depending on such factors as your gender, employment status, and income sources, you may at first receive only a partial old-age pension from the Israeli state – or no pension at all. This changes, though, once you turn 70. Then you are automatically entitled to a basic state pension, the amount of which again depends on your general income, as well as your marital status and any dependent family members.
Pension Planning for Expatriates in Israel
The average expat falls into the category of temporary foreign resident in Israel. As such, you are not eligible to receive any old-age pension from the state of Israel unless it’s stated otherwise in a social security agreement. Israel has social security agreements with the following countries:
- Austria, Belgium, Bulgaria, Canada, the Czech Republic, Denmark
- Finland, France, Germany, Italy, the Netherlands, Norway
- Poland, Sweden, Switzerland, the UK, Uruguay
In any case, it is strongly recommended to get in touch with your social security office back home. There you can find out in which country you have to pay pension contributions and how exactly this will affect your right to a national pension.
Moreover, don’t forget to contact your financial services provider, e.g. your bank. If you have a private pension plan, ask if you can simply keep paying your rates from abroad. You should consider this when calculating your expat budget and, if possible, during your salary negotiations. In case you don’t have a private pension plan yet, your upcoming stay in Israel might be a good opportunity for getting advice on one.
Income Tax in Israel
No matter where you work as an expat – unless your country of residence is an (in)famous tax haven, you won’t be able to escape those vexing income taxes.
First, you have to determine whether you count as a resident of Israel for fiscal purposes. The simplest way of doing so means applying the “183 days” definition as a rule of thumb: If you spend 183 days or more in Israel during one fiscal year (= calendar year), you have fiscal residency. For more complicated situations, though, we’d recommend to talk to a tax accountant.
If you are a fiscal resident of Israel, you will have to pay taxes on their global income. Non-residents, however, are only taxed on their income generated in Israel. Your tax bracket depends on your overall taxable income, ranging from 10% to 48%.
Olim, i.e. recent Jewish immigrants, can claim a number of tax reductions that expatriates are not eligible for. Fortunately, there are also some tax benefits that expats not covered under a treaty can claim. Please contact the Israel Tax Authority for further information.
In Israel, you have to file your income tax return by April 30. Before you go about doing your taxes both for the Israeli tax office and the revenue service back home, find out if your country of origin is among the over 50 states that have a double tax treaty with Israel. These agreements ensure that you aren’t taxed on the same income twice.