Working in Israel?
Pensions and Taxation in Israel
Even if you are still young and have a long career ahead of you, it’s important to consider the impact of your time as an expat in Israel on your pension planning. However, if you are among the olim (Jewish immigrants making aliyah to Israel), you don’t need to worry too much, as Israel’s National Insurance provides coverage for all citizens, permanent residents, and Jewish migrants who were under the age of 60 when they arrived in the country.
National Insurance and Old-Age Pensions
During your working life as a salaried employee, your insurance contributions are simply deducted from your paycheck. If you are self-employed, you pay these national insurance fees out of your own pocket, as do the unemployed if they need to reach the qualifying period for receiving a state pension.
You usually need to have paid five years of insurance contributions during the last ten years before retirement 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. However, once you turn 70, you are automatically entitled to a basic state pension, which is fixed at 1,531 NIS per month.
Looking Ahead: Pension Planning for Expats 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 with your home country.
In any case, it is strongly recommended to get in touch with your social security office back home: they will help you to find out in which country you have to pay pension contributions and how exactly this will affect your right to a national pension.
In addition, don’t forget to contact your financial services provider, for example 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 looking into one.
Paying Taxes — How Does It Work?
When it comes to taxes, you have to determine whether you count as a resident of Israel for fiscal purposes. As a general rule, apply the “183 days” definition: if you spend 183 days or more in Israel during one fiscal year (which in Israel is equivalent to the calendar year), you have fiscal residency. For more complicated situations, though, we’d recommend talking to the tax office or a tax accountant.
If you are a fiscal resident of Israel, you will have to pay taxes on your global income. Non-residents, however, are only taxed on their income generated in Israel. Your tax bracket depends on your overall taxable income and ranges from 10% to 50%.
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 if they qualify for the status of a “foreign expert” or an “approved specialist”. Please contact the Israel Tax Authority for further information.
In Israel, you have to file your income tax return by 30 April. 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.
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