Tolley’s Global Mobility: Employment Taxes – Israel
5. How to register an employer/employee
5.1 EMPLOYER REGISTRATION
In order to hire employees in Israel, an employer which is a company or individual must be registered in Israel.
Once a company or an individual has registered and opened their business in Israel, in order to hire local or foreign resident employees, the employer must open a withholding file with the Tax Authorities. To do so, the employer must fill out and submit the appropriate form to the Tax Authorities (either for a small business, a company, or a foreign company doing business in Israel).
Once the form has been submitted the Israel Tax Authorities will open a file and will automatically send the information, including the withholding file number, to the National Insurance Institute (Social Security).
The National Security Institute (Social Security) automatically opens an employer withholdings file under the same number, based on the information provided.
After the National Security Institute (Social Security) Withholding account is opened, the new employer receives a notification regarding the opening of the file, including the number of employees that have been reported and the insurance rates the employer must pay for the employees.
The new employer will also receive a questionnaire requesting additional information and form 102 which must be filled out and submitted along with the insurance contribution payments (1.2).
To register as an employer, the individual or company simply fills out the required form with the information of the company, name of employer and other information requested, and files the form with the Israel Tax Authority.
5.2 EMPLOYEE REGISTRATION
There is no registration of specific Israeli resident employees in Israel, rather, once an employer opens a withholding file with the Israel Tax Authority, the new employee fills out the form 101, (for foreign employees form 102) which the employer submits to the Israel Tax Authority as part of the employer’s regularly required reporting. 1.1.
An employer of a foreign (non-resident) employee must report the employment to the National Insurance Institute in writing. After receipt of the notification, the National Insurance Institute will send the employer a reporting contract and a book of reporting forms. A new employer will also receive a notice of the opening of a file, their file number and additional information. The report and payment for a non-resident employee may be submitted online on the National Insurance Institute website.
The employer of a foreign employee is required to withhold and pay social security payments for the employee. For foreign employees from treaty member countries, the employer must provide the employee with an identification number exclusively for use in relation to the withholding of social security payments for the employee and submission of those payments to the National Insurance Institute (social security). An identification number for the foreign employee is obtained through the submission of form BL/1050 to the National Insurance Institute. The form must be filled out in both English and Hebrew and must be submitted along with a copy of the employee’s passport and work visa containing the personal details of the employee, the employer, and the social security withholding file number.
The information required for the form includes the full name of the employee in both Hebrew and English, the employee’s date of birth, passport information, citizenship, visa information, parents’ personal details, centre of life and occupation information, assets owned in Israel, health insurance and occupation while in Israel.
5.3 FOREIGN EMPLOYERS
A foreign company wishing to do business in Israel or wishing to hire employees in Israel must register with the Companies Registrar either by opening a subsidiary, a new company, or by registering as a foreign company doing business in Israel as a foreign employer. Once the company is registered, the employer must open an Israeli employer file and make the mandatory withholdings for their Israeli resident employees (5.1).
Foreign employers sending representatives to Israel and registered as a foreign employer must still provide the mandatory benefits to their Israeli resident employees. Employers who employ non-resident employees in Israel are required to pay a levy to the Israel Tax Authority on the employment of the non-resident employees. The amount of the levy depends on the industry of the employment but is comprised of the equivalent of a percentage of the employee’s salary. The employer may not withhold the amount of the levy from the employee’s salary
Non-resident employees receive less social benefits than Israeli resident employees and, therefore, will have a lower social security withholding (2.2). Employers of non-resident employees in Israel must provide their employees with work injury insurance, dissolution and bankruptcy insurance, and maternity insurance.
Though non-resident employees are subject to the same income tax rates as resident employees, non-resident employees are exempt from paying taxes on some forms of income and receive different credit point deductions than Israeli resident employees which may result in lower income tax actually withheld for non-resident employees in Israel (2.1).
In addition to the non-resident specific benefits described above and the withholdings described in 6.3, all other withholdings for the non-resident employee will be the same as those of the resident employees (2.3).
Expats residing in Israel and earning income from a foreign-based company are still required to file taxes in Israel, even if the work is done strictly over the internet.
If Israeli companies, located in Israel, send employees abroad for meetings or temporary employment, the employee receives a salary and benefits in Israel.