So, you've been offered a job opportunity to work in Israel for a company based in the USA, UK or somewhere else in the world. The employer abroad doesn't care where you work from, as long as the work gets done. However, the way you get paid when working in Israel for an employer abroad needs to be thought out. It's so easy to end up paying your tax in the wrong place.
When an employee in Israel works for an employer abroad, the salary is taxable in Israel (the place where the employee does the work). So, receiving a payslip from abroad means you'll have paid taxes to a country that you didn't need to. And you'll still need to pay your taxes in Israel. This can sometimes leave you paying tax twice - which means less money left in your pocket.
So, if a foreign payslip isn't the way to get paid, what is the best way to get paid in Israel when working for a foreign employer? There are several options to choose from depending on your circumstances.
1. Registering as an Atzmai (Osek Patur or Osek Murshe)
An atzmai is someone who's self-employed. It means that you're registered with the Tax Authorities as running your own business. This allows you to issue invoices to your foreign 'employer' and charge them periodically for the services that you provide to them. You'll get paid in full without any taxes or deductions. However, you'll be responsible as a business owner, to report your income and pay your taxes in Israel (don't worry - it's simple if you've got an accountant).
As an Atzmai, you can either register as an Osek Patur or an Osek Murshe. An Osek Patur is for small businesses and requires less reporting to the Tax Authorities. However, you'll be limited to annual revenue of approximately 100,000 ILS. If your revenue will be higher than this, you'll need to register as an Osek Murshe.
If you choose the Atzmai option, you'll probably have to pay for the services of an accountant. Usually this isn't too expensive. However, as a benefit, you'll have the ability to save on your tax bill by deducting your business expenses.
How much tax will I need to pay as an Atzmai?
It's natural to start thinking at this point - how much tax will I have to pay as an Atzmai. At the end of the day, what's most important is how much you're left with to spend after all the taxes. You can use our free income tax calculator - it only takes 2 minutes and you'll have the answers you're looking for.Income tax calculator
2. Working via a חברת כוח אדם (manpower services company)
A חברת כוח אדם acts as a middleman between you and your employer. They'll act as your employer and give you a monthly salary with an Israeli pay slip (תלוש). They'll be responsible for any taxes and deductions before paying you the net salary. In return, they'll invoice the employer abroad for the services that you provide.
Whilst this option gives you the ability to work without any responsibility of tax reporting, the חברת כוח אדם will take a percentage of your salary as their profit. For short term jobs, this is a great solution as it avoids registering with the Tax Authorities. However, for jobs which will last more than a few months, its probably more financially efficient to register as an Atzmai.
3. Foreign Company registering with the Israeli Tax Authority as an employer
Israel provides a registration system for foreign entities to operate in Israel. By doing so, the foreign entity will be provided with a 9 digit Israeli ID number (usually starting with the numbers '5600'). This allows for registration with the Tax Authorities and the ability to employ Israeli workers via an Israeli payroll. As an alternative, the foreign entity could incorporate an Israeli daughter/sister entity through which they'll employ their Israeli workers.
This option is usually recommended for foreign employers who have several employees working in Israel.
Note: foreign entities with a 'permanent establishment' in Israel may be required to register and pay Israeli income tax or corporation tax on the profits generated by the Israeli operations. If a foreign entity has employees working in Israel, this can sometimes be considered a 'permanent establishment'. Contact our team for some advice if you're concerned about this (just send us a message in the form at the bottom of this page).
When working in Israel for an employer abroad, you should make sure to pay your taxes correctly:
- Register yourself in Israel as an Osek Patur or Osek Murshe.
- Work via a manpower company (חברת כוח אדם).
- Ask your employer to become a registered Israeli employer.
If you've got more questions, or you need help registering in Israel, get in touch with us via the form below and we'll be happy to help you.