Doing Business in Israel 2024

It’s perfectly possible to make money in Israel and keep most of it. According to the OECD, Israeli tax revenues amounted to 32.5% of GDP in 2021, which was better than the OECD average of 34.2%. And Israeli business law follows Western principles thanks to British rule in 1917-1948, the high tech revolution, Mediterranean gas and OECD membership since 2010.  Below we review some of the things to address when doing business in Israel.

At the Macro Level:

You are probably doing taxable business in Israel if you conduct business activities physically in Israel or operate in Israel via an agent who can commit you. Israel’s tax treaties and the OECD Multilateral Instrument refine these criteria for foreign companies – check out any applicable treaty. Don’t forget to check out VAT too – Israeli rules differ from other countries’ rules.

Decide if you want to operate as a company or as a self-employed individual (=independent contractor).  Companies offer limited liability protection from most lawsuits and may be useful for deferring part of the tax on undistributed profits of up to NIS 5 million. But almost every company needs an annual audit which has a cost. But “wallet company” rules tax the income of personal service companies as salary or trading income at rates ranging up to 50% in certain cases.

Business Tax Rates:

For 2024, the regular company tax rate is 23%. The regular dividend tax rate is 30%-33% for 10%-or-more shareholders, 25%-28% for other shareholders, resulting in a combined tax burden on distributed corporate profits of 42.25%-48.41%, subject to any tax treaty (see below) in the case of foreign investors.

Preferred income derived by preferred industrial and tech enterprises is liable to company tax of 7.5% in development area A, 16% elsewhere in Israel, without time limit. Dividends are generally taxed at 20%. The resulting combined tax burden on distributed profits is generally 26% – 32.8% subject to any tax treaty. Lower rates are possible for certain large enterprises with annual revenues over NIS 10 billion.

There are also tax breaks for: capital gains of foreign resident investors, trust owned vehicles (TOV‘s), agriculture, approved rental buildings, oil and gas exploration and production and movie productions.

Various business support programs exist. R&D grants typically range up to 50% and up to 100% financing in designated incubators. Companies operating in a development area may receive additional grants of up to 10% – 25% . Funding ranges up to 75% in the minority, Ultra Orthodox and female sectors. Business advice and assistance is available from the Ministry of Aliya & Immigration Integration and from the Small Business Center (MATI). Grants may be repayable by way of a sales royalty. See below regarding international agreements.

Salaries and business profits of freelancers are subject to income tax at rates ranging up to 50%.

The VAT standard rate is 17%. Exempt dealers must have annual revenues below NIS120,000.

Remittances to and from Israel are subject to tax compliance checks by the Israeli banks.

There is currently no wealth tax nor estate/inheritance tax in Israel.

International Agreements:

Israel has income tax treaties with 60 countries including the US, the UK, Australia, Canada, South Africa and UAE – see:

Israel is a party to a FATCA Intergovernmental Agreement with the USA regarding information exchange, the OECD Common Reporting Standard,  the OECD Multilateral Instrument (MLI) to Implement BEPS Tax Treaty Related Measures and the OECD Inclusive Framework.

Israel has free trade agreements with: Canada, Columbia, the EU, EFTA, Guatamala ,Jordan, Mercosur (Argentina, Brazil, Paraguay, Uruguay), Mexico, Panama, Turkey, South Korea, UAE, Ukraine the USA and the UK.

Negotiations are under way with China, India, Vietnam, Eurasian Economic Union (Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan) .

Over the years Israel has entered into many R&D cooperation agreements. Israel currently has bilateral R&D programs with the US (BIRD), EU (Horizon Europe), India (I4F), Singapore (SIIRD) and Korea (KORIL). Israeli companies can get assistance finding a joint venture company in these countries. The grant rate is typically up to 50%, repayable by sales royalty.

Israel is a member of the IMF, the OECD, the UN, World Bank Group, GATT, GATS, TRIPS and many more.

National Insurance (Social Security):

The National Insurance (Bituach Leumi) rates are as follows:

  • Resident employees: 3.5%-12%
  • Employers of resident employees: 3.55%-7.6%.
  • Major shareholder employees: 3.49%-11.79%
  • Employer of major shareholder: 3.51%-7.38%
  • Resident home helps: 2%
  • Employers of resident home helps: 5.25%
  • Nonresident employees: 0.04%- 0.87%
  • Employers of nonresident employees: 0% (certain care staff) or 0.59%-2.65%
  • Freelancers: 5.97%- 17.83% (52% of the NI amount paid is tax deductible)
  • Not working: 9.61%-12% (52% of the NI amount paid is tax deductible)
  • Payment if no income: NIS 203 per month.

No National Insurance liability applies to monthly income exceeding NIS 49,030. There is generally no National Insurance liability on dividends and capital gains. Housewives are generally exempt. Immigrants (Olim), Returning Minors and Immigrant Citizens that do not have income from employment or income from other sources exceeding NIS 627 per month may be exempt from National Insurance for 6-12 months.

The above is subject to any applicable social security (“totalization”) treaty. Israel has such treaties with Austria, Belgium, Bulgaria, Canada (except Quebec(, Czech Republic, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Romania, Russia, Slovakia, Sweden, Switzerland, Uruguay and the UK.

New and Returning Residents (“Olim”):

New residents and senior returning residents (lived abroad 10 years) who took up Israeli fiscal residence since  January 1, 2007 are generally exempt from Israeli tax on non-Israeli source income for 10 years. The exemption does NOT apply to income for work done in Israel for a foreign firm. Citizenship is not relevant for these purposes. Keep a monthly diary of where you worked day by day. Olim do not need to report overseas income or assets in their 10 year Israeli tax holiday.

Olim also enjoy an exemption for 5 – 20 years regarding interest on Patach foreign-currency time deposits of three months or more at an Israeli bank.
On Israeli source income, new immigrants receive extra  1-3  personal “credit points” per year which reduce taxes by NIS 242 – 726 per month for four and a half years.

Foreign Expatriates in Israel

Israel’s tax treaties sometimes grant an income tax exemption for employees resident in those countries but working in Israel.

Otherwise, non-residents working in Israel lawfully in their field of expertise for an employer as “foreign experts” who are paid at least NIS 14,800 per month, may enjoy a deduction for accommodation expenses and a daily living expenses deduction of up to NIS 350 for up to 12 months, provided they are invited by an Israeli employer that is not an employment agency.

Tax Registrations:

A business must register for Israeli tax purposes immediately the business activity starts.  If you wait until after the year-end, you will probably be fined.

You start with the VAT registration. In Israel, you cannot legally bill your customers until you are registered for VAT purposes. And you can’t do that without first opening a business bank account, and providing a cancelled check and a copy of your premises’ lease or purchase agreement. The VAT Authority insists on at least one Israeli resident director or fiscal representative in the case of a company.

If you are self-employed and your annual revenue is less than NIS 120,000 in 2024 you will probably be an “Exempt Dealer” (below the threshold).  You are still liable to income tax and national insurance (social security) but probably not much.  But an Exempt Dealer is exempt from the need to collect VAT from customers and cannot get back VAT on expenses.  An exempt dealer must issue receipts (not tax invoices) to customers and keep a Receipts & Payments Book in a prescribed format.

Above that revenue level, businesses must register as an Authorized Dealer. That means issuing tax invoices, offsetting VAT on expenses against VAT on revenues, keeping approved accounting records, and reporting monthly or bimonthly to the VAT and income Tax Authority.  People in some professions are not allowed to be Exempt Dealers and can only be Authorized Dealers. These include: Agronomist, architect, technician, private investigator, Rabbinical attorney, dental technician, organizational consultant, management consultant, scientific consultant, economist, engineer, surveyor, bookkeeper, translator, insurance agent, lawyer, accountant, appraiser, chemical or medical laboratory owner, artistes,  various others in show business, doctor, psychologist, physiotherapist, veterinary surgeon, dentist, driving school owner, school owner, real estate agent or dealer.

Once the VAT registration is sorted out, a business can go on to register for income tax and national insurance (social security) purposes.

Pay Tax As You Go:

Every year, the business taxpayer will receive demands to pay VAT, payroll taxes, income tax, and tax installments on profits (Mikdamot). These installments are usually set at a percentage of monthly revenue and must be paid unless reduced by agreement with the local tax office. The installments are merely a payment on account of the annual tax on profits and a reckoning up is done after the year-end by filing annual tax returns.   These are usually filed online with supporting documentation (Israeli annual bank confirmations, annual employer confirmations, pension payment confirmations, foreign tax confirmations, etc).

The above installments are generally due regularly on the 15th or every other 15th of the month (not VAT in the case of Exempt Dealers).  Payment is made online up to certain credit card limits, or at a local post office or bank branch.  Lateness results in penalties. Persistent lateness (3 or 4 times) can result in a prohibition on doing business with the government and public companies.

Essential Paperwork:

There are strict bookkeeping and customer billing rules – approved Israeli software or printed books must be used – not Excel, Word, QuickBooks or Sage. Otherwise, the Israeli Tax Authority not only levies fines, it can also estimate taxable income, which is never good for the taxpayer.

Businesses issuing tax invoices over NIS 25,000 before VAT must obtain an “Israel Invoice” allocated number from the Israeli Tax Authority – commencing April 1, 2024 unless extended. This will typically be done automatically by approved Israeli accounting software. Businesses on a cash basis (e.g. certain professionals) must obtain “Israel Invoice” advance clearance when issuing proforma invoices. The threshold amount decreases to NIS 20,000 in 2025, NIS 15,000 in 2026, NIS 10,000 in 2027 and NIS 5,000 from 2028.

In practice, smaller businesses typically outsource the accounting and tax reporting to an accountant or bookkeeper who has the approved software and can deal with the filings by the 15th. They must let the accountant or bookkeeper have all the paperwork on a regular basis throughout each month. They should also provide read-only access to their bank accounts and credit card accounts on the internet. Larger businesses usually have in-house accounting departments.

Commencing 2024, a freelancer with annual revenue up to NIS 120,000 may elect to be a “Small Dealer” (Osek Zair) when filing his annual income tax return, and claim a flat expense deduction of 30% of revenues for income tax purposes. This is instead of deducting actual expenses.  The 30% expense deduction will not be available if any of the following apply: the freelancer has employees, inadequate books, unearned business income, an employer also pays freelance income to the individual, part of the income is from a transparent entity (house property or family company company, over 25% of freelance income is from a related party, 10%-or-more shareholders (in any company apparently), anything else prescribed by the Finance Minister.

Self-employed businesses and 10%-or-more shareholders are also usually requested to file a capital declaration (Hatsharat Hon) at the outset and every few years, listing their personal assets and liabilities. This is to help the Tax Authority see if the increase in assets have outstripped reported income.

On the General Business Front:

Set business goals over time and prepare a business plan – it may improve your chances of success and reduce surprises. You need to know your unique selling point(s) that will make you competitive and in demand.  Consider whether franchising is for you. If you have intellectual property (unique technology, knowhow, brand, etc), consult a patent attorney about protecting it.

In particular, estimate your finance needs and available sources – family and friends, suppliers’ credit, venture capital funds, angels, etc. Choose a bank you are comfortable with – but don’t expect an Israeli bank to lend you much unless you put up solid collateral.  Decide whether to operate from an office, hub, accelerator and/or from home.

Check if you need a business license. Choose an appropriate business name and logo. Go for customers by networking – some networking groups are quite effective. Consider hiring a marketing consultant. Build a catchy website and social media presence and design your stationery and graphics with care.

Register for municipal taxes and utilities. Install appropriate communications and computer systems. Get adequate insurance. Consult lawyers regarding legal matters.

Employees and Freelancers:

Once employees have worked 3 – 6 months at a firm, they are entitled to mandatory pension and severance funding. The stipulated minimum pension fund contribution is 18.5% of gross salary. The employer generally pays 6.5% towards pension funding and 6% towards severance funding. The employee pays 6% towards pension funding.

“Study Funds” (Hishtalmut) are also common but not mandatory – the employer usually pays 7.5% of gross salary and the employee 2.5% up to prescribed limits. The employer deducts his cost for tax purposes and the employee is exempt and can use the money for any purpose if no withdrawals are made for 6 years.

A similar Study Fund arrangement is available to the freelancers (self-employed) – they can contribute 7% and deduct 4.5% as an expense within prescribed limits.

The self-employed must contribute 4.45%-12.55% of income into a pension-unemployment fund within certain limits.

Employees are also entitled to reimbursement of their home-to-work travel costs, a recreation bonus (Havraah) every summer according to a formula, and severance pay (one month’s salary per year of service) if dismissed or in certain other cases.

Approved share option plans are popular as employees may pay only 25%-28% tax if various conditions are met. International plans should have an Israel annex.

Records must be kept of time worked by employees, vacation taken, sick leave, etc. Be sure to consult an Israeli lawyer about labor law and employment contracts among other things.

Real Estate:

Home rental income of up to NIS 5,654 per month is exempt for individuals. Thereafter, several possibilities exist – regular tax on net income, flat rate tax of 10%. Companies pay tax at regular rates.

Real estate acquisition tax rates range up to 10% generally. For an Israeli resident purchaser with no other home in Israel, the first NIS 1,978,745 may be exempt from purchase tax. Thereafter, purchase tax rates range up to 10%.

The gain from the sale of an only home in Israel by a resident individual may be exempt from tax provided its value does not exceed NIS 5,008,000. Otherwise, home sales are generally taxed at 25%-50%.


Passive income derived by individuals from securities are generally taxed at rates of 25%-33%. Traders and companies pay tax at regular rates.

Estates, Inheritances and Gifts:

There is no tax in Israel on estate or inheritances. There is also no tax on gifts to Israeli residents. But capital-gains tax is payable at rates of 25%- 50% on:

  • Gifts to foreign residents except for cash;
  • Sale of assets acquired by way of a gift or inheritance.

Next Steps:

  • Please contact us for tax and business advice to help you get started.
  • After that we will provide tax reporting and business mentoring
  • Also multinational family wealth planning
  • And e-commerce tax planning

About Us:

  • We are accountants based in Ramat Gan, Israel with clients in Israel and many other countries. Our services include business and tax advisory services for businesses, e-commerce operations, entrepreneurs, families and trusts. From routine advice to M&A, CFO services, business mentoring, due diligence and ongoing financial advice and assistance in Israel.
  • Our numbers speak your language…..

Consult experienced tax and legal advisors in each country at an early stage in specific cases.

© 25.2.24 Leon Harris