An Israeli court has re-affirmed the principle that no national insurance contributions (Bituach Leumi, social security)) are due on passive foreign rental income. This will be good news for many Olim (immigrants) and other Israelis who hold investments in real estate investments outside Israel. Furthermore, the Court went on to criticize the National Insurance Institute for dragging its feet on the subject!
In general, national insurance of up to 12.17% is at stake.
The above principle is hidden in a wealth of technicalities. Let’s try to shed some light on the case in question, what the law says and what the Courts say the law means.
Background – What the income tax law says:
For passive Israel residential rental income below above an exempt level (NIS 5,654 per month), taxpayers may: (b) Elect to pay 10% tax on the gross rent, or (b) pay tax at their marginal rate (up to 50%) on net income after deducting expenses and depreciation.
On passive foreign rental income of all sorts, residential or commercial, different rules apply. There is no exempt level. An Israeli resident individual may choose between: (b) Elect to pay 15% tax on the gross rent minus depreciation, or (b) pay tax at their marginal rate (up to 50%) on net income after deducting expenses and depreciation and after crediting foreign tax paid.
What the National Insurance Law says:
In general, national insurance contributions on passive rental income, not from work, range up to 12.17% (2026 rates).
But the National Insurance Law (Section 350(7)) says that no national insurance contributions on rental income are due if the taxpayer elects to apply the 10% or 15% tax rates.
But what if the taxpayer decides to pay tax at the regular rate up to 50% on net income e,g. to claim expenses, depreciation and a foreign tax credit?
Back in 2024 the National Insurance Institute (NII) issued a Circular (number 1314) saying it had stopped collecting national insurance contributions on any Israeli residential rental income. But the NII said nothing about foreign rental income
Court case facts:
The main case concerns an Israeli resident Yeshiva student (Olach) who rented out three residential properties in Switzerland and decided to pay tax at his marginal rate of tax (up to 50%) (Olach vs. NII, Jerusalem Labor Court 25768-08-19 of Nov 23, 2020).
The NII tried to claim around NIS 29,000 in national insurance contributions on the rent, based on its reading of the National Insurance Law. Also, the NII claimed the individual derived active business income from the rent and therefore didn’t qualify for any national insurance exemption.
Court judgements:
In the Olach case, the Jerusalem Labor Court ruled no national insurance is due on the foreign rental income taxed at the taxpayer’s marginal rate. He could have elected the 15% rate.
The Court said it was clear that the individual, a Yeshiva student, derived passive income from the three Swiss properties, not active business income.
Furthermore, his marginal rate of tax happened to be zero after claiming a foreign tax credit for Swiss tax on the rent. If the NII imposed national insurance, that would be double taxation.
The Court criticized the lack of consistency of the NII, seeking to collect national insurance contributions on foreign rental income, not Israeli residential income.
The NII also claimed that the individual was doing tax planning. The Court said there is nothing wrong with legitimate tax planning.
Following the Olach case a class action was lodged on behalf of other similar cases (Soloveitchik vs. NII, 46655-06024 of Feb 22, 2026). The Court reportedly ruled that the National Insurance Institute had not properly met the conditions of the “cessation notice” as it continued to claim national insurance contributions on foreign rent after the Olach case judgement. However, the class action appellant was apparently not personally interested so the class action was accepted in principle subject to checking who should be the appellant.
Conclusion:
This case will be relevant to passive investors in foreign real estate – income tax is applicable, not national insurance.
What should you do? Calculate your combined foreign and Israeli tax and national insurance liabilities under both alternatives – 15% tax or marginal tax. If you already paid Israeli national insurance on foreign rental income, consider claiming a refund soon as time limits may apply.
It doesn’t matter whether or not the country concerned has a tax treaty with Israel. Israel has foreign tax credit rules in the domestic Israeli law for all foreign taxes paid on income and gains.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
Next Steps:
Please contact us if you want to optimize tax and national insurance on rental income in Israel or abroad.
© Leon Harris 17.3.2026