One of the many repercussions of the Israel-Hamas war concerns double national insurance (=social security) also known as Bituach Leumi in Hebrew.

Imagine an Israeli who relocated “permanently” to the USA (or many other countries – see below) with his family but patriotically returns to Israel to serve in the IDF reserves in the war against Hamas after the October 7 massacre.

Most respectable employers arrange meetings with tax accountants before departure and after arrival regarding their income tax position in the two countries. But these meetings did not always happen after October 7. We discuss below the double national insurance/social security trap (income tax should also be checked out).

The general rule:

An Israeli resident is supposed to pay national insurance, which includes a health tax element, on their income, in addition to income tax, even if they travel abroad. Non-payment may impact health care and state pension rights in Israel. Residency for national insurance purposes is not the same as for income tax purposes. After 5 years living abroad the NII typically assumes the individual’s center of living is abroad and stops providing Kupat Holim (health fund) health cover.

Most countries have some form of national insurance / social security. In some Europeans countries, the rates can be dozens of percent to help finance a high level of welfare benefits. So double social security can be a real risk.

Israeli Rates:

An Israeli resident who has no income (e.g. retired) need only pay a minimal amount of NIS 194 per month (in 2023).  Some Israelis relocating to work abroad start off paying these minimal rates, not expecting a hefty top-up.

If the Israeli resident individual works abroad for a foreign resident employer, the NII typically imposes national insurance rates normally applicable to work income, i.e. passive investment income, as follows for 2023:

Monthly income up to NIS 2,968 – Nil.

Next NIS 7,122 of monthly income: 4.61% national insurance plus 5% health levy = 9.61%.

Next slice of monthly income to NIS 47,465: 7% national insurance plus 5% health levy = 12%.

However, if the Israeli resident individual works in a treaty country (see below), that person should be exempt from the above national insurance contributions but NOT the 5% health levy. (Source: NII website).

If the individual works abroad for an Israeli employer, Israeli national insurance rates are generally applicable, but this scenario is unlikely because of exposure to double corporate and personal taxation.

Social Security Treaty Countries:

Israel has social security treaties with the following countries: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Poland, Romania, Russia, Slovakia, Sweden, Switzerland, UK, Uruguay.

Israel has a limited social security agreement with Canada (except Quebec) that should still address double national insurance.

That means only 20 countries have social security treaties with Israel. Many countries are missing from the list, including the USA, Australia, South Africa and Irish Republic.

Some have time limits. Reference should be made to individual social security treaties and the authorities in each country.

The NII has a “desk” for each treaty country. Social security treaties (and rules) are separate from income tax treaties.

Wives:

As for wives and partners of Israeli residents on relocation, she may be considered a housewife and exempt from national insurance contributions if she doesn’t work or works only for a foreign employer. But she is not exempt from National insurance if she is on unpaid leave from an Israeli employer. 

Problems:

It can be seen that national insurance / social security problems may arise in a number of cases, including: (1) return to live in Israel after living abroad less than 5 years e.g. to serve in the IDF (2) if Israeli individuals do not notify the NII that they ceased to be Israeli residents, (3) relocate to a non-treaty country such as the USA, (4) paid insufficient national insurance on account, (5) have wives on unpaid leave from an Israeli employer.

Enforcement:

When the NII finds out an individual has returned to live in Israel they chase for national insurance arrears. How do they find out? Sometimes from an annual income tax return filed with the Israeli Tax Authority (ITA).

 To sum up:

Before relocating abroad or returning to live in Israel, check out national insurance/social security as well as income tax and capital gains tax (including “exit tax”). Should you consider staying abroad over 5 years? Under 4 years? There are many permutations and combinations.

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

[email protected]

(c) Leon Harris 18.12.2023