Israeli Employees Working Abroad – Preliminary Tax Planning

13/05/2021

Many Israeli companies send their employees to work abroad for a certain period of time.

In some cases, the Israeli company has an agreement of employment with the employee, in which it is agreed that the Israeli company will continue to pay the employee the salary through the company in Israel, even though the employee himself is employed on the territory of another country.

Local Israeli law refers to this special case in which an Israeli worker is employed by an Israeli company, yet performs his physical work in another country, and therefore specific laws have been established in the Income Tax Ordinance in Israel.

Even in international taxation treaties to which Israel is a signatory, there are specific guidelines for such cases, and in cases where Israel does not have a double taxation treaty with the country to which the employee travels, the case becomes even more complex, as it is an employee who pays tax in two countries.

Under the local law, special tax brackets have been established for calculating this particular tax, which are completely different from the tax brackets for an Israeli employee employed in Israel, and specific provisions have been established regarding the credit points to which the employee is entitled.

Local law stipulates, among other things, that the employee is entitled to benefits that provide tax relief, such as housing, ESL, reimbursement of flight expenses, reimbursement of medical insurance expenses, etc.

As stated above, the unique case causes a tax liability for the employee both in Israel and in the country outside Israel where the employee is employed, and therefore local law addresses this complex situation, and in some cases grants tax credit for taxes paid abroad in the case of Israel with a double tax treaty.

In cases where Israel has not signed a treaty to prevent double taxation, the case is even more complex, and requires additional tax planning, in order to examine how the employee does not pay too high taxes, in accordance with Israeli and foreign law.

Today, more than ever, it is advisable to consult a tax expert before going to work abroad.

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Read in Hebrew:

משכורת לעובד ישראלי, שעובד בחו”ל – תכנון מס מקדים