Dealing With the Corona Economic Crisis in Israel

Dealing With the Corona Economic Crisis in Israel

UPDATE APRIL 27, 2020

Last Friday (April 24) the Israeli government announced another series of economic measures to help with the coronavirus economic crisis, which are summarized herein. They include long awaited grants for company owners, among others, but with some stings in the tail.

Retail shops:

Most retail shops and hairdressers are now allowed to open provided they are not in a mall. Hygiene precautions must be adopted and a compliance declaration must be filed with the local municipality. It will be interesting to see if Israelis observe the two-meter-apart queue markings outside the entrance. A protective screen must be installed on the counter but at least 50 cm below the ceiling when there are anti-fire sprinklers. Restaurants and cafes may operate on a take-away basis, no seating. Workplace rules remain unchanged (generally up to 30% unless there are under 10 personnel and/or a “purple” recommended standard of hygiene is observed).

Municipal taxes:

New regulations and government funding reportedly enable municipalities to grant businesses a three month exemption from municipal tax (Arnona) or a 25% annual reduction.

Over 67 Adaptation Grant:

People aged 67 or more who are laid off or dismissed could claim in April an “adaptation grant” (Manak histalgut) from the National Insurance Institute in lieu of unemployment pay. They may receive another similar grant in May. This grant ranges from NIS 4,000 (if other pension income is less than NIS 2,000) to NS 1,000 (if other pension income is in the NIS 4,000-5,000) range. There is no grant if other pension income exceeds NIS 5,000.

Freelancers and Company Owners:

Freelancers (self-employed) may soon receive a second round of government grants, joined this time by major shareholders (holding 10% or more) of private Israeli resident companies with 5 or fewer shareholders. There are two types of grant: 1) Sales decrease grants, and 2) Overhead expense participation grants.

Sales decrease grants:

These are available if sales of the freelance business or company in the period March-June 2020 decreased by over 25% compared with the same period in 2019. If business only began in 2019, 4 times the monthly average up to the end of February 2020 is used as the base.

The grant for freelancers should be 70% of average monthly income in 2018 (2019 for a new business) but no more than NIS 10,500. If monthly income averaged more than NIS 40,000, the grant is reduced by 17.3% of the excess. The grant therefore decreases to zero for average monthly income above NIS 100,693. For major shareholders of more than one company, income of all of them is aggregated

The main conditions are:

  • In business as a freelancer a salaried worker-shareholder throughout the 6 months ended March 31, 2020.
  • Aged at least 20 in 2019.
  • Israeli resident freelancer or Israeli resident company.
  • Maximum income in 2018 NIS 1 million, excluding capital gains but including exempt income (e.g. for Olim) as well as 50% of investment income if married. For company shareholders, their share of company profit is added to salary.
  • Minimum monthly average income in 2018 NIS 714.
  • Kept proper books.
  • Filed a 2018 tax return (or 2019 tax return if started in 2019 or made losses in 2018).
  • Filed VAT returns or “exempt dealer” return for smaller freelancers.
  • If a company major shareholder, national insurance reporting reflected this.
  • Major shareholders must still hold 10% or more when filing the grant claim.

The grants are liable to income tax, not national insurance or VAT.

Claims for sales decrease grants and overhead participation grants must be filed online within 70 days from May 3, 2020, i.e. by July 12, 2020. This is only 12 days after the end of the March-June sales period, so early claims seem advisable. The Israeli Tax Authority is supposed to check the claim within 5 days and pay within 5 more days. An adverse decision is appealable.

Overhead expense participation grants.

These grants are available to freelancers as well as companies and partnerships which suffered a sales/revenue decrease over 25% in March-April (not March-June) 2020 compared with the same period in 2019. If business only began on or after March 1, 2019, double the monthly average up to the end of February 2020 is used as the base.

But there are several stings in the tail – read on.

Limits apply as follows:

  • Maximum sales in 2019: NIS 20 million for all businesses
  • Minimum sales in 2019: NIS 300,000 freelancers and NIS 18,000 for companies (freelancers already received a sales grant in April unlike companies).
  • Maximum overhead participation grant: NIS 400,000.

Grants if 2019 sales up to NIS 300,000:

For companies with 2019 sales in the NIS 18,000-300,000 range, these additional grants are:

  • NIS 700 if 2019 sales were up to NIS 100,000
  • NIS 1,875 if 2019 sales were NIS 100,001-200,000
  • NIS 3,025 if 2019 sales were NIS 200,001-300,000

Grants if 2019 sales were over NIS 300,000:

For freelancers companies and partnerships with 2019 sales over NIS 300,000, grants are calculated using a complex set of formulas. Put simply:

  • Sales in March-April 2019
  • TIMES a sales decline factor – from 10% to 50%
  • TIMES an overhead expense participation factor – maximum 30%

The sales decrease factor ranges from 10% (sales decrease 25.1%-40%) to 50% (sales decrease over 80%).

The overhead expense participation factor is 30% if 2019 sales were no more than NIS 1.5 million. Above that level, it cannot be more than 30% or less than zero.

First, the overhead expense factor is calculated as:

  • 90% of 2019 overhead expenses divided by 2019 sales, plus
  • annualized savings from employees laid off or dismissed in the period March-April 2020.

The result is a percentage of sales.

However, the “overhead expense participation factor” is the inverse of the “overhead expense factor”. The government has found a way of reducing the grant and making it your fault….

Suppose your overheads were 80% of sales in 2019 – only the inverse of 20% is recognized for grant purposes because you are assumed to be inefficient in controlling costs and/or you let employees go in 2020.

But if your overheads were only 20% of sales in 2019 – the inverse is 80% but this is unfortunately limited to 30% for grant purposes.

Overhead expenses (fixed expenses) apparently refer to inputs (not fixed assets and salaries) that are taken into account for VAT purposes, but clarification is awaited.

All in all, several stings in the tail.

Claim Procedure:

Claims for sales decrease grants and overhead participation grants must be filed online within 70 days from May 3, 2020, i.e. by July 12, 2020. This is only 12 days after the end of the March-June sales period, so early claims are advisable. An adverse decision is appealable.

Comment:

For many businesses these grants may turn out to be modestly helpful in these difficult times.

The process uses existing data on the Israeli Tax Authority’s computer system and may prove to be more efficient than comparable aid in the UK which needs data to be fed in.

Nevertheless, there are reports that the Israeli government is considering requests for back-to-work job subsidies for laid-off employees who are taken back on by their employer.

Next steps:

Please contact us if you require assistance in reviewing eligibility and amounts as well as making the grant claims. And keep healthy!

UPDATE APRIL 19, 2020

This morning the Israeli government published a joint announcement of the Prime Minister’s Office and the Health and Finance Ministries regarding the latest coronavirus emergency economic regulations which go into effect as soon as they are published. Following are highlights. Attached is additional Hebrew information.

In the government’s press conference of April 18, 2020 (Motsei Shabbat) we were again verbally promised grants for company owners as well as freelancers, but no further details or timetable.

Which sectors can now operate?

Certain sectors can now resume working provided they are not in a mall or open area, provided they declare they comply with the “Purple Standard” (see below): Sale or service in shops specializing in information and communications equipment, household items, cultural and hobby items, laundry, seamstress, sandals.

Work place employee limits:

Only 30% of the work force or 10 people, whichever is higher may attend the work-place.

However, the 30% limit will not apply to work places and businesses which uphold “the Purple Standard” (Teken Sagol, which may also be translated as the Chosen Standard, similar to the Chosen People…). Nevertheless, work should be done at home where possible. There are two lengthy purple standards, one for workplaces, another for shops. The purple standards are self regulated.

Purple workplace standard:

In brief, the purple workplace standard includes the following instructions:

  • The employer must appoint someone in charge of observing the purple standard and instruct employees about it, e.g. using posters. The CEO and person in charge of corona matters must sign a compliance declaration (daily?).
  • Before letting people enter, someone must ask them: Do you cough? Do you have a temperature above 38 degrees Celsius or did so in the last week? Were you in contact with a corona patient in the last two weeks? A yes means they cannot enter unless they cough due to chronic asthma or other allergy. Their temperature must also be taken before entry to check it is below 38 degrees.
  • Workers must be kept 2 meters apart or other measures taken. Employees must have their own equipment as far as possible and it should be sanitized before passing it to anyone else. They should war masks. For office work, only two employees are allowed in rooms up to 20 square meters, up to 5 employees in larger rooms – or more if partitions are used. Up to 8 employees for professional meetings (not clear what about guests). Drinking and eating should be in employees’ rooms as far as possible. New employees above pension age (men 67, women 64) starting on or after March 22 may apparently not attend the workplace.
  • An electronic record should be kept of suppliers and customers visiting – number, time, entry checks.
  • Work with fixed suppliers as far as possible.
  • Same employees in organized transportation and shift as far as possible.
  • If anyone contracts coronavirus, the Health Ministry may suspend the workplace.

The purple standard for shops:

A shop allowed to open may only do so after declaring it complies with the purple standard for shops. It is similar to the workplace purple standard – someone in charge, entry checks, two meter gaps, etc. Also, no more than 2 customers per active cash register, or 4 customers in shops over square 100 meters, regular cleaning, protective screen on the counter between the seller and customers. The workplace purple standard also applies to shops with over 10 employees or over 30% of its work force present.

Other relaxations:

All shops may now make deliveries or allow self pick-up, subject to the regulations. Zoos, national parks and safari parks may re-open subject to regulations. Special education for groups of 3 children are now allowed with a 15 minute gap between each and hygiene focus. Up to three families may appoint a fixed kindergarten handler (metapel).

Separately, the self-employed are now allowed to postpone paying their March 2020 national insurance payment until May 15. This does not apply to anyone else.

In the public sector, essential employees may continue to work as before at the workplace or at home, others are on enforced vacation, 50% at their own expense. A one-time switch of up to 25% of such essential employees may be allowed.

Comments:

The above is mainly based on rushed press releases today from the Prime Minister’s Office – the language of the regulations remains to be seen. It is regrettable we still have few details or timeframe for upcoming grants for company owners and freelancers. The unsaid elephant in the room is that this might necessitate deficit financing requiring  Knesset approval which may or may not be forthcoming at present….

EARLIER ARTICLES:

Coronavirus  –  Special Economic & Tax Tips

The coronavirus continues to present economic challenges. We have previously discussed Israeli unemployment pay for people laid off and grants for certain self-employed Israelis. Here are a few more challenges and potential solutions.

Adaptation Grants:

Laid off employees aged 67 or more and company owners are not entitled to unemployment pay under the coronavirus emergency regulations in Israel. But they may perhaps qualify for an “adaptation grant” (Ma’anak Histagkut). The main conditions are:

  • Age 67 or more.
  • Israeli resident.
  • Dismissed or laid off in the period March 1-April 19, 2020 for at least 30 days.
  • Employee in the 3 preceding months.
  • Pension not exceeding NIS 5,000 from work or service in the army, police or prison service.

The grant for March ranges from NIS 1,000 – 2,000 depending on other pension income (excluding state pension). The grant for April ranges from NIS 1,000 –  4,000. No grant is paid if other pension income exceeds NIS 5,000 (per month, apparently).

For details see: https://www.btl.gov.il/benefits/Unemployment/covid19_avt/prisa/Pages/gil-prisa.aspx.

To apply online: https://forms.btl.gov.il/Form/DStart/Avtala67.

The National Insurance Institute is expected to clarify whether company owners may be eligible.

Zoom Meetings:

The Zoom video conferencing software product has become popular for business and social online meetings. However, it has become popular with hackers too. The Israeli National Cyber Directorate has published some recommendations on how to keep away unwanted guests from your Zoom meeting and your data. This matters especially for businesses operating from home. Among the recommendations:

  • Announce the meeting privately not publicly.
  • Use a password.
  • The host should lock out new attendees once the invitees have shown up. This is done at the time of the meeting by clicking below Manage Participants/More/Lock Meeting. Alternatively, on some versions of Zoom when the host schedules the meeting he/she can set up a Waiting Room and at the time of the meeting the host only clicks Admit for invited guests.
  • Don’t record meetings.
  • Don’t share confidential documents on Zoom.
  • Other more technical recommendations.

For details see: https://www.gov.il/BlobFolder/reports/zoom_recommendation/he/ZOOM-CERT-IL-W-1049.pdf

OECD on tax treaty rules:

The OECD published on April 3 a “careful analysis” of international tax treaty rules and the impact of the COVID-19 crisis . These deal with matters of extreme interest to international businesses, Olim and employees on relocation who find themselves in the “wrong” country and can’t travel because of coronavirus.

Residency:

If a person gets stranded away from their home country by reason of the COVID-19 situation, perhaps on holiday, perhaps to work for a few weeks, the OECD says the temporary dislocation should not result in a change of fiscal residency. This is because there should be no change in their permanent home or center of vital interests or habitual abode. This might be relevant to Olim stranded visiting their old country, or non-Olim standed visiting Israel.

The OECD says the same may apply if someone relocates to work in another country becomes resident there but returns temporarily to the old home country. This may be relevant to Israelis who relocate to the US and become US residents, but get stranded on a temporary visit to Israel.

Control and management:

Can the fiscal residency of a company change due to a temporary change in location of the CEO and senior executives? The OECD careful analysis says no. “All relevant facts and circumstances should be examined to determine the “usual” and “ordinary” place of effective management, and not only those that pertain to an exceptional and temporary period such as the COVID-19 crisis”

Permanent establishment (branch):

Can a company be deemed to have a permanent establishment (PE, taxable branch) in another country due to an employee working from home there? The OECD careful analysis says no. “During the COVID-19 crisis, individuals who stay at home to work remotely are typically doing so as a result of government directives: it is force majeure not an enterprise’s requirement…. The home office would not create a PE for the business/employer, either because such activity lacks a sufficient degree of permanency or continuity or because, except through that one employee, the enterprise has no access or control over the home office.”

Israel is a member of the OECD so OECD recommendations and decisions apply in Israel unless Israel abstains or expresses a reservation. On the other hand, the Israeli Tax Authority could argue that the OECD careful analysis mainly applies in cases of dual residency i.e. tax resident in two countries. Each case needs checking out.

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

leon@h2cat.com

The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd

FIRST ROUND OF GRANTS FOR SOME SELF EMPLOYED IN APRIL 2020

After much delay, the Israeli government is starting to implement an economic package for the Israeli business sector which is reeling from the corona crisis. Over 20% of the work force is unemployed or laid off, contributing to the business slump.

So what is planned?

Under new emergency regulations just issued (today April 2), grants may be paid to the self-employed (freelancers)  of NIS 6,000 soon, with NIS 8,000 proposed for later,. Please see below for more.

Unemployment pay may begin after 6 months work instead of 12 months. Those laid off without pay can also claim unemployment pay.

There may be months exemption from municipal tax (arnona) for businesses regarding March-May.

There may be a refund of income tax installments (mikdamot) paid regarding February-March in two tranches. Comment: the March tax installment is due mid-April – why pay it? What about VAT and payroll taxes?

State-backed loans of 8% of annual revenues will be available to large businesses with annual revenues of NIS 400 million or more.

For smaller business, the shareholders’ equity requirement for 5 year state-backed loans of up to NIS 500,000 (already available) is reduced from 10% to 5%. Comment: there has been criticism that financial institutions are turning down loan applications due to the need to decide rapidly!

Grants are planned up to NIS 4,000 for people aged 67 or more in April and May, in addition to state pensions. Comment: It is unclear whether this means one or two payments of NIS 4,000. Immigrants not receiving a state pension may be ineligible.

Grants for the self-employed (freelancers):

Under the new emergency regulations  a self-employed Israeli resident individual in business before March 2020 may receive a grant of 65% of his 2018 average business income.

If average business income in 2018 (or 2019 for new businesses) exceeded NIS 16,000 per month, the grant is reduced by 75% of the excess, i.e. no grant above NIS 24,000 per month.

Various conditions apply including the following.

  • The individual must be aged over 20 at the end of 2019 (not 28 as first proposed).
  • Annual total income (before losses and capital gains) under NIS 240,000 in 2018.
  • For a couple, annual total income under NIS 340,000 in 2018, with investment income split 50:50 between them.
  • Monthly average business income at least NIS 2,000 in 2018.
  • If the individual started in business in 2019, he/she will need to file a 2019 tax return and that will be used for calculation purposes.
  • March-April 2020 revenues at least 25% less than in the same period in 2019.
  • Filed a 2018 tax return.
  • VAT returns filed up April 2020 (obviously not possible yet) and no book-keeping deficiencies.
  • The grant claim form must be filed within 70 days after March 2, 2020 the emergency regulations were issued i.e. by May 10, 2020. This means the April VAT return must be filed by then too.
  • If the individual started in business in 2019, he will need to file a 2019 tax return and that will be used for calculation purposes.

Once the claim form is filed, the Israeli Tax Authority is required to wire the grant to the claimant’s bank account within 10 days –  unless something requires correction…..

The grant will be liable to income tax (timing unclear) but not national insurance nor VAT.

US citizens residing in Israel may presumably also face US income tax and social security on the grant – they should consult there is tax advisors.

What’s missing?

People operating through companies won’t get this grant according to the present measures, only unincorporated businesses. This is a major issue.

The new regulations do not yet cover the second grant announced of NIS 8,000…..

No general extension for filing and paying tax is yet proposed – anyone wanting an extension must apply on an individual basis to the Israeli Tax Authority.

Timing and Preliminary Registration:

It is unclear whether any part of the grant will be paid sooner before Pesach – clarification is expected shortly.

The Israeli CPA Institute advises the self-employed to prepare by registering with the Israeli Tax Authority at the “personal area” here:
https://secapp.taxes.gov.il/SrVeImut/frmRashiKnisa.aspx?src=LONew#no-back-button.

Before going in, have ready:

  • Israeli identity card (Teudat Zehut) – you’ll need the issue date.
  • Drivers’ license number.
  • Israeli passport number.
  • Cell phone
  • Email open

After entering, answer the questions, you will be receive a User Password by phone or email.

You will then receive an email from noReply@taxes.gov.il and have 30 seconds to click on a link to validate everything.

If you don’t click within 30 seconds, you should receive another User Password and another 30 seconds to click.

Q&A TIME

 Q: Which businesses are expressly permitted?

A: The following businesses are permitted:

  • Food deliveries;
  • Newspapers;
  • Essential household services, electrical products, communication products and services and health accessories;
  • Businesses which maintain a distance of 2 meters between people and let no more than 4 people queue up at each active cash register – businesses supplying food for consumption away from home by delivery only, pharmacies, optometrists, shops supplying mainly hygiene products.

Q: Which businesses are expressly forbidden at present?

A: Malls (except for shops selling food and hygiene products), places of leisure such as bars, function halls, sport, libraries, parks, non-medical treatment, tourism sites – and consumer markets.

 Q: If the business is allowed, can I work at my work place?

A: According to the emergency work regulations, a work place may not let more than 10 employees or 30% of its work force attend, whichever is higher. The employer may instruct employees not to come to the work place.

Exceptions to personnel numbers are prescribed for a range of sectors, to the minimum extent necessary, including: various government and municipal bodies, construction and infrastructure,  essential service enterprises, banking, capital markets natural gas, water, holocaust survivor rights, food and drink, transport storage and customs release, agriculture, transport, communications and internet, welfare, environmental protection, civic activities, religion, burial, technical and computer support, payroll preparers, tax representatives, guards, call centers, approved laboratories, messengers, sheltered accommodation, public housing, medical, certain service providers to the government, privileged enterprises according to Section 51 of the Encouragement of Capital Investments Law (= some industry and tech), special and distance education.

The regulations are in force from March 22 to April 16, 2020 unless extended. The full name of the work regulations are Emergency Regulations (Limiting the Number of Workers At A Work Place In Order To Restrict The Corona Virus Outbreak), 2020.

Q: What happens to the people who can’t come to their work place?

A: The employer can instruct them not to come to their work place. They may work at home, work at another work place with no more than 10 people, or be laid off on unpaid leave at the employer’s discretion (Finance Ministry Legal Department Q&A March 23)..

Q: What precautions are needed at functioning work places?

A: Employers must take the temperature of employees at the door and refuse entry if it exceeds 38 degrees centigrade. Everyone must stay 2 meters away from each other, wash their hands upon arriving and leaving and every three hours (and after touching nose or mouth). Tissues must be handed out.

Q: Do employees need a written pass from their employer to go to their work place?

A: No according to the Finance Ministry’s legal department (Q&A March 23).

Q: What about government-backed loans for corona-affected businesses?

A:  On March 24, improvements were made to State-backed loan facility for small and medium sized businesses facing cash flow issues due to corona.

The main terms (with improvements noted) are as follows:

  • Loans of up to NIS 500,000 or 8% of last year’s revenue  – whichever is higher!
  • Collateral of 5% (was 10%) needed – the State provides the rest;
  • 5 year term;
  • Grace period of up to 12 (was 6) months before repayments begin;
  • Exemption from the usual fee of NIS 250.

Applications should be accompanied by:

  • Declaration signed before a lawyer spelling out the link between cash flow needs and the virus;
  • Monthly profit and loss forecast for the upcoming year.

The applications are initially processed by one of two private firms: Giza Singer Even or BDSK. Thereafter, the loans are administered by certain major Israeli banks.

The time needed to deal with a loan application will be expedited as far as possible. The Finance Ministry claims that the handling and checking process at the bank selected may be as short as 5 (was 9) working days.

For further information see: https://mof.gov.il/AG/FinancingAndCredit/StateGuarantees/Pages/corona-virus-loan.aspx

Q: What are the main legal ramifications of corona for employers?

A: The Institute of Certified Public Accountants in Israel published legal advice it had received on March 22, 2020. Email us at the address below if you would like a copy. Consult your own legal advisors as needed in all specific cases.

Among other things, it seems an employer needs the employee’s consent to put an employee on unpaid leave, for a fixed not indefinite period, even though the employee may then claim unemployment pay. Otherwise, the employee may claim severance pay for constructive dismissal.

Official permission is needed to put certain employees on unpaid leave – for example from the Employment Ministry regarding pregnant women, women undergoing fertility treatment and women in their first 60 days after returning from maternity leave.

The fixed period of unpaid leave should be at least 30 days to enable the employee to claim unemployment pay, and the unpaid leave must be reported by the employer on form Bet Lamed 1514.

If the employee’s work hours and/or salary and conditions are cut back, that should also be pre-agreed and documented in writing to avoid later disputes. Again official permission may also be needed as mentioned above.

Q: Will the sudden drop on stock markets affect my savings?

A: Perhaps. The Capital Markets, Insurance and Pension Authority published information to the public on March 23, 2020. Among other things, they advise on diversity, considering the long term and consulting an investment advisor. Switching investments may trigger tax unless the investments stay inside the same product. Withdrawing money early from a pension or provident fund or managers’ insurance may result in a tax penalty of 35%, leave you with a lower pension later, and reduce any associated insurance cover.

If you are put on unpaid leave, check whether or not your employer will continue paying into your pension fund.

Q: What about insurance?

A: Insurance companies have shrunk the list of countries they will give health cover for on travel policies. Check that, and what happens if your flight gets cancelled – cover varies among different insurance companies at present (assuming you travel abroad in the first place).

As for cars, it is possible to suspend comprehensive insurance cover for periods over 30 days, but not usually compulsory car insurance. Consult your insurance agent.

Q:  What happens if my checks (cheques) bounce?

A.  This is serious for all concerned and legal advice may be needed. In principle, the Dishonored Checks Law, 1981, says that in general, an account may become restricted if ten checks are dishonored within a year. This is bad as the issuance of checks may be stopped, business may be disrupted and reputations may suffer. Exceptions may be made for emergencies. Because of the corona outbreak, the prime minister’s office announced on March 22, 2020 that bank accounts won’t be restricted for a period of up to 110 days.

Q:  Business is bad – how do I survive financially?

A:  As Paul Simon sung in “50 Ways to Leave Your Lover”: make a new plan, Stan….

Here is a business plan from our friend and colleague David Grawitzky of IAPA Chartered Accountants, South Africa:

Lots of companies are being affected by lower revenues and thus profits dropping due to
this period of the virus. Some companies, e.g. in the tourism sector, have come to a stop.

To help cope with these conditions think about the following:

  1. Try to raise additional resources from shareholders or brokers to increase the cash in the business.
  2. Reduce overheads quickly
  3. Renegotiate payment terms with creditors
  4. Request staff to take leave now
  5. Check your insurance policy whether loss of profits due to this virus is claimable under the terms of your insurance policies…..

 

Next step: Please contact us if you would like help in preparing and implementing a business plan.

 

Q: I have been laid off without pay. I am planning a new online business from home. How do I set up shop in Israel?

A: Here is a potted summary on setting up shop in Israel:

Structure:

  • First decide the structure – company or just a freelance (self-employed)? Being a freelancer is cheaper, but there is less protection from and lawsuits, and less protection from double taxation if the activities are international;
  • Incorporate a company if you want;
  • Open an Israeli bank account and order a check (cheque) book – the VAT Authority needs a specimen cheque;
  • Have a lease or purchase agreement for your office (or home) – the VAT Authority needs a copy.
  • Open Israeli VAT, income tax, payroll and national insurance files;
  • Keep approved books, issue approved customer invoices, report monthly/annually as required – consider hiring an accountant….

What taxes do you have to consider?

  • The regular Israeli corporation tax rate is 23%. The regular dividend tax rate is 30%-33% for 10%-or-more shareholders.
  • Reduced corporation tax rates (6%-16% corporation tax) apply to certain industrial and technological “preferred enterprises” especially in SAAS – software as a service
  • Israeli national insurance rates range up to 12% for employees; up to 7.6% for employers; and up to 17.83% for freelancers but 52% of that is tax deductible.
  • VAT is generally 17%.
  • Olim: One big benefit of moving to Israel is that new resident individuals are generally exempt from Israeli tax on non-Israelisource income and capital gains for the first 10 years. But activity in Israel is taxed from day one.

Financial support?

  • R&D grants may be available in the tech sector – generally up to 50%, more in incubators;
  • Loans of up to NIS 125,000 may be available from the Immigration Ministry.

What are the main Israeli reporting requirements?

  • Keep books and issue invoices on approved Israeli (not UK or US) software – most outsource this to their accountant;
  • Report and pay VAT, income tax and payroll taxes by the middle of each month;
  • File annual tax returns 4-5 months after the year-end (December 31). Accountants receive extensions for their clients;
  • Freelancers with annual turnover below NIS 100,491 in 2020 may only need to file annual VAT and tax returns, but this is not allowed in certain professions e.g. lawyers, accountants, doctors, translators.

Other matters:

Israel has free trade agreements with the EU, UK and US! Israel is an OECD member and its tax rates are nowadays better than the OECD average. Business law follows UK principles.

What else is different (Ma Nishtana) about Israeli business?

  • International currency transfers are slower due to anti-money laundering procedures at Israeli banks.
  • No inheritance tax…
  • You can’t legally invoice customers until you have a VAT registration;
  • Customers must withhold 30% tax from payments to you unless your tax affairs are in order;
  • Employees are entitled to an employment contract, pension fund, holidays and sickness.
  • Best of all, everyone gets Shabbat and the main Hagim off!

Next step?

The above was only for starters. Contact us for specific advice on the above and everything else.

In particular, check how to best structure international activities, even if you conduct them from a chair in Israel – other countries may want income tax, VAT, sales tax, digital service tax – check out what action you may want to consider.

And keep a close watch on your anticipated cash flow. You are out to make money. Contact us for help on managing your cash flow

Q: Please explain unemployment Pay For Laid-Off Employees

A:  Unemployment pay is available for employees laid off on unpaid leave due to corona. For details and online registration see: https://www.btl.gov.il/benefits/Unemployment/Pages/SohenNesiaot.aspx.

The employee should receive the unemployment pay from the first day off, and won’t have to first use up vacation pay.

If you register online by March 26, this may be backdated to March 15.

You must obtain Form Bet Lamed/1514 from your employer indicating the unpaid leave start date and expected period of leave.

You may need to report regularly (online at present) that you are still laid off.

Other conditions: You are an Israeli resident or permanent resident aged 20 – 67. You need to have worked 12 months in the last 18 months. The following are generally ineligible: self-employed, major shareholders in private companies and members of a Kibbutz or Moshav Shitufi….

How much is unemployment pay?

Unemployment pay is calculated on a daily basis as a percentage of your pay in the last 6 complete months before you apply. For example, someone aged at least 28 who was earning NIS 7,000 per month may receive unemployment pay of NIS 4,800 for a complete month of 25 working days. Someone who was earning NIS 15,000 per month may receive unemployment pay of NIS7,470 per complete month. The maximum unemployment pay is NIS 10,551 for someone who earned NIS 25,275 per month. Lower rates apply to someone aged under 28 e.g. NIS 3,660 per month unemployment pay if earnings were NIS 7,000 per month. After 125 days, the unemployment pay reduces to a maximum of NIS 281.36 per day. These payments are taxed.

What about self-employed (freelancers)?

The government has announced a grant of NIS 6,000 for freelancers, details are being formulated. Freelancers may also be able to dip into their pension plans.

Certain teachers, sport trainers and tour guides may be able to claim unemployment pay. They would need to have worked for 12 of the last 18 months under contracts of at least 3 months or contracts to provide 7 lessons or lectures or training sessions.

Dismissal?

Employees who are dismissed by their employers for any reason may generally be entitled to severance pay at the rate of one month per year of service, after the first 11 months. That equates to 1/12 of your latest pay or 8.33%. Of this, in many cases 6% will already have been paid into your pension fund (kupat gemel) by the employer. All this would need checking out with your insurance agent and/or labor lawyer. Employers should perform similar checks.

Q: How do we survive bad times?

  1. Here are a few quotations for bad times – with thanks to David Grawitzky of IAPA Chartered Accountants, South Africa…
  • Bad times have a scientific value. These are occasions a good leaner would not miss – Ralph Waldo Emerson
  • A heart well prepared for adversity in bad times hopes, and in good times fears for a change in fortune – Horace
  • Always in life bad times will lead to great times – M. Night Shyamalan
  • Building a rainy-day fund during good times may not be politically popular, but it can pay off during the bad times – Ben Bernanke
  • If you are the person who gets the lion’s share of attention in good times, guess what: you get the lion’s share of attention in bad times – Matt Lauer
  • Good businesses will survive good times and bad times.- Theo Paphitis
  • You can have good time with anyone, but it’s really different and much more interesting when you look at how you get through the bad times with someone -Kenya Barris
  • If you like being patted at the back for the good times you have to be prepared to take the bad times -Michael Carrick
  • You need bad times to become a better and stronger player – Jerome Boateng
  • The only way to get to that next peak is to be ready for that next valley. Being raised Irish, you know to always be ready for the bad times – Rory O’Malley (or Israeli?)

Closing comments:

Things are dynamic at present. The government is recommending that people work from home where possible. Video conferencing is becoming the norm. Government websites are under strain and not always available. But Israelis are renowned for improvising and coping. And e-commerce is sure to expand….

Next Steps:

Please contact us about helping you guide your business through the corona economic crisis. We will be happy to hold a video conference by Zoom. United we stand!

leon@h2cat.com

© Leon Harris,

March 18, 2020

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