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Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as Israel – which is characterized by a productive workforce, multifaceted employment and tax laws, a robust infrastructure network, and leading sectors in high-technology products, pharmaceuticals, financial services, chemical products, metallurgy, petroleum refining, and textiles – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

 Global knowledge can guarantee a successful expansion.

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Israel – The Economy

The economy of Israel is a developed free-market economy. Israel ranks 35th on the World Bank’s ease of doing business index. It has one of the largest numbers of startup companies in the world, and the third-largest number of NASDAQ-listed companies after the U.S. and China.

American companies such as Intel, Microsoft, and Apple built their first overseas research and development facilities in Israel. Other high-tech multi-national corporations, such as IBM, Google, Hewlett-Packard, Cisco Systems, Facebook, and Motorola have opened R&D centers in the country.

The country’s major economic sectors are technology and industrial manufacturing. The Israeli diamond industry is one of the world’s centers for diamond cutting and polishing, amounting to 23.2% of all exports.

Israel’s quality university education and the establishment of a highly motivated and educated populace is largely responsible for ushering in the country’s high technology boom and rapid economic development by regional standards.

The country has developed a strong educational infrastructure, and a high-quality incubation system for new cutting-edge ideas to create value driven goods and services. These developments have allowed the country to create a high concentration of high-tech companies across the country’s regions. These companies are financially backed by a strong venture capital industry.

Its central high technology hub, the “Silicon Wadi”, is considered second in importance only to its Californian counterpart. Numerous Israeli companies have been acquired by global corporations for their reliable and quality corporate personnel.

Israel also benefits from international trade connections. Israel has signed free trade agreements with the European Union, the United States, the European Free Trade Association, Turkey, Mexico, Canada, Ukraine, Jordan, and Egypt. On 18 December 2007, Israel became the first non-Latin American country to sign a free trade agreement with the Mercosur trade bloc. It has also been part of the OECD since 2010.

Israel is also a major tourist destination, especially for those of Jewish descent, with 4.55 million foreign tourists visiting it in 2019 (about 1 tourist per 2 Israelis).

Small and Medium-Sized Companies

SMEs are of great importance to the Israeli economy. Small and medium enterprises (SMEs) constitute the overwhelming majority of companies in Israel. SMEs account for 99.8% of all employer businesses in Israel, 68.7% of the business sector workforce and 62.3% of business economy value added.

Both medium-sized (50-249 employees) and small businesses (10-49) contribute larger shares of business numbers, employment and value added to the business economy than the OECD average. On the other hand, micro businesses numbers and employment are slightly lower than the OECD average, although micro firms in Israel still contribute more than the OECD average to business sector value added.

CountryIsrael/The State of Israel
No. of States/Provinces6
Principal CitiesJerusalem, Tel Aviv, Haifa, Petah Tikva, Ashdod, Netanya, Rishon LeZiyyon, Bnei Brak, Holon, Beersheba
Local CurrencyIsraeli Shekel (NIS)
Major ReligionJudaism
Date Format(dd-mm-yyyy)
Time Zone(GMT+3) or Israel Daylight Time
Country Dial Code+972
Border CountriesIsrael borders Egypt, Jordan, Lebanon, Syria, and the Palestinian territories of West Bank and the Gaza Strip.
Tax YearJan 1 – December 31
VAT %17%
Minimum Wage5,300 Israeli new shekel per month ($1,298)
Taxpayer Identification NumbersIndividual Tax Identification Number (ITIN)
Social Security Number (SSN)
Registration Number (REG/VAT ID)
Leading Sectorshigh-technology products, pharmaceuticals, financial services, chemical products, metallurgy, petroleum refining, textiles
Main importsCars, Diamonds, Packaged Medicaments, Broadcasting Equipment, and Computers
Main exportsDiamonds, Integrated Circuits, Packaged Medicaments, Medical Instruments, and Other Measuring Instruments
Main trading partnersUnited States, China, Palestine, Netherlands, Germany, Turkey, and Switzerland.
Government TypeUnitary parliamentary republic
Current Prime MinisterIsaac Herzog (President), Naftali Bennett (Prime Minister)

The Main Sectors of the Israeli Economy

The country focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. High-Technology – The fastest growth rates (averaging 8 percent annually in recent years) are to be found in the hi-tech sectors. These sectors are skill and capital intensive and require sophisticated production techniques, as well as considerable investment in research and development, on which 4.9 percent of Israel’s GDP is spent – the highest among OECD countries.

    The quality of this R&D in Israel is ranked, according to U.N. experts, among the first 10 in the world. A successful contribution to all these is due to academic research institutes, which provide much of the basic R&D, and venture capital.

    Almost 80% of hi-tech products are exported, while the more traditional, low-tech firms export only close to 40 percent of their product. Over 90 percent of the public budgets for R&D ($7 billion in 2006) are allocated to hi-tech industries, much of which is channeled via joint venture capital funds.

  2. Manufacturing – While the high-tech industry often gets international recognition for its contribution to Israel’s economy and the number of start-ups, the manufacturing industry is also robust and contributes greatly to the country’s economy.

    The country has a well-developed manufacturing industry with large production capacity. Israel also has a high-tech and well-developed chemical industry mainly located in the Ramat Hovav and near the Dead Sea.

  3. Diamonds – Israel is a leading world diamond manufacturing and trading centre. The main reason is that the Israeli diamond industry is as multi-faceted as its diamonds. The Israeli diamond is synonymous with trust and reliability, and it is guaranteed to be conflict-free and genuine.

    In addition, the Israeli diamond industry is a world leader in both cutting-edge technologies and craftsmanship, thus ensuring the best yield of polished diamonds from the rough. The large inventory of local production as well as tax-free rough and polished imports ensure competitive prices.

    The Israel Diamond Exchange is the largest diamond trading floor in the world, housing all the operational functions and needs of every diamond buyer under one roof.

  4. Agriculture – Israel’s agricultural sector is characterized by an intensive system of production stemming from the need to overcome the scarcity in natural resources, particularly water and arable land.

    The constant growth in agricultural production is due to the close cooperation between researchers, farmers, and agriculture-related industries.
    Together they develop and apply new methods in all agricultural branches. The result is modern agriculture in a country more than half of whose area is desert.

    The close cooperation between R&D and industry led to the development of a market-oriented agri-business that exports agrotechnology solutions – particularly water solutions – worldwide.

  5. Construction – Israeli companies are among the world leaders in the design and manufacture of building metal structures, prefabricated parts, and components – such as doors, windows, sanitary equipment, plumbing components, fixtures and accessories, and more.

    These goods are successfully marketed worldwide and may be found at major construction sites on all continents.

  6. Transport – Israel’s developed transportation system plays a critical role in its economic success. The country has invested in this sector over the years and continues to do so with the aim of increasing its capacity to handle the growing population.

    There are three deep-water ports in Israel, one in the Red Sea and two in the Mediterranean Sea. The ports provide access to the Atlantic and the Indian Ocean.

    Air transport has facilitated the export of high-value goods from all the other sectors of the economy and also aided in the growth of the high-tech sector. The highly developed highway system enables people to move freely and efficiently.

  7. Tourism – The tourism industry is one of the major sources of foreign revenues for Israel, attracting over 3 million visitors in 2017. The growth of this industry is not showing any sign of slowing down. The tourism industry employs about 200,000 people or about 6% of the workforce.

    Israel has numerous historical and religious sites, beaches, and museums that have played a key role in the growth of the tourism industry. 

Compliance Highlights

  • The Israel Tax Authority – The Israel Tax Authority consolidates the various tax divisions: income tax, real estate taxation, VAT, purchase tax, customs, and stamp duty. The Authority provides services on reforms, non-profit institutions and information to employers, representatives, and the public.
  • Ministry of Welfare and Social Affairs (משרד הרווחה והביטחון ההחברתי) – the branch of the Israeli government responsible for ensuring the welfare of the public in Israel through overseeing the supply of social services and matters related to employment.

Labor Contracts Law

Companies hiring staff for expanding operations into Israel must ensure contracts and agreements with their employees fit into a framework of employment rules. Laws and regulations provide employees with minimum entitlements, which can be extended by Collective Bargaining Agreements (CBAs) authorized by the Ministry of Economy, in addition to their individual contracts.

Where different levels of entitlement apply to employees, the most beneficial always takes precedence. The Enforcement Unit of the Ministry of Economy or federal or state authorities oversee employment laws that safeguard rights and entitlements of employees.

There is no legal requirement for employment agreements to be in a formal written contract. However, within 30 days of starting work, the employee is given either a written contract or a ‘notice’ highlighting such as responsibilities, scope of work, entitlements and working conditions, disciplinary procedures, termination, and severance payments. In addition to the notification, employees on an oral agreement must still be given written confirmation of any changes to their work schedule or other aspects of their role.

When hiring and then contracting a new employee, there is no legal need for the contract to be in writing, but essential requirements include:

  1. The agreement should stipulate the type of employment, open-ended or fixed term and whether a probationary period is included.
  2. Oral contracts are legally binding.
  3. Under the Foreign Employees’ Law, foreign workers’ contracts must be in writing, in a language they understand.
  4. Employment contracts are legally invalid and cannot be enforced if they do not meet statutory minimums.
  5. New employees can request a written contract and existing employees on verbal agreements can request written confirmation of changes in their work practices.
  6. A contract should be presented or agreed within 30 days of starting work. Employees on an oral contract must be given a written ‘notice’ of the essential points in this period. These include full names, addresses and IDs of employer and employee; position and main duty; salary, working hours, breaks and rest days; social benefits and entitlements with pension fund details; relevant collective agreements.
  7. Employers should check prospective new employees are not restricted by a ‘non-compete’ clause with their previous employer.
  8. There should be a workplace policy regarding prevention of sexual harassment and if the employer intends monitoring the employee’s computer use.

Main contract types are:

  • Indefinite, Open-ended Employment Contracts:  The most common type of contract runs without a specified end date. The Notice of Discharge and Resignation Law requires both parties must give notice of dismissal or resignation. All employers and employees are subject to the laws on termination, which is permitted on reasonable grounds, excluding discrimination, if correct procedures are followed.
  • Fixed-term Employment Contracts:  These are for a specified period of time or are attached to a specific project. Termination of the contract by the employer before the agreed period entitles the employee to the balance of the salary that would have been paid for the full term.
  • Probationary Periods:  Trial periods are allowed, during which the probationer must be treated the same as a full-time employee.  The probation can be between one and 12 months according to the contract or relevant collective agreement. The required notice period is one day for each month worked up to six months, then two-and-a-half days for each additional month up to 12 months.
  • Collective Bargaining Agreements (CBAs):  The Collective Agreements Law is the main legislation governing CBAs. They set out minimum terms and entitlements for workers, such as wages, sick leave, maternity benefits, paid vacations, and notice periods. Collective agreements can apply to specific sectors or companies, or generally with a wider scope.

General collective agreements can be extended by the Ministry of Economy to wider groups of employers and employees. Where workers are covered by contracts, collective agreements, and statutory minimums the most beneficial for the employee always applies.

Employees are permitted to establish a union in their workplace if none exists, with the general rule there should be one ‘bargaining unit’ of at least one third of the workforce.

Payroll – Tax Contributions and Benefits

Income Tax: The Israel Tax Ordinance defines residency on whether an individual’s ‘center of life’ is in Israel. Individuals may be considered tax residents if they are present in Israel for a minimum 183 days in a tax year, or for a total of 425 days in the current tax year and two preceding years. All Israeli residents pay tax on their worldwide income.

Non-residents are taxed at the same rates as Israel residents on their Israel-sourced income and capital gains from assets. Married couples can file separate or joint tax returns.

Health and Social Insurance: Israel’s social security benefits for employees are funded by contributions from employers and workers, with further additions by the government in some categories. National Insurance contributions cover old age and survivors, long term care, disability, accident and work injury, maternity, childcare, and unemployment. Employers must withhold employees’ contributions and remit them to the National Insurance Institute.

All employees over 18 years old must contribute, including foreigners, and be registered with one of four health funds. Different contribution rates apply according to income. Deductions apply to both employers and employees.

Sickness Leave/Benefit:  Employees absent from work due to illness are entitled to sickness benefit, subject to presenting a medical certificate signed by a doctor, detailing the condition, and estimating the amount of time needed off work. Employees receive 50% of their pay for the second and third day of incapacity and 100% thereafter.

Leave entitlement equates to a day-and-a-half for each month worked in a year up to a maximum of 18 a year up to a limit of 90 days accrued sick leave over five years’ employment. If contracts or collective agreements in their sector provide for better allowances, they apply.

Paid Vacations: Employees receive paid vacation as per length of service with their employer. The allowance is 16 days a year for the first five years: 18 days from the sixth year and 21 from the seventh. From the eighth year of employment an extra day is added each year to a maximum of 28 days.

Additionally, employees are entitled to paid leave for nine paid holidays, according to the religious/ Jewish holidays of their choice.

Public Holidays in Israel: There are nine public holidays in Israel:

  • Passover – March /April (7 days)
  • Independence Day – April 15
  • Victory Day – May 9
  • Pentecost – May/June (50 days after Passover)
  • Fast of the Ninth of Av – Celebrated one day between July 17 – August 14
  • Rosh Hashanah (Jewish New Year) – September / October – two days
  • Day of Atonement (Yom Kippur) – September / October – one day
  • Sukkot (Feast of Tabernacles) – September / October – 7 days (5 days after Yom Kippur)
  • Simchat Torah – September / October – one day

Holiday Payment: An employee who does not work on a holiday is entitled to regular wages. Employees who work on a holiday are entitled to 150 percent premium pay as well as compensatory rest on an alternate weekday. The rest day cannot be deducted from annual leave or sick leave.

Pay for Overtime Work on Holiday: The amount of overtime pay for work during the holiday is:

  • Payment of 175% of normal working hours for the first two overtime hours (for overtime work during the holiday, the employee is entitled to both compensation for work during the holiday of 150% and compensation for overtime work of 125%).
  • Payment of 200% of the additional third hour onwards (for overtime work during the holiday, the employee is entitled to both compensation for work during the holiday of 50% and compensation for overtime work of 50%, and a total addition of 100% to salary).

Maternity Benefit: The allowance for maternity leave is made in one payment directly into the entitled mother’s bank account by the National Insurance Institute (NII). The amount is calculated on the basis of the individual’s income and the amount of related insurance contributions made to the NII.

Maternity / Paternity / Parental Leave: Employees who have worked for the same employer or in the same place of work for 12 months receive 26 weeks maternity leave, or 15 weeks if they have worked fewer than 12 months for the same employer.

The spouse / partner of the mother is entitled to one week’s paternity leave at the same time as the maternity leave, provided the mother confirms in writing she is forfeiting one week of her maternity benefit. If the mother ends her maternity leave the minimum six weeks after birth, her spouse can replace her for the remainder of the leave.


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