Cap for foreign expert

Eldad Hassid, CPA, Guberman Group 1,109

Background
A foreign expert is defined in the tax authorities as follows:
A foreign resident is a person who meets all the following conditions:

  1. He is present, lawfully, in Israel or in the region.
  2. He was invited outside of Israel by an Israeli resident, who is not a manpower contractor or manpower broker, to provide a service which is his unique expertise.

In addition, during the period of residence of the foreign resident in Israel or in the region:

  1. He was employed or provided service in his unique field of expertise.
  2. For this work, he was paid a sum that is exceeding 13,300 NIS multiplied by the number of months he spent in Israel, and from this wage he was legally taxed.

A foreign expert should be distinguished from a foreign worker.
A foreign expert is employed at a high salary due to the lack of experts with the unique knowledge he brings with him, while foreign workers are employed in Israel for low salary and in occupations that are not favored by the country's citizens.

Calculation of tax for a foreign expert
A foreign expert is entitled to expense recognition and therefore is not entitled to credit points, as opposed to a foreign worker who is not entitled to a deduction of expenses.
The calculation of the tax for a foreign expert will be the sum of his income after deducting the costs of stay and will be calculated according to the regular tax rates for regular employees.
A foreign expert is entitled to deduct from his income during his stay in Israel for a period that not exceeding 12 calendar months - amounts paid for accommodation or rent for an apartment rented in Israel (all expenditure is recognized), and expenses for meals not exceeding 330 NIS per day as of January 2015. (unchanged from the tax year 2014).
These expenses must be supported by payment verification. Expenses paid by the employer or the recipient of the service, such as health insurance, educational expenses or any other expense, shall be considered an integral part of the salary of his work or of the income of the foreign expert for the purpose of calculating the tax.
Flight expenses incurred for the purpose of generating income are deductible - they will not be recorded as salary or as an addition to the income of the foreign expert and will be recognized as an expense to the employer or the recipient of the service.
After the first 12 months the foreign expert becomes a regular foreign worker and is entitled to credit points.

Tax levy of foreign workers to a foreign expert
A foreign expert obliges his employer to pay a "foreign worker levy" under the law (15%). The employer will be exempted from this levy if the foreign expert's income exceeds twice the average salary which is published occasionally by the Central Bureau of Statistics.

Example:
Salary for the foreign expert: 18,500 NIS.
Average salary in 2018: 9,906 NIS.
In this example we can see that the salary for the foreign expert is lower than twice the average salary in Israel and therefore the employer will pay a levy of 15% (18,500*15%= 2,775).