Foreign workers’ levy repealed — How does it effect you? - opinion

The foreign workers levy was a payroll tax over and above income tax and national insurance. Now this levy won’t apply starting with the January 2022 payroll.

Approximately 170,000 Americans live in Israel. In total, more than one million U.S. citizens and green card holders – who both live overseas and own more than 10% of a foreign corporation – faced the prospect of paying the tax. (photo credit: REUTERS)
Approximately 170,000 Americans live in Israel. In total, more than one million U.S. citizens and green card holders – who both live overseas and own more than 10% of a foreign corporation – faced the prospect of paying the tax.
(photo credit: REUTERS)

For a change, here’s some good news on the Israeli tax front. On February 2, the Knesset passed a law repealing the foreign workers’ levy with effect from January 1, 2022 (Israeli Economic Recovery Law (Amendment 20) 2022, Book of Laws 2956).

The foreign workers levy was a payroll tax over and above income tax and national insurance, notwithstanding. The levy was imposed on employers generally at the rate of 20%, but at 15% for foreign workers in industry, construction or certain restaurants and at 0% in agriculture.

Now this levy won’t apply starting with the January 2022 payroll.

The same law also repealed the requirement for employers to provide medical insurance for foreign “workers” who visit Israel on a “working vacation” for up to 12 months of which up to three months is spent working. This only applies to Israeli government arrangements with the governments of Australia, New Zealand, Germany and Korea.

Comment: Please be sure to arrange private medical coverage if you are not covered.

The tax authorities know (credit: REUTERS)The tax authorities know (credit: REUTERS)

Disability pension forfeited because living abroad

The Regional Labor Curt has just rejected a claim by an individual to receive disability social security payments from the National Insurance Institute because she resided abroad for around 13 years (Case BL 18436-01-19 Yafa Amzaleg vs. National Insurance Institute, January 15, 2022).

In this case, the individual apparently received a general disability pension from the National Insurance Institute for 17 years up to the end of 2009. In the years 2004-2016, she spent most of the time in the US but spent around 5.5 months per year in Israel with a view to preserving health fund (Kupat Holim) rights. In 2010, the National Insurance Institute decided she was a foreign resident having regard to her center of living from 2004 and ruled she was retroactively ineligible for the disability pension payments, meaning that she had a balance to repay of around NIS 150,000. She returned to reside in Israel in 2017 for more than half the year.

She appealed the National Insurance Institute decision and got 75% of the repayment balance canceled in 2017 and a further 10% in 2018. She appealed the remaining 15% repayment liability in this court case, but her claim was rejected by the Court. Why?

She claimed she tried for 40 years without success to get medical treatment in Israel, so she was forced to seek the treatment abroad. She claimed she never intended to stop residing in Israel. She stayed with friends and lived off pensions and loans. She was born in 1955.But she failed to prove she received medical treatment abroad and it emerged she received treatment in Israel.

Also, from 2004-2016, she spent most of her time abroad, and could not prove family or social ties to Israel, nor a bank account. She was not told to seek foreign medical treatment, and she did not notify the National Insurance Institute she would be away more than 183 days to seek medical treatment. This would have helped her case under Section 324A of the National Insurance Law.

In short, the court held she was foreign resident in the relevant years so her appeal against refunding the last 15% of the overpaid pension was turned down.

Comments: The national insurance rules regarding residency (center of living) are less detailed than the income tax rules (which are also open to alternative interpretation sometimes). Returning residents are usually denied healthcare for six months unless they pay a lump sum for it – NIS 12,210 in 2021. The National Insurance Institute will only “insure” (i.e. provide pensions, allowances and heathcare) to Israeli residents based on the overall facts and circumstances over a number of years.

Please be sure to arrange private medical and pension coverage for you and your family if your case is borderline.

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

Fake Invoices

The Israeli District Court rejected an appeal by a fire extinguisher supply company that claimed input VAT on expense invoices (Ayin Mem 65014-11-18 handed down on December 23, 2021). The VAT office hired a graphologist who testified the expense invoices were issued unlawfully by the company. Then the VAT Office traced the printer of the fake invoices and found the company itself paid for them. The fake invoices proved costly: double the VAT on the fake invoices, books held to be unacceptable (meaning VAT and income tax estimated by the Tax Authority in 2012-2017) and NIS 100,000 in legal costs.

Comment: Only a registered authorized dealer can issue legal tax invoices in a prescribed format. Don’t fake them.

The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd. [email protected]