Foreign executives, engineers, technology specialists, managers, consultants and other professionals who relocate temporarily to Israel are often surprised by the amount of Israeli income tax deducted from their salaries.

In many cases, the tax withheld through the Israeli payroll system does not necessarily represent the employee’s final Israeli tax liability.

A foreign expert who worked in Israel may be entitled to special deductions, treaty relief or a refund resulting from the employee’s personal circumstances, the length of the assignment, accommodation expenses or the way payroll withholding was originally calculated.

For this reason, foreign employees who have worked in Israel should consider reviewing their Israeli tax position after the end of each tax year — and particularly after completing their assignment and leaving Israel.

Why Foreign Experts May Overpay Israeli Income Tax

Employment income relating to work physically performed in Israel is generally considered Israeli-source income and may therefore be subject to Israeli income tax, even when the employee remains employed by a foreign company.

However, the amount withheld from salary during the year is not necessarily the final tax amount.

Israeli income tax is ultimately calculated on an annual basis.

This can create significant differences between tax withheld through monthly payroll and the employee’s final annual tax liability.

Common situations that may result in a tax refund include:

• working in Israel for only part of a calendar year;
• arriving in Israel or leaving Israel during the year;
• failure to claim special deductions available to qualifying foreign experts;
• accommodation or living expenses that were not taken into account by payroll;
• incorrect withholding rates;
• bonuses or irregular salary payments that caused excessive withholding;
• income received from more than one employer;
• changes in the employee’s tax residence during the assignment;
• eligibility for relief under an applicable double tax treaty;
• tax paid in more than one country in relation to the same employment income; and
• differences between monthly payroll withholding and the employee’s final annual tax calculation.

Each case must, of course, be reviewed individually.

Special Israeli Tax Rules for a Qualifying Foreign Expert

Israeli tax law includes specific provisions for certain non-Israeli residents who are invited to Israel to perform services in their professional field.

A qualifying “foreign expert” may be entitled to deductions that are not ordinarily available to other employees.

Generally, foreign-expert status requires, among other conditions, that the individual:

• was a non-resident before coming to Israel;
• was invited to Israel by an Israeli resident individual or Israeli entity to perform professional services in the individual’s field of expertise;
• works and resides in Israel legally;
• performs services in the specific professional field for which the individual was invited to Israel;
• meets the applicable minimum remuneration requirements; and
• satisfies the additional conditions prescribed under Israeli law.

The classification should not be assumed merely because an employee holds a senior position or a work visa. The facts of the assignment should be reviewed carefully.

Accommodation Expenses May Be Deductible

One of the most important tax benefits available to qualifying foreign experts relates to accommodation.

During the qualifying period, which is generally limited to the first 12 months of employment in Israel, a foreign expert may be able to deduct documented accommodation expenses from taxable Israeli employment income.

Depending on the circumstances, qualifying costs may include:

• apartment rent;
• hotel accommodation;
• electricity;
• water;
• gas; and
• certain related accommodation expenses.

Documentation is extremely important.

Foreign experts should therefore retain:

• rental agreements;
• rent-payment confirmations;
• bank statements;
• hotel invoices;
• utility invoices; and
• evidence showing that the expenses were actually incurred by the employee.

Where accommodation was provided or reimbursed by the employer, the arrangement should also be reviewed because the payroll and tax treatment may differ.

Current professional guidance concerning the Israeli foreign-expert rules confirms that qualifying foreign experts may deduct documented accommodation costs during the first 12 months of their employment in Israel.

Daily Living Expenses May Also Reduce Taxable Income

A qualifying foreign expert may also be entitled to a deduction for daily living expenses during the qualifying period.

Current professional guidance indicates a maximum daily amount of approximately NIS 360, subject to the applicable rules and the employee’s actual presence in Israel.

This benefit can become material.

For example, where a foreign expert spends approximately 250 qualifying days in Israel, the potential amount of living expenses involved can be substantial.

However, the deduction should not automatically be calculated by simply multiplying the maximum daily amount by the number of days in Israel.

The Israel Tax Authority may require evidence supporting the expenses actually incurred, and professional guidance has noted increasing scrutiny of supporting receipts and documentation.

Accordingly, a proper refund review should examine both:

1. the employee’s actual days of presence in Israel; and
2. the supporting documentation for the expenses.

A Simple Example

Assume a foreign technology specialist was transferred to Israel for 11 months.

During the assignment:

• Israeli tax was withheld from the employee’s salary every month;
• the employee rented an apartment in Tel Aviv;
• the employee personally paid the rent and utilities;
• no foreign-expert deductions were included in the payroll calculation; and
• the employee left Israel before the end of the calendar year.

In such a case, several issues should be reviewed.

First, because Israeli income tax is calculated annually, working for only part of the year may affect the final tax calculation.

Second, qualifying accommodation expenses may reduce taxable income.

Third, qualifying daily living expenses may potentially be deductible.

Finally, the employee’s tax residence and the relevant double tax treaty should be reviewed.

The combination of these factors can sometimes result in a significant Israeli income tax refund.

Working in Israel for Only Part of the Year

Foreign experts frequently arrive in Israel in the middle of a calendar year or leave before December 31.

This is particularly relevant because Israeli payroll withholding is performed during the year while the final tax liability is determined annually.

An employee who earned a relatively high monthly salary for six, eight or ten months may therefore have had tax withheld using monthly payroll calculations that do not perfectly reflect the employee’s final annual tax position.

This is one of the first issues that should be examined when reviewing a foreign employee’s Israeli tax refund entitlement.

Double Tax Treaties Can Be Extremely Important

Israel has entered into tax treaties with numerous countries.

Depending on the employee’s home country, length of stay in Israel, identity of the employer, who bears the employment cost, and other circumstances, the relevant treaty may affect where the employment income is taxable.

For example, many tax treaties contain special provisions governing short-term employment assignments.

The commonly referenced “183-day rule” should not be applied in isolation.

In most treaties, several cumulative conditions must be satisfied before employment income is exempt from tax in the country where the services are physically performed.

Accordingly, spending fewer than 183 days in Israel does not automatically mean that no Israeli tax is due.

Conversely, in appropriate circumstances, treaty analysis may result in a reduction of the Israeli tax liability or affect the employee’s entitlement to foreign tax credits.

Employment income relating to work performed in Israel is generally treated as Israeli-source income unless an applicable treaty provides relief.

Tax Residence Is Different From Immigration Status

A common mistake is to assume that immigration status and tax residence are the same thing.

They are not.

An individual may hold a B/1 foreign-expert work visa and still require a separate tax-residency analysis.

Likewise, the fact that an employee’s assignment is described by the employer as “temporary” does not automatically determine the individual’s Israeli tax residence.

Israeli tax residence depends on the applicable legal tests and the individual’s factual circumstances.

This issue becomes particularly important where the employee maintains:

• a permanent home outside Israel;
• a spouse or family outside Israel;
• financial interests abroad;
• employment relationships with a foreign employer;
• significant periods of presence in more than one country; or
• income or investments outside Israel.

The tax treaty between Israel and the individual’s country of residence may also contain tie-breaker rules where both countries consider the individual resident under their domestic laws.

Foreign Employer? Israeli Tax May Still Apply

Another common misconception is that an employee does not owe Israeli tax because the salary continues to be paid from abroad.

The location of the bank account from which the salary is paid is generally not, by itself, decisive.

If employment services are physically performed in Israel, Israeli taxation may arise even when:

• the employment agreement remains with the overseas parent company;
• the salary is paid outside Israel;
• the employee continues to participate in a foreign pension plan;
• part of the employment cost is recharged between group companies; or
• the employee remains on a foreign payroll.

The employer structure and applicable treaty must therefore be examined carefully.

What If Too Much Israeli Tax Was Withheld?

Foreign employees who have overpaid Israeli tax may be able to submit an Israeli income tax return or tax-refund application and request repayment of the excess tax.

Importantly, the review does not necessarily have to be performed immediately after the end of the assignment.

Under the Israeli tax-refund rules, individuals who are eligible to use the simplified refund procedure can generally request refunds for up to six previous tax years.

For example, during 2026 a refund application can generally still be submitted for tax years:

2020, 2021, 2022, 2023, 2024 and 2025.

A refund relating to tax year 2020 generally needs to be submitted no later than December 31, 2026. The Israel Tax Authority expressly provides for refund applications for up to six years back.

This makes it worthwhile for former expatriates who completed an Israeli assignment several years ago to review their historical Israeli payroll records.

Documents We Usually Review

A proper Israeli foreign-expert tax-refund review may include examination of:

• Israeli annual salary certificates;
• monthly Israeli payslips;
• employment agreements and assignment letters;
• foreign payroll information;
• passports;
• records of entries into and departures from Israel;
• B/1 or other Israeli work permits;
• rental agreements;
• accommodation invoices;
• utility bills;
• documentation of living expenses;
• employer reimbursement policies;
• bonus payments;
• equity and stock-option arrangements;
• foreign tax returns;
• foreign tax-payment certificates;
• tax-residency certificates; and
• details of income received before, during and after the Israeli assignment.

Not every document will be required in every case.

The purpose of the review is to reconstruct the employee’s actual tax position rather than simply rely on the amount of tax shown on the Israeli payslip.

Stock Options, RSUs and Bonuses Require Special Attention

Executives and technology employees frequently receive compensation that is not limited to their regular salary.

This may include:

• annual bonuses;
• retention bonuses;
• relocation allowances;
• RSUs;
• restricted shares;
• stock options;
• performance awards; and
• deferred compensation.

Where an employee works in several countries during the vesting or earning period, determining how much of the compensation is attributable to Israel can become complex.

The correct tax treatment may depend on the employee’s workdays, residence periods, grant date, vesting period, exercise date, sale date and the specific compensation plan.

These items should therefore be reviewed separately as part of any comprehensive Israeli tax analysis.

Leaving Israel Is a Good Time to Review Your Taxes

For many foreign experts, the end of an Israeli assignment is the ideal time to perform a complete tax review.

Before closing the Israeli tax file, it is worth checking:

• Was the correct amount of Israeli income tax withheld?
• Were foreign-expert deductions claimed?
• Were accommodation expenses properly treated?
• Were living-expense deductions considered?
• Were the arrival and departure dates correctly reflected?
• Does a tax treaty provide additional relief?
• Was income taxed both in Israel and abroad?
• Were bonuses or equity compensation allocated correctly?
• Are there any outstanding Israeli reporting obligations?
• Can a refund be claimed for previous years?

A review can identify both tax-refund opportunities and unresolved reporting obligations.

Can the Tax Refund Be Significant?

Potentially, yes.

Foreign experts are frequently highly compensated employees, meaning that even relatively small errors in taxable income or deductions can translate into meaningful tax amounts.

For example, when marginal income tax rates are high, a properly supported deduction for rent and living expenses can have a significant impact on the employee’s final tax liability.

Israeli individual income tax rates are progressive and can reach 47%, with an additional surtax potentially applying to high-income individuals.

Accordingly, a deduction of tens of thousands of shekels from taxable income can translate into a substantial tax saving, depending on the employee’s circumstances.

Who Should Consider an Israeli Tax Refund Review?

A review may be particularly worthwhile if you:

• are a foreign executive or specialist who worked in Israel;
• were transferred to Israel by a multinational company;
• worked in technology, engineering, pharmaceuticals, finance, management, manufacturing or another specialist field;
• held a B/1 expert work visa;
• rented an apartment in Israel during your assignment;
• received salary from an Israeli or overseas employer;
• spent only part of the year in Israel;
• left Israel during the last six years;
• paid tax both in Israel and your home country;
• received bonuses, stock options or RSUs;
• believe your Israeli payroll did not apply foreign-expert deductions; or
• simply want to verify whether too much Israeli income tax was withheld.

How We Assist Foreign Experts

Levkovich Ben Hrosh – Certified Public Accountants assists foreign executives, specialists, employees and multinational groups with Israeli taxation of international assignments.

Our review may include:

• determining whether the employee qualifies as a foreign expert;
• reconstructing the Israeli tax calculation;
• examining foreign-expert accommodation and living-expense deductions;
• reviewing Israeli tax residence;
• analysing the relevant double tax treaty;
• examining days of presence in Israel;
• reviewing payroll withholding;
• considering foreign taxes and double-taxation relief;
• reviewing bonuses, options and equity compensation where relevant;
• preparing Israeli tax returns and refund claims; and
• representing the taxpayer before the Israel Tax Authority when required.

Worked in Israel? It May Be Worth Checking Your Tax Position

If you worked in Israel during the last several years, particularly as an executive, engineer, manager, consultant, researcher, technology specialist or other foreign professional, you may have paid more Israeli income tax than was ultimately required.

The fact that the tax was automatically deducted from your salary does not necessarily mean that the calculation was final.

A professional review of your Israeli employment period, payroll records, accommodation expenses, travel dates and treaty position can determine whether a refund is available.

In many cases, the first step is simply to review the documents and calculate the tax position before deciding whether a formal refund application should be submitted.

Levkovich Ben Hrosh – Certified Public Accountants
Israeli Taxation | International Tax | Foreign Experts | Expatriate Tax Refunds

This article provides general information only and should not be regarded as individual tax or legal advice. Eligibility for foreign-expert benefits, treaty relief and tax refunds depends on the specific circumstances of each taxpayer.