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Freelancing in Israel: Oved Atzmai vs Billing Company

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

Congrats, you’re considering starting your own full time business.  Or maybe you’re just looking for a little money on the side.  Sooner or later, someone is going to want a cheshbonit mas (tax receipt) and its time to stop working under the table; it’s time to register as a freelancer.

In Israel, you register as a freelancer or Over Atzmai (hereinafter OA) as either an osek patur or osek murshe.  An osek patur earns less than NIS 76,884 and does not charge VAT for his services.  If an OA makes more than NIS 76,884, he or she registers as an osek murshe.  An osek murshe does charge VAT, but can reclaim VAT on business expenses.  You can change from an osek patur to an osek murshe mid-year (when you come close to the 76,884 line you have to change your status) and once you are an osek murshe, you cannot be an osek patur again for at least two years.  Finally, some professions such as accountants, lawyers and doctors may only register as an osek murshe.  Regardless of what you choose, the process is the same: register at the tax authority, then mas hachnasah, and then bituach leumi   Once you are registered, you have to file regular reports, prepay VAT every so often (for an osek murshe) and file an annual report.

Sounds difficult.  Is there an easier way?

I know, the reason you became a freelancer was so you wouldn’t have to leave the couch and put on pants; going to so many government offices seems out of the question.  Fear not, there is an alternative; you can register with a billing company.  A billing company is a company that hires you as a worker.  You work as a freelancer, the company does your billing and the company takes a small cut of your revenue and pays you as a worker.  Since you are working under the guise of another company, you pay both the employer and employee side of all taxes and investments.  Billing company freelancers (hereinafter BF) do not issue personal receipts, but send the money to the billing company and then ask their billing company to issue a receipt.   All that the billing companies ask for in return is a small percentage of your revenue.

So which is right for your?

This is a very complicated question that gets to the heart of a very important matter – tax planning, or more honestly, tax avoidance.  With tax rates as high as they are in Israel, saving money on your taxes can mean a world (or at least a paycheck) of difference.

1) Tax deductible expenses:  Expenses are deductible for both OAs and BFs.  The only difference is that OAs can also deduct some living expenses (a portion of arnona, electricity, water and va’ad bayit).  In addition, OAs who are registered as an osek murshe and BFs can also receive back VAT on most expenses (for some such as a car and cell phone, you only get back 2/3 VAT.  Car rental expenses receive no VAT at all).  Click here for a full list of deductible expenses for an OA including VAT reimbursement rates.

2) Charging VAT:  Despite popular belief, VAT is more of a tax on the seller than on the buyer.  Like all taxes, it leaves a tax incidence, but in a world of many suppliers, VAT is really less of a 16% sales tax on the consumer and more of a ~14% tax on the supplier.  An OA is allowed to not pay this tax as long as he is an osek patur.  One he is an osek murshe, then he is in the same boat as the BF, who always charges VAT.

3) Bituach Leumi.  OAs pay 9.82% on all salary below 60% of the average wage (meaning on the first 5,000 of revenue) and 16.23% on all revenue after that.  BFs pay 3.95 on the first portion of revenue and 17.9% afterwards.  This means that until ~ NIS 14,200 revenue BF’s pay less, but after 14,200 revenue, OAs pay less.  All in all, the difference is not that significant until an OA starts making a lot of money.  Another difference is that OAs pay a minimal amount of Bituach Leumi   (NIS 212) every month, whether they receive income or not.  BFs only pay bituach leumi during months they receive income.

4) Pension:  Both BFs and OAs can put aside money for pensions.  BFs can put aside up to 7.5% from the employee side (which means after tax money, but 35% of the deposit is a tax credit, 7.5% from the employer side (tax and bituach leumi exempt money), and up to 8.33% for pitzuyim (also, tax and bituach leumi exempt money).  Note that the percentages from the employer side turn out to always be a bit less than listed above because these are percentages of your declared salary after you remove the deductible and refundable expenses, including the hishtalmut and pension (there is some complicated math in this).  OAs can also put aside money for a pension, 5% from the employee side and 11% from the employer side (both have the same tax deductible policies mentioned for a BF).

5) Hishtalmut:  One of the best ways to get some money past the tax man is by paying to a keren hsihtalmut.  Typically, a keren hishtalmut, allows a worker to pay in 2.5% of his or her income, which the employer matches with 7.5%.  Since BFs are paying both the employer and employee side, this means that they get to pass the 7.5% through tax free and bituach leumi free (Note: like pensions, percentages are a bit less than 2.5% and 7.5% because these are percentages of your declared salary after you remove the deductible and refundable expenses, including the hishtalmut and pension).  Similarly, an OA may deposit 2.5% from the employee side, but only 4.5% from the employer side. 

6) Social Security:  This is where the OA’s have it rough.  If you’re an American and registered as an OA. you’ll have to pay 15.3% of your revenue (before taxes, but after deductibles and bituach leumi) to the US government for social security.  This is sometimes a good thing, because if you’re close to having 40 quarters, being an OA can push you over the edge, but it also means you’re going to be paying a lot of extra taxes.  (For those interested, I plan to have a post discussing the social security issue at length in the near future).  Again, this tax does not apply to BFs at all.

7) Billing company fees and accounting fees.  Billing companies charge a certain percentage of your initial revenue as a fee for its services (the fess is paid on revenue after removing VAT, but before removing expenses.)  This fee covers not only billing, but all Israeli accounting expenses you’ll need throughout the year including deductions, refunds and tax planning (fees range from 4% – 7% with a maximum fee per month).  Similarly, an OA requires the services of an accountant.  I know there are many OAs out there who choose to do it alone, this is often a huge mistake.  The major perk in being an atzmai is the ability to utilize tax exemptions and if a worker is not using an accountant he or she risks either not taking advantages of all the tax advantages at his or her disposal or, conversely, committing fraud.  The cost of an accountant is usually between NIS 1000 and 3,000 a year for preparing an annual report.  Obviously this price varies depending on the extent of the time and service you need from your accountant.

Some final thoughts:

There are a variety of billing companies that can offer you their services (Yeul Sachir, Atzmai Sachir, Autotax, Cheshbonit Sachir, Sveram & Taxpay to name a few.)  When choosing a billing company, it is important not only to look at the fee, but the level of customer service offered.  I have heard good reviews from customers from Yeul Sachir.  If you have worked with any of these companies, please share your experience in the comments below.

Many choose to be an OA because issuing a receipt from one’s own company looks more professional.

Despite what many say, and what I have been told in the past, it is not a big deal to close a tik.  Just speak to your accountant and he or she will probably do the paperwork for you for a small fee.

This is the first time I am posting about this topic and I anticipate feedback and corrections.  I’m going to be on vacation next week, so if there is any problem, please e-mail me and I’ll correct it when I come back.  In the meantime, please enter any comments relevant to this topic below.


87 Comments

  1. Reuven says:

    Great post!
    Do you know if a tutoring job grossing under 10k NIS a year has to be reported? I recall that in the US, very low income doesn’t have to be reported, but I can be off.

    • jonnydegani says:

      Hi Reuven,
      Legally, everyone has to report everything that is earned. Practically, I’ve never met anyone asking a 14 year old babysitter for a cheshbonit mas. Depending on the clients and the money involved, this could be a grey area.

  2. zivia says:

    Thank you so much for your post! It came at just the right time. I set my business up as a Ba’am (Ltd) in 2004 so I wouldn’t have to pay self-employment tax in America (15%). I end up paying about $3,000 a year to my Israeli and American tax accountants and Israeli bookkeeper. That was fine when I was making good money but my income is less than half what it was before the global economy tanked. I think maybe the BF is a way for me to go. I can’t start it until next year, but it is something to look into.

  3. […] 1) Register and work as an atzmai (and thus pay FICA) […]

  4. […] 1) Register and work as an atzmai (and thus pay FICA) […]

  5. daniel says:

    I work with taxpay.co.il, a small company with good customer services.

  6. Ben May says:

    How does an osek mursheh start the process of setting up a pension?

    • jonnydegani says:

      Choose your pension fund and contact the company directly. They’ll send someone who will sign you up and fill out all the appropriate paperwork for an osek murshe

  7. Susie Keinon says:

    Hi
    I was wondering two things: Do you know anything about not being able to take car expenses under 2,000 shekels with billing companies?
    Also’ if billing companies are so great and only slighty more expensive than accounting fees, why don’t more people do it (is there a catch). I’m an atzmai that makes between 12-10,000 shekels bruto and I’m considering moving over to a billing company but not sure.

    • jonnydegani says:

      About the car: Certain billing companies have preferences about how much they want to deduct for certain expenses. In truth, it’s about not putting up any red flags because they don’t want to deal with an audit. I have heard of one company that allows almost no expenses, while other allow much more. Always get a second opinion.
      About the “catch” of using a billing company: Simply stated, being an Over Atzmai is more professional. When you get money, you give a receipt on the spot, without a two day delay; you can deduct all your expenses properly without the whim of a billing company (although subject to the warning of your accountant). For most people who are not Americans, being an Oved Atzmai (opening a tik) is usually the way to go. But there are exceptions:
      (1) If your work is irregular, then you would not pay Bituach Leumi for months you don’t earn – so a billing company would be better
      (2) If you are American, and subject to social security laws, then you are paying an additional 15.3% social security tax as an Oved Aztmai – so working with a billing company become MUCH more profitable.

  8. Has anyone heard of mas hachnasa cracking down on the use of billing companies and charging freelancers back taxes?

    • jonnydegani says:

      I’ve never heard of such a thing. The government established billing companies in the first place in order to avoid hiring more part time workers so it wouldn’t make sense for them to fight it. On the other hand, it wouldn’t be the first time the government shot itself in the foot. Has anyone else heard anything about this?

      • Miriam says:

        Some years ago (around 2008ish) I was using Yeul Sachir (a truly awful, incompetent company) and I asked for a refund from Bituah Leumi for a month when I was paying bituah leumi as both an unemployed person and through Yeul Sachir. They invited me for a chat in their office in Ramat Gan and quizzed me about my relationship with Yeul Sachir. I realized at that point that what interested them was not me, but companies like Yeul Sachir. They indicated that they’d been gathering information on this type of company for some time. They said that the way those companies work was in a gray areas, and they told me I’d have to become an atzma’it. Since I got an in-house job shortly thereafter, I did not become an atzma’it.

        I heard that there had been a court case some time after that involving Yeul Sachir. When I was at Bituah Leumi for some reason or other, I asked what the outcome of the case was. At that time, they didn’t know. So I don’t know if this issue was ever resolved one way or the other, and if it was, what the outcome was.

        But I never had a problem with mas hachnasah because of Yeul Sachir. Of course, that doesn’t prove that there might not be a problem.

        BTW, a lawyer told me that since these companies have the employee pay both parts of the bituah leumi, it’s not legal.

  9. Any new feedback about best company to use? I have seen negative feedback for Yeul Sachir.

    • jonnydegani says:

      Reviews are mixed. I once had a meeting of Atzmai’im where one said they were the devil and another said they were the best company ever for their service and worth every penny.
      I think that a person’s selection will depend on a few things (1) how comfortable he or she is with Hebrew (yeul sachir specializes in satering to anglos) (2) how much money you’ll be making as an atzmai (yeul sachit costs more if you’re not bringing in enough) and (3) your own personal experience. It is so easy to move from one service to another that people really have the luxury of trying out one and moving to another if they’re unhappy.

  10. […] A while ago, I published a post about billing companies and freelancing in Israel.  Since publishing this post, I have received dozens of e-mails asking me which service I preferred.  Since I only worked with one company, I clearly cannot give any personal recommendations and opinions about all the companies.  […]

  11. Zohar says:

    I just got my first freelancing client – a small position that pays 3,000 a month. I am American (with Israeli citizenship) so I imagine BF is the way to go. Any recommendations on who to use for this low amount of money? I checked Yeul and they charge 590 or 7%, so on this amount it’d be 590 – and then also taxes. Any billing companies handle this low amount of money for 4-7%? Thanks!

  12. Eliezer W says:

    Can someone please explain all the taxes and amounts taken out of a paycheck for a BF. Just to pick a round number, if someone bills 10,000 NIS per month as a BF, what taxes are taken out of it?

    Am I understanding this correctly?

    – 17% VAT
    – 7% Billing Company Fee (Yeul Sachir)
    – 23% Income Tax
    – 3.5% Bituach Leumi for the 1st 5,000 NIS and then 17.9% on the rest of the 5,000 NIS
    – About 15% pension (includes both employee and emploer amounts)
    – 8.33% pitzuyim
    – Keren Hishtalmut (if desired and if have any money left after this)

    So does a BF get to take any money for themselves or is 80% of their salary going to taxes?

    If someone can please explain this to me, it would be VERY appreciated.

    • jonnydegani says:

      You’re mostly right. There is a bit of complicated math involved – for example, for Bituach Leumi and your pension, they don’t just take a regular percentage off, they remove it so that the employer will pay the correct taxes to match what is leftover after they deduct it. For example, if you make 100, they don’t just remove NIS 22.83 for your pension, which is NIS 22.33, they set it up so that after removing the employer side, they will leave over the correct amount that will show they took off 7.5% and 8.33% of that amount. Kind of like how in the תורהwe calla חומש 25%, because when you add it to the principal amount (it is a fifth of the total amount (25% + 100% = 125%, and a חומש is a fifth of this).
      Regardless, someone from Yeul Sachir should be able to explain to you what they took off. If they can’t, then you certainly have a problem on your hands. Have you contacted them? What has their response been?

      • Eliezer W says:

        I haven’t started working with Yeul Sachir yet — I’m trying to figure out if it is worth working! If I only take home 20% of my salary, it may not be worth working at all!!! 🙂

      • jonnydegani says:

        Pensions, bituach leumi and taxes are a part of life. Odds are you’ll bring home around 60% of whatever you earn, but that depends on how much you are making.
        The way I see it, you only have three options – become an atzmai (in which case you’ll pay another 15.3% for social security if you’re American), use Yeul Sachir, or use anotherservice like taxpay. The only question you ave to ask yourself is how much you’ll be bringing in monthly and based on that will Yeul Sachir or taxpay offer a cheaper fee. As a general rule, if you’re making less than NIS 11,800 a month, taxpay and the other companies are cheaper. If you’re making more, then yeul Sachir is cheaper.

  13. Eliezer W says:

    I would be working for an American Company, earning around 10,000 NIS a month. How do you figure that I bring home 60% of what I earn?

    If I take off 17% VAT, 7% Yeul Sachir, 23% Income Tax, about 11% Bituach Leumi (averaged from the 3.5% and 17.9%), 15% pension, 8.33% pitzuyim — if I add up all those percentages, that is 81% of my salary that I am paying out on a monthly basis. Can it be that I only take home 19% of my salary?

    I’m obviously misunderstanding something — I’m really sorry, but could you please explain? I’m going into panic mode here that I need to just give up being a freelancer and instead need to look for a job here in Israel as a company employee (which I don’t want to do!).

    Any advice is really appreciated!!!

    • jonnydegani says:

      you’re confusing your marginal rate with your effective rate. On earning 10,000, you’ll probably get a base salary of around 8,500 or less (from the math mentioned above), which means you’ll pay approximately:
      500: 5% to taxpay (they’ll be cheaper than Yeul Sachir)
      1100: Bituach Leumi
      2000: Pension
      400: Taxes (remember, you pay nothing on the first 6,000, then %10 for a while, then 10% until 9,000, then 23% on the last 1000, so it’s much less. Also, you didn’t include your points and deductions for putting money into your pension.)
      So you’ll pay around 4,000 and be left to take home 6,000

      • Aside from the 5% to Taxpay, do you make more money as an emplooyee of a real company than a freelancer using a biliing company? Or is it the same? Financially speaking am I better off taking a 10K job at a company or working for 10K as a freelancer using a billing company?

      • jonnydegani says:

        If you work for a company, then the company pays into your pension and you only have to put in 5%-7%. Also, the company pays a big part of Bituach Leumi,.

      • Eliezer W says:

        I don’t understand the calculations 100% — I’m not a math person 🙂 (was the 8,500 because of 10,000 less VAT?) but this is very reassuring. Thanks for the help.

        Taxpay seems from their website to be entirely in Hebrew. My Hebrew is OK but not great, which made Yeul Sachir look better to me. 5% sure beats 7% though so maybe I’ll reach out to Taxpay and see if someone speaks English.

        Thanks for all the help and advice! Tremendously appreciated!

    • Isadora says:

      10% pension (tagmulim 5+5) and 5% pitzuyim (8.33 not mandatory, only 5 out of it )

      • jonnydegani says:

        True. 5+5+5 is only the legal minimum. Next year it will be 5.5+6+6. You can take out up to 7+7.5+8.33

  14. Eliezer W says:

    Got it — so that is how it went from 10,000 to 8,5000 (10% pension + 5% pitzuyim). Where does VAT fit into this picture then?

    • jonnydegani says:

      Your base salary is after the 7.5 + 8.33 as well as large part of your bituach leumi is taken out. Remove all of those, you’re talking at least 15% drop.
      VAT is another issue. I thought you meant 10,000 after VAT. if it is before, then you have to deduct VAT as well.

      • Eliezer W says:

        No, I meant my client will send 10,000 NIS a month. At this point, no VAT has been paid. So this means that I first need to take off 17% VAT, then pension & pitzuyim, then Bituach Leumi, and then if there is any salary left, income tax.

        So because of the VAT, I would end up taking home a lot less than 60% of my salary. Looks more like I’ll get around 43% of my salary…which is pretty upsurd…

      • jonnydegani says:

        If you get in 10,000, it is around 8,600 after removing VAT.
        Pension will be around 1,700
        Bituach Leumi will be around 850
        Taxes will be around 250
        You’ll still pay taxpay NIS 500
        This will leave you with 53% of whatever you make

    • Isadora says:

      Is it possible, you guess, that a payment to freelancer/employee is the same?
      As a company employee, your salary will be about 10,000-30% (all taxes/pensions and another pays) = 7,000 in your “tlush” brutto. Probably, minus 20% and =8000 NIS…

      • jonnydegani says:

        it depends on who is paying the employer side of pensions and bituach leumi when working for an employer. If the employer is, and not the worker, then it will be much less. if the worker pays it, then it is the same thing as the billing company

      • Isadora says:

        the employer must to pay

      • jonnydegani says:

        I meant will the employer deduct your salary accordingly. No doubt that if I had the option of being a freelancer making 10,000 or being paid by a company 10,000, the later choice would net a few thousand more.

  15. Jush says:

    Taxpay have English instuctions on their web site.

    You can also ask for Gil, from Taxpay, who speakes Enlish quite well.

    • Eliezer W says:

      I spoke to Gil at Taxpay (nice guy) and it looks like the breakdown is as such (assuming a gross monthly income of 10,000 NIS):

      – 5% Taxpay service fee (500 NIS)

      My Base salary therefore is 9,500 NIS

      – 17.9% Bituach Leumi (he said this is not a progressive fee rather a flat 17.9% on the entire amount — is that right?) (1,700.5 NIS)
      – 18.3% Pension & Pitzuyim (13.3% employer side, 5% employee side) (1,738.5 NIS)
      – Income Tax (1,152.9 NIS)

      He said if the company I will work for is in the US and has no Israeli division, then I will not need to pay VAT.

      In total though, this calculates to mean I only take home 49% of my salary!

  16. Josh says:

    The maximum Bitiuach leumi is 18.5 % maybe he said that calculating together it amount to 17%.
    Also he is correct about the vat and pension.

  17. Joey says:

    I am pretty new to Israel and I am also still working for my old company in America.

    I was wondering — if I am an employee of a US company, would I still be considered an OA here? Meaning, I am paying social security taxes etc still in the US and I have a pension there as well. Am I still going to need to pay bituach leumi here and a pension here? And if so, do I need to pay the amounts of an OA or the amounts that an employee of an Israeli company would pay?

    • jonnydegani says:

      You are not an Atzmai, but you may need to pay the difference in the tax rates and maybe some Bituach Leumi. I would reccomend contacting an accountant. I have a few to recommend – do you live in jerusalem or the Mercaz

      • Joey says:

        Beit Shemesh — but Jerusalem is close enough if you have someone good.

      • jonnydegani says:

        contact chaim@tax-usa.co.il

      • Joey says:

        I’ve asked several accountants and have not been able to get an answer yet to the following question:

        If I am an employee of a U.S. company (and do not need to travel to the U.S. — therefore my income taxes get paid here in Israel), as an employee of a US based company, would I still need to pay 15% bituach leumi (as if I was self employed) since my company will not pay any of my bituach leumi? Or would that rate be reduced to be similar to bituach leumi amounts charged to an Israeli employee? If I still need to pay 15% bituach leumi, then I assume working for a billing company is better than being an employee of the US company since I would avoid all US social security taxes. If I would not need to pay 15% bituach leumi, I would rather remain an employee of the US company (only pay 7.5% social security — and I need another couple of years to hit the 40 quarters mark).

        Any clue how the bituach leumi works for employees of US based companies??

        Thanks!

      • jonnydegani says:

        I asked one as well and he didn’t know. I’ll try to send it out to a couple of accountants and see what they say. Please post if you get an answer

  18. Rafi says:

    Just stumbled over this very informative blog. I haven’t read all the comments so apologies if I am re-asking this question.

    I am set up already as an Osek Murshe and have been for close to 3 years. Is it possible for me to work as a regular Sachir at the same time? That is, maintain the business as an Osek Murshe but earn a regular monthly salary working a regular job at the same time. And what tax implications will this have for me?

    • jonnydegani says:

      Hi Rafi,
      there is no problem working as both things; but you’ll need to do a תאום מס and possibly a תאום ביטוח לאומי

  19. Esther says:

    Hi and thanks for writing this post. I was researching how to open up an osek patur when I came across this, and it made me start thinking about joining a billing company instead. Did you post the results of the poll yet?

    If I’m making about 3500NIS per month in part time freelance work, which option would be the cheapest for me? How do billing companies compare with being self-employed with regards to benefits such as maternity pay and sick leave?

    Also, my client is in the UK and I get paid in GBP. I usually lose about 2-2.5% in conversion rates. How do billing companies handle foreign salaries?

    Thank you very much!

    • jonnydegani says:

      Hi,
      You can find the initial results for the billing companies here
      Since you’re only talking about 3,500 a month, the cost of an accountant vs billing company is about the same (3500 x 12 months x 5% = NIS 2,100 vs about the same for an accountant). In most cases I’d recommend a billing company because it is much less hassle. Both don’t pay you for sick leave and in both cases it is Bituach Leumi, not an employer, that pays you for maternity leave.
      Conversion rates are terrible and there is only a few ways around them (1) get someone to come to Israel strapping the money to their body and then exchange it at a money changer or (2) use a service like isratransfer to help you move the money, they usually get a better rate.
      Good luck. Please tell me how things turn out.

      • kate says:

        (Tried to reply to Rafi, but it wouldn’t let me. Hope you see this) My understanding from talking with Isratransfer is that they only work with large amounts of money. You need to shop around for the best conversion rates. 2-2.5% sounds rather high to me. It should be closer to 1% (if you are exchanging cash) or 1.5% if you are using a check. FYI, most credit cards (American ones at least) will charge you a 3% foreign exchange fee when you use your card outside of America. Are you from GB or America? If you are American and work as a freelancer in Israel, you will have to pay Betuach Leumi in Israel AND Social Security (about 15%) to American too. Social Security is not covered under the tax treaty between America and Israel. Only Income tax is. (GB is a different story). If you are working as an “employee” with a billing company, you won’t have to pay Social Security to America. Good luck.

      • Esther says:

        Thanks for replying.

        Wouldn’t Bituach Leumi also be less for me if I went with a billing company? In the post, you wrote:

        Bituach Leumi. OAs pay 9.82% on all salary below 60% of the average wage (meaning on the first 5,000 of revenue) and 16.23% on all revenue after that. BFs pay 3.95 on the first portion of revenue and 17.9% afterwards. This means that until ~ NIS 14,200 revenue BF’s pay less…

        With the BF route, do you only pay Bituach Leumi on the employee side, or do you also have to pay on the employer side? How much does it all add up to in the end?

        Also, regarding money transfer services, does this mean that my client would have to convert the money when paying the billing company, or could I do it myself, pay the billing company then have them pay me back again with a payslip?

        One more thing, are pensions and keren hishtalmut optional or obligatory for OAs? I understand from the post that for BFs they are obligatory.

        Thanks once again for all your help!

      • jonnydegani says:

        As a BF, you pay both the employer and employee side, so it works out the same either way; the difference is only going to be a few shekels.

        you have to ask the money transfer service about what they can do and the different financial repercussions.

        For an OA, nothing is mandatory. For a BF, pension is mandatory, hishtalmut is not.

      • Jeremy Hess says:

        Thanks for the mention, Jonny!

  20. Esther says:

    Reply to Kate:
    Thanks for writing. I’m from GB so don’t need to pay Social Security twice. Not sure, but I think last time I checked, the rates were generally higher for GBP vs. USD..

  21. Avi says:

    Has anyone ever heard of a billing company Adecco? If so, do you have any feedback? My company in the US asked me to find out about this company, that they have heard good things about it and that it is similar to these other billing companies.

    Any feedback?

    Thank you

  22. Chava says:

    Hi Jon,
    The information in this post, as well as your answers to the follow-up questions, have been so helpful to me. Kol HaKavod! Wishing you much continued success!

  23. IB says:

    I have a small wiritng job wiritng which will pay me maybe $2000 per year. I also have a full time salaried job. I don’t want to open a tik mas hachnasa for that small amount nor do I want to pay a billing company for that small amount. Any other options? I heard there is something called Mas Sofrim or something like that. Anyone know?

    • jonnydegani says:

      Sachar Sofrim means that the person who pays you takes out the maximum taxes and when you file taxes at the end of the year you get it back (you can do it mid year also). You become kind of like a de facto osek murshe, except you lay out the maximum amount in order to get it back at the end of the year. Also some companies don’t like paying this way (I work for a major non-profit and I was told to avoid working with people who want to get paid this way), but the way you describe it it sounds like you already have the client so this may not be an issue.
      I would advise asking the salary person where you work if he could reconcile the amount you get paid for sachar sofrim. If he can, then everything is okay and you can get paid that way. if not, you’re going to have to turn to an accountant. If you need a recommendation for an accountant, feel free to contact me and I’ll send you his details.

  24. Moshe says:

    I heard that all these billing companies are in the midst of a huge legal battle with Bituach Leumi. Bituach Leumi doesn’t like any of these billing companies and prefer that self-employed people open a tik with them rather than go through these companies and pretend to be employees. I was told that BL is not honoring any of the BL taxes withheld by these billing companies and that they are giving major problems to “employees” of these companies (for example, they won’t cover maternity leave etc even though the expecting mother may have been paying BL through these billing companies).

    Any info on this legal battle? I’ve been warned not to join any of these billing companies — although that may be very difficult as I am trying to decide at the moment between Yeul Sachir and Taxpay — and I don’t really see another option other than these billing companies.

  25. Michael R says:

    All in all, what percentage does a BF pay from the “employer side?” I currently have a set salary that a company in the US is willing to pay me. My options are that they will give me a 7.5% salary raise if I work for them through a billing company like Yeul Sachir or Taxpay — or, that I could work for a recruiting/HR company which would make me an employee of theirs (they are located here in Israel) and then “assign me” to this company in the US. But, then this US company would reduce my salary 12.5%. Without getting into the details of why this is the case, which of these 2 options is better?

    To work through a billing company, get a 7.5% salary raise, but then need to pay all the employee and employer side taxes (plus a 5% fee to the billing company), or is it better to become an employee of an Israeli company at a 12.5% lower salary — but only be responsible for the employee side taxes.

    Thanks!!!

    • jonnydegani says:

      The employer side of bituach leumi is 3.45% for around the first 5,000 (whatever is 60% of the mean wage) and 6.5% of your salary after that.

      I think you should ask an accountant this question. Keep in mind – if you get paid in the US, you will have to file taxes and pay an additional amount here, since Israeli rates are higher than American rates (you’d pay the difference). Also, you may have to pay both social security and bituach leumi, whoch could mean a much higher tax rate. My best guess is that it’s better to be paid here (at the very least the paperwork is much simpler), but again, I’d recommend asking an accountant.

      • Michael R says:

        And other than BL, how much does the employer put towards the pension and any other “expenses?”

        I won’t be paying any taxes in the US for this — either I would be an employee of Yeul Sachir (and therefore exempt from US taxes) or I would be an employee of this HR/recruiting company in Israel. Either way, I don’t need to take US taxes or Social Security into account.

        My thought was that it would save me money to take that 12.5% salary cut. If I were to work with Yeul Sachir or Taxpay, I would be paying them 5% (I know YS is a little more). Which essentially means I would be taking only a 7.5% pay cut to become an employee of this HR/recruiting firm in comparison to working through Yeul Sachir.

        Overall, if working for Yeul Sachir, would I pay more than 7.5% in employer BL and employer pension payments? If so, my thinking was that although taking a 12.5% pay cut isn’t too attractive, it may really end up saving me money.

        Does this make sense? Do you know if my “out of pocket” payments from the employer side of working for Yeul Sachir exceed 7.5% (and therefore, with the 5% commission to the billing company, it would exceed 12.5%)?

        Thanks again

      • jonnydegani says:

        The other employer expenses are paying 12% into you pension (it can be a bit higher if you want). So without a doubt, you’d pay more than 7.5% by working with Yeul Sachir

      • zivia says:

        You don’t get double taxed on income tax if you are a US and Israeli citizen. Your tax rate will be based on where you reside and do your business. You will file taxes in both country and if you are residing in Israel, then the taxes you paid in Israel will be deducted from any tax you owe in America. (This applies to up to $80,000. I’m not sure what happens after that). Israel and the US though do not have a social security tax treaty, which means you will owe social security in America and beituach leumi in Israel if you are a freelancer. I’m not an accountant or tax attorney so speak to a professional for more advice.

  26. Michael R says:

    Got it — thanks a lot!

    So although taking a 12.5% pay cut isn’t great, it definitely looks like the better option. Otherwise, I would be paying 5% commission to the billing company, 12% into my pension plus 3.45% employer BL on the first 5,000 NIS and 6.5% employer BL after 5,000 NIS.

    Thanks for the help! And for the very informative blog!

    • zivia says:

      You can also incorporate in Israel (called a ba’am) in which case your company would pay you and you would not owe social security tax to America. The costs of operating as a ba’am are greater than operating as a freelancer because you have to pay to have an Israeli tax accountant do a yearly audit of your company and prepare your personal tax return and pay a professional bookkeeper to keep your books and give all the paperwork to your tax accountant. You cannot do this yourself because you have to use a special and expensive software program required by the Israeli government. You will also need to hire an accountant to do your American tax accountant. If you are making a good amount of money, this is the best way to go. Again, talk to an accountant, preferably one that knows Israel and US taxes.

  27. Michael R says:

    How does someone collect severance pay when working with one of these billing companies? Is there a certain minimum amount of time you need to work with them to collect the severance pay upon termination of working with them? If I only work with a billing company for 1 or 2 months, do I get the deductions taken for severance pay afterwards?

    Thanks!

    • jonnydegani says:

      they take out the severance pay every month and pay it into your pension. When you leave the company, you can take the severance pay, or leave it in your pension (adding to your annuity at retirement)

  28. roni says:

    Does anyone know if autotax disappeared? They have stopped to pay salaries and not responding to phone.

  29. Shlomi says:

    Hi, I came across this post by chance whilst looking for options about Freelancing in Israel since I am looking for a job. I have a few Qs bothering me.
    1) If my freelancing job get me around 2500-3000 NIS per month, what needs to be done? Do I hire an Book-keeper or Accountant or Billing Co. or ALL Three??
    2) What happens if in the course of this freelancing job I have an offer as a Full-time job in a different company? Can I work on the Job as well as freelance?
    3) What happens when I decide I want to close the status as an freelancer? Is it easy as it began?
    4) Does it involve following up with the Tax authorities and Bituach Leumi and other offices upto 5 yrs after the status is closed?
    5) when I was a partner in a start-up business and left the partnership after a year I was advised thus = “You must ask to close the file in Mas Hachnasa. Your file will be designated 9.6 , You will be asked to continue reporting for a further period until they finally close your file to a type 13. This might require following up as they sometimes forget to change the file type. You also have to close the file with Mas Erech Musaf and if the business closes and you received tax rebates on fixed assets you will have to return them. You must also inform Bituach Leumi of your changed status and receive an update as to your monthly payments.”
    I really found it a problem working with the CPA book-keeper once I had left the company.
    This is why I’m having second thoughts if opening a file with Tax authorities is really a good idea once again.
    Thank you to take time to read this and appreciate your help in guidance any way!

    • jonnydegani says:

      1) If the business is small and you can do your own bookkeeping, you just need an accountant to help you with an annual report
      2) You can work both (I currently do as well)
      3) It takes some paperwork as maam and mas hachasah, but it isn’t too hard
      4) I know you have to report for a period after, but I am not sure how much. I advise speaking to an accountant.
      5) I am sorry you had a bad experience. There are lots of great accountants in Israel who can help you though.
      Best of luck

    • Kate says:

      If you are a freelancer, you can probably do your bookkeeping on your own but you will need an accountant to file your taxes. If you are American there is a bit of a glitch because America has an “income tax” treaty with Israel but not a “social security tax” treaty, in which case you have to pay Beituach Leumi on your freelance work in Israel AND social security to American on your freelance work done in Israel (that is another 15%!). Most likely you will also need to hire an American tax accountant to file your American tax return (or your tax return for another country if required), unless you find an accountant who can handle both. Your best bet is to talk to an accountant about all your questions. BTW, you can be a fulltime or parttime employee and freelance. Talk to an accountant to get all the details. Good luck!

  30. TG says:

    my husband and i made aliyah in mid-2012. he is a contractor for an american company, and they currently pay him in israel. i was an employee in the US and currently work for an israeli company. my husband is registered as an osek patur, since he works only during yeshiva breaks. while i used accountants for my 2012 returns because they were complicated and included a hatzharat hon (plus we needed to negotiate with mas hachnasa and BTL to keep them from freezing our assets, and the accountant was a big help), i did the 2013 returns in the US and israel myself. they were not hard. my husband pays BTL like an unemployed person, since his earnings are low, and SE tax in the states. he has no tax deductible expenses besides charitable donations. it’s really not a big deal to do this without accountants.

  31. Jordyn says:

    Hello, great article!
    I have a question. I am going to start work for someone who wants to pay me either through an OA or a BF (my choice). I already work someone else as well, at a regular employer where I am salaried. Do I have to pay the bituach leumi twice? If I am only going to be making around 2000 a month, would it make more sense to do the OA or BF do you think? Thank you!

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