Pension and Unemployment Funds.
There is a new law that was passed and takes effect as of January 1, 2017 regarding a mandatory requirement for all self-employed individuals to put away money in a pension and unemployment fund.
This new law will be enforced from January 1, 2017, and will apply to all self-employed individuals in Israel from age 21 and until age 55. The law requires depositing money into pension funds, some of which will also be put into an unemployment fund. This applies to any self-employed income from Israel or abroad, but not including salaries from abroad.
How much will we have to deposit?
The amount that must be deposited is according to the income earned:
- On net monthly income of up to approximately 5,000 NIS a month, one must deposit 4.45% to a pension fund.
- On net monthly income over approximately 5,000 NIS and up to 10,000 NIS, one must deposit an additional 12.55% to the pension fund.
- On any net monthly income of over approximately 10,000 NIS, there is no requirement for additional deposit.
For example; if one has a monthly income of 10,000 NIS, they will deposit 850 NIS a month to pension fund (5000*4.45%+5000*12.55%).
A self- employed, or an employee that is also self-employed that already has been depositing into a pension fund, will have to clarify with the insurance agent regarding the exact amounts needed to add to the fund.
Please note, these payments are tax deductible, and can lower your tax liability.
When can the money be taken out of the fund?
In a case where the self-employed business closes, or when one reaches retirement age, one may then withdraw the money from the funds according to the various conditions and taxation methods for each specific case.
What is the deadline for making the deposits?
The deposits can be made until December 31, 2017. It is recommended to put away a monthly amount, and then deposit the difference of the total owed at the end of the year. One can also deposit the entire amount at the end of the year. If the deposits are not made, there will be a warning letter received, and if the money is still not deposited fines will be imposed.
How to proceed with the deposits:
You must contact an insurance agent who will give you correct guidelines and explanations for your specific case and income bracket.
