Here is what this post is not about:

• How do I get an American company to pay me a salary or hire me as a contractor while I am living in Israel?
• How do I get anyone to pay me a US-level salary while I am living in Israel?

You are on your own to answer those (my advice: daven, try to build up a good relationship with your employer before heading East, and if it is at all feasible for you to continue as an employee or contractor post-Aliyah, bring it up with them early, be creative and accommodating in trying to explore possible solutions. But don’t wait until your kids are through with college in the hopes that something will work out.)

However, if you are (or could one day be) in the employment situation that I have found myself in since making aliyah, the following should be of interest to you.

My Scenario

Before aliyah I worked for almost two years with a consulting company in Boston. About four months before we left I went to my boss and informed him of our plans, as well as my openness to any type of arrangement that would allow me to continue working for them. After a little back-and-forth we agreed that I would continue working as a contractor. I would be officially working as a contractor for a third company, who did virtually all of the programming work for my former employer. My work would either be in support roles (drawing an hourly salary) or based on projects. At the time that I left (last December) we didn’t have anything formal worked out for how payment would get to me in Israel.

Tax Repercussions

From what I was able to find out, it was very much in by best interests to be am employee of an Israeli company. Here is why:

Social Security Tax: If you are en employee of a US-based company, and you have ever looked at your pay-stub, you will notice that a portion of your monthly pay is deducted and sent to the US government for Social Security and Medicaire dues. Your employer is bound by law to match your contribution every month. The total amount of your salary that is sent (paid by both yourself and your employer) is 15.3%.

However, if you are an independent contractor you have to pay both the employers and the employees portion of your salary for Medicaire and Social Security - 15.3% of your total income. In the eyes of the Social Security Administration, it does not matter whether you are working in the US or abroad. Either way you have to pay this amount if you are self-employed (ie: you need to fill out a Schedule C with your Federal Tax return).

This is not necessarily a bad thing. You need to amass 40 credits (with each credit equal to one quarter of work, in most circumstances) in order to qualify for social security benefits after you retire. If you are close to 40, you may decide that it is worth your while to pay the 15.3% in order to amass more credits, and qualify for benefits.

In my case, I have somewhere around 20 credits, meaning that I would have to contribute for at least five more years in order to qualify for benefits. When it comes down to it, SS is just a form of saving for retirement. If your employer is contributing on your behalf, it is extra attractive. However, for me, I can think of more efficient uses for the 15.3% my income that would be sent to Uncle Sam (and would hopefully still be there when God willing, I retire sometime around 2040-2050).

In order to not be responsible for Social Security dues, one must be employed by a foreign company (since working for a US company you are liable, and being self-employed overseas you are also liable).

Self-Employment in Israel

In the US, if you are self-employed you get your 1099’s in the mail at the end of the year, fill out a Schedule C, make your deductions and send in your papers. No big deal.

In Israel however, it is a big deal:

• You have to file taxes at the end of the year (if you are employed by a company, in most cases they deduct all of your taxes and you don’t have to file anything at the end of the year!)
• You must open a tik. This means that you go to the proper government office(s), fill out lots of paperwork. You have to make a capital declaration (ie: tell them how much money you have in the bank, list all of your valuable possessions). They make you do this so that in theory they could knock on your door in a few years, check out all of your possessions, and try to estimate whether you could afford all of your stuff on the salary that you have reported.
• In many cases, you have to charge people VAT (Value Added Tax) of approximately 15%. This is definitely not good for business.
• You will have to make partial tax payments throughout the year.
• All of the things that would ordinarily be deducted from your paycheck at a company (like bituach leumi, bituach minhali, keren hishtalmut, etc) would become your headache

You avoid all of this by working for an Israeli company

So how can I work for an Israeli company and a US company at the same time?

I’m glad you asked [snicker].

Here is what has to happen:

1. You become an employee of an Israeli corporation. Fill out a tax form. The works.
2. You sign a contract with your US-based company/client (or skip the contract and trust them, if that is what works for you) for the work you will be doing. The contract is between the Israeli corporation and the US company.
3. At specific intervals (once or twice a month, project milestone or completion, etc) you send an invoice to the US company for the amount due. The invoice is payable to the Israeli company (of whom you are an employee).
4. US Company wires over (or sends a check, though I wouldn’t recommend it) the money to Israeli Company’s bank account.
5. Israeli Company does lots of accounting stuff (yes, that is the technical term). They figure out how much income tax your owe, how much bituach leumi, etc. They do all of your deductions. When they are done with that, they issue you a pay-slip and move the money (minus an agreed upon monthly accounting fee) over to your bank account.
6. Rinse, lather and repeat (hopefully for many years).

Other advantages to this system:

• It is perfectly legal, with very little risk on your part of messing up (unlike the case where you are self-employed in Israel, where there is a pretty good chance that you will mess up with your taxes once or twice).
• You get all of the benefits of working for a company. In a socialist country, this is a good thing. There are specific deductions that you can make, and certain types of pre-tax contributions that can be done on your behalf that are simply better when you are part of a company.
• They take care of all the details for you. That is hours (of aggravating tax work) every month saved
• You can have access to pension savings and insurance plans that you otherwise not be able to use
• You get professional looking monthly pay slips which are mandatory if you need to do things like take out a mortgage

How can I find an Israeli company that will allow such an arrangement

I have heard of three options:

1. Your brother-in-law/uncle/best friend’s cousin/(you get the picture) owns an Israeli company and agrees to serve in this role for you
2. Start your own company
3. Find a company that specializes in this type of arrangement.

If you want to do either of the first two options, you are on your own. I am right now doing option number three, and so far it is working out pretty well.

There is one company that is pretty well known that specializes in exactly the scenario that I laid out for you. It is called Yeul Sachir. On the surface it looks pretty good. They (now) have a nice looking front page to their website. They claim that they have been doing this for years and their rates are the cheapest you can find (I remember that it was around $100 a month). When I first decided to look into this option I tried contacting them. The email on their English website (which has thoroughly unimpressive layout and functionality) was not valid. I scoured their Hebrew website, sent an email to another (different address) listed there. Heard back from their CEO. Asked him for some references. He said he would get back to me. Called a few weeks later and asked what I thought. I said “you never sent me the references”. He said “sorry, I will do that right away”. And I never heard back from him again after that. (Update: It looks like they have taken down their English website. No big loss, since it was not the most informative or well-laid out site, but it does indicate that in the future they may not be catering as much to Americans. The only English that I could find on their website are links to english copies of the freelancing contracts - I cannot link to them because they use Flash only for their navigation, but if you want to get there, go to their main page and click on the link at the top labeled ??????? ????????? - Solutions for Freelancers. Beyond that, I do not know much about how their business works, if they still want to server US freelancers, etc. If anyone has experiences please let us know)

Suffice it to say, I did not end up using Yeul Sachir. If you would like to try them out, go right ahead. I have heard (through the grapevine, not through anyone that I know personally) that they were able to provide the services that they promised. I was just not really impressed with their professionalism, and I didn’t have time to wait for them to get around to pursuing me as an “employee”.

What I did instead was go to the place that any other Anglo in the Jerusalem area should go when in need of information about anything: Janglo. I sent an email inquiry for information regarding accountants and lawyers with experience in this area. Got back at least ten replies within 24 hours. One of the replies was from an accountant who is located in the center of Jerusalem. He has a private company (owned by an associate of his) that specializes in providing these services. He does not advertise it so much, just uses it for his clients when they need it. I went into his office, talked it over with him and signed up. It is more expensive than Yeul Sachir (although for me, that was not an option anyway), but it has the advantage of being run by my accountant (who still treats me like his client, looking out for my best interests). I am also able to get a pretty good pension savings and life/disability insurance plans through the owner of the company. If anyone is interested in the name of my accountant, please email me at yaakov @ this domain. So far the arrangement has been working out pretty well.

Final Thoughts

This whole thing is something that I put off for a while both pre and post-aliyah. In retrospect, I should have gotten my act together regarding my employment and tax situation much sooner (ie: as soon as I stepped “off the boat”). That said, I am pretty confident that I have put myself in a good position in to (legally) take advantage of the tax laws in both the US and in Israel so as to minimize my tax liability in both countries as much as possible, while gaining the benefits of being an employee of an Israeli company.

If your scenario is or may be similar to mine, I think that it behooves you to investigate the best options for yourself, as soon as you can. (Disclaimer: Everything that I wrote above I learned from reading websites, talking with various professionals, my accountant, as well as attending a very helpful tax-planning seminar at the NBN offices. That said, this is not intended as professional advice. I have not looked any of this up “in the sources” and I am neither an expert in US nor in Israeli income tax laws. If you have any questions feel free to ask, but I will most likely direct you to a professional for advice. I encourage you to talk to an accountant familiar with both Israeli and US tax laws if you find yourself in a situation resembling mine. If you would like the names of people in Israel to talk to, send an email to yaakov @ this domain.)

Update on my situation: Receiving a US-based Salary in Israel, Part II: Salaried Employee