Working for an Israeli company after moving abroad: tax implications

We are frequently approached by both new immigrants and native Israelis who, after building careers in Israeli startups or international companies, choose to move abroad – some temporarily, others permanently. Many of them aim to maintain employment with an Israeli company while working remotely. While this arrangement may seem reasonable in today’s era of digital mobility, it raises significant tax-related questions.

Is such a work model legitimate from a legal perspective? How is it treated under Israeli and international tax laws? What are the financial risks and practical steps to mitigate them? Let’s break it down.

Tax withholding still applies

Under Israeli law, employees are subject to mandatory tax withholding. This includes income tax, pension contributions, and National Insurance (Bituach Leumi) deductions. The challenge arises when an employee relocates to a country with a similar personal taxation system. If the new country is not a tax haven, there’s a strong likelihood of double taxation: individuals may end up paying taxes in Israel even though they are no longer legally obligated to do so, and simultaneously fail to meet tax obligations in their new country of residence – thus both overpaying and violating tax law.

Pension contributions: worth it?

Another critical consideration is pension contributions. Even after relocation, Israeli employers continue deducting and transferring pension payments. This raises a legitimate question: is it worthwhile to keep saving into an Israeli pension fund if you no longer reside – and don’t plan to return – to Israel? Financially, the answer may still be yes, as Israeli pension funds often remain accessible and viable regardless of residency, but the decision should be carefully evaluated.

Transitioning to a local legal status

If you plan to reside abroad long-term, it’s advisable to restructure your working relationship with the Israeli employer. One effective approach is to register as a sole proprietor (self-employed) under the laws of your new country. For instance, if you move to Portugal and register as a freelancer, you can pay all applicable taxes locally under the Israel – Portugal Double Taxation Agreement. In this case, Israeli tax obligations are waived.

We also recommend consulting with a local tax advisor, as many countries offer tax benefits to freelancers, immigrants, and digital nomads.

Reality is more complex

In practice, restructuring employment isn’t always feasible. Many Israeli companies operate as part of global corporations. If you work at, say, Meta Israel and relocate to Germany, the company may have a German office you can formally transfer to. But such transitions aren’t always available or immediate. During the relocation and adjustment period, not everyone can promptly register as self-employed or formalize a new legal arrangement.

In these cases, it may be practical to temporarily maintain the Israeli employment arrangement, especially if the employer is unwilling or unable to transition to a contractor model. This scenario is common across both startups and large enterprises.

Let’s say you’re planning to become a tax resident of your new country but wish to keep your job at an Israeli company. In this situation, several steps are essential:

1. Cancel your Israeli residency status in bituach leumi.

You should formally cancel your status as a resident in the National Insurance system and inform your employer. Once processed, your salary will no longer be subject to social security contributions.

2. Income tax withholding continues – but can be refunded

Despite the change in residency, Israeli employers are still legally obligated to withhold income tax. However, this amount is refundable at the end of the tax year -provided you submit a proper annual tax return.

The return for the year of relocation is especially important. You must accurately declare your tax residency status and, if applicable, attach the official appendix confirming non-residency status. This significantly impacts your eligibility for a refund.

3. Pension contributions cannot be canceled

Even non-residents remain subject to mandatory pension deductions. While opting out isn’t legally possible, these funds remain accessible and can serve as a long-term savings vehicle, regardless of your country of residence.

Final Thoughts.

If you’re planning to relocate abroad but want to continue working with your Israeli employer, the optimal strategy is to transition to local self-employment or transfer to the company’s foreign branch. If that’s not an option, you can retain Israeli employment status, but it’s critical to correctly manage your residency status in Bituach Leumi and submit a yearly tax return to recover overpaid taxes.

Navigating this path requires planning, but with proper legal and financial guidance, it’s entirely manageable.

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