Relocation Abroad: How Israeli Employees Preserve Rights and Tax Deductions

Israeli employees relocating abroad for work, commonly known as "relocation," face complex legal and tax status changes involving income tax, National Insurance, and employer rights. The key tax consideration is the employee's residency status. Those maintaining Israeli tax residency must report worldwide income but can claim foreign tax credits, while those who sever residency are taxed only on Israeli-source income.

Relocation employees may deduct certain expenses such as per diem and housing costs up to country-specific limits, flights between Israel and the host country, private health insurance premiums for themselves and family, and sometimes children's tuition abroad. These deductions require actual payment and must be necessary for earning income. Employees should also review tax implications on stock options and shares granted in Israel, as selling these after residency termination may still incur Israeli tax depending on vesting periods.

Regarding National Insurance, employees who continue contributions retain health coverage and pension rights but must pay monthly fees. Those who stop contributions lose coverage and may face waiting periods to regain benefits upon return. Employment contracts typically guarantee severance pay and may include continued pension contributions, but employees often overlook confirming these terms before relocating.

Additional financial considerations include managing rental income from Israeli properties and local bank accounts during the stay abroad. Before signing relocation agreements, employees should clarify coverage of housing and travel expenses, pension contributions, and rights if employment ends prematurely. Returning to Israeli residency after severance is possible but may involve waiting periods to restore full rights.

This guidance aims to help Israeli workers and employers navigate the intertwined tax, social security, and contractual issues arising from international work assignments, ensuring informed decisions and protection of rights.