Keren Hishtalmut is the only short term tax free saving plan available in Israel. One is entitled to withdraw the monies accumulated in the fund after 6 years, free of Capital Gains Tax (before the 6 years are up would be liable to tax penalties). If there is no need to access the money after the 6 year period, the recommendation would be to leave the money in the fund accruing further growth, which would also be free of taxation.
This savings plan is only an option for the following people:
1. Sachir – Regular salaried employee
For a Sachir, the ability to open a Keren Hishtalmut is dependent on the benefits received through their place of employment. The salary cap for tax benefits is a monthly salary of 15,712 NIS. Should one be entitled to a Keren Hishtalmut, the contributions are usually, but not exclusively, as follows:
7.5% paid by the employer over and above the gross monthly salary (up to the above mentioned salary cap). This is a tax deductible expense for the employer.
2.5% paid by the employee from within the gross monthly salary (up to the above mentioned salary cap). This is taxable.
2. Sachir Ba’al Shlita – An employee who has a significant stake or financial interest in the company. As there are many implications of this category, we recommend that you consult with your accountant to clarify your status.
A Sachir Ba’al Shlita, has the ability to open a Keren Hishtalmut based on the same principles as a regular Sachir. Due to a Sachir Ba’al Shlita having a significant stake in the company, the tax benefits are reduced. Currently, there is no tax relief for the employee’s contribution. The tax relief on the employer’s contribution is up to 4.5% of the above mentioned salary cap.
3. Atzmai – Self-Employed
An Atzmai has the ability to open up a Keren Hishtalmut based on 7% of their income. The tax year in Israel runs from 1st January to 31st December. The upper annual limit for total contributions into the Keren Hishtalmut for 2019 is 18,480 NIS. As of 2017, contributions equating to the first 4.5% of one’s annual income up to 264,000 NIS is considered a tax deductible expense.
Goldfus Insurance takes no responsibility for changes in Israeli legislation that may alter the accuracy of the above information. For clarification of any changes, please contact us.