Recently a new legislative reform was issued regarding the income taxation in Israel, which will negatively impact migrant workers lawfully employed in the country. The reform will take effect on January 1st, 2015.
The reform states that migrant workers lawfully employed in Israel will not be eligible to tax credit points, except for migrant caregivers who are lawfully employed in Israel for over 5 years. Female caregivers are particularly discriminated against, as caregivers who work in Israel for a period shorter than 5 years will not even be eligible to the tax credit points accorded to women in Israel.
This reform is therefore at odds with the obligations of Israel under international labor law, as well as under treaties between Israel and other sending countries on the avoidance of double taxation and prevention of tax avoidance regarding taxes on income and capital.
According to Israeli law (the Income Tax Ordinance), every Israeli resident is automatically entitled to a tax credit of 2.25 points per month (each credit point values 218 NIS), with women entitled to an additional 0.5 point per month. Foreign citizens lawfully working in Israel (who are not “experts” or “guest lecturers”) are presently entitled to the same tax credit points as Israeli residents, in accordance with the Income Tax Rules (Credit Points to Eligible Foreign Residents, 2007).
On October 7th 2014, new regulations on income tax were published by the Ministry of Finance. These regulations dramatically changed the taxation regime applicable to the income of non-residents in Israel. The new regulations cancelled the previous Income Tax Rules (Credit Points to Eligible Foreign Residents, 2007), and substituted these regulations with the new arrangement Income Tax Regulations (Credits to a Foreign Worker, 2014), which is based on the following typology for determining eligibility to tax credit points:
- “Foreign worker” – a worker who is not an Israeli resident or citizen(even if deemed a resident for the purpose of the Income Tax Ordinance), whohas a visa under section 2 of the Entry into Israel Law, or his/her stay or employment in Israel requires such a visa;
- “Legal foreign worker” – a foreign worker who fulfillsall of the following: (1) his/herstay in Israel or in the occupied Palestinian territories (oPt) and employment in Israel or in the oPt are permitted by law; (2) he/she is not a “foreign expert” or “guest lecturer” as defined in the Income Tax Regulations (Deduction of stays expenses for a foreign resident, 1979); (3) he/she received a B/1 visa and permit to stay to work in Israel (temporary worker), as stated in Article 5 (a) of the Entry into Israel Regulations, 1974. This group includes all migrants lawfully employed in Israel, such as migrant workers in agriculture and construction, along with many others who are employed in Israel with a B/1 visa (for example, foreign spouses of citizens and residents, older parents of citizens and residents, some asylum seekers, victims of human trafficking, etc.)
- “Legal foreign workers in the caregiving field” – foreign workerswho received a permit to work in caregivingand whose extension of stay in Israel is carried out under section 3 (b) of the Entry into Israel Law, 1952. It should be noted that section 3(b) of the Entry into Israel Law, to which the definition refers, deals with the authority of the Israeli Ministry of Interior to extend the visa of foreign workers employed in caregiving beyond five years. The meaning of the definition of “legal foreign workers in the caregiving sector” in the new rules, therefore, is foreign workers residing and working in Israel legally for a period of more than five years only.
According to the new rules, both “foreign worker” and “legal foreign worker” are not eligible to tax credit points in accordance with the provisions of Section C Part III of the Income Tax Ordinance (section 3(d) of the new rules). Entitlement to 2.25 tax credit points will now only be accorded to “legal foreign caregivers” (Article 3(a) of the new rules). Since “legal foreign caregivers” are defined, as mentioned above, as workers who lawfully reside and work in Israel for over five years, all other caregivers living and working in Israel legally for less than five years are not eligible to any tax credit points. This includes female caregivers working in Israel less than five years, who are not even eligible to 0.5 tax credit points, which are accorded to women in general under article 36 of the Income Tax Ordinance.
The caregiving industry in Israel is overwhelmingly dominated by women. Naturally, therefore, the cancellation of an eligibility to tax credit points in the caregiving sector (excluding a minority of workers residing in Israel for a period longer than five years), and the creation of a discriminatory tax regime with respect to these workers’ income, results in prohibited discrimination against women.
Moreover, the new tax regulations are not only discriminatory against women, but they also stand in contradiction to Israel’s international obligations. Israel is a party to ILO Convention No. 97 concerning Migration for Employment, which was signed and ratified by Israel on March 30, 1953. According to Article 6 of the Convention, a Member State is under an obligation to apply, without discrimination in respect of nationality, race, religion or sex, to immigrants lawfully within its territory, treatment no less favourable than that which it applies to its own nationals in respect of employment taxes, among other matters. As stated in the original:
“Each Member for which this Convention is in force undertakes to apply, without discrimination in respect of nationality, race, religion or sex, to immigrants lawfully within its territory, treatment no less favourable than that which it applies to its own nationals in respect of the following matters: employment taxes, dues or contributions payable in respect of the person employed.”
Additionally, the new rules are inconsistent with Article 25 to treaties between the Government of Israel and the governments of sending countries regarding the prevention of double taxation and prevention of fiscal evasion with respect to taxes on income. For example, the Treaty between Israel and the Philippines stipulates as follows:
“Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other Contracting State in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.”
Moreover, subsection 5 to article 25, which stipulates that “notwithstanding the preceding provisions of this article, either contracting state may, in the promotion of necessary industry or business, limit to its nationals the enjoyment of tax incentives granted by it”, is inapplicable in these circumstances.
Given the broad negative impact of this reform on the rights of migrant workers in Israel, as well as its clear discriminatory nature and violation of international labor law, Kav LaOved will make efforts to prevent the implementation of this reform before January 1st, 2015.