Section 45 of the Israel Economic Recovery Plan (Legislative Amendments For Achieving Budgetary Targets for the Financial Years 2003 and 2004), 5762-2003 (the "Law") provided that the employer of a foreign employee is to pay a levy of a certain rate out of the total income of such foreign employee which was paid in a certain tax year.  The aim being to increase the rates of employment and salary levels of Israeli employees, by making the costs of employing foreign employees more expensive by comparison with those of Israeli employees.  Thus the section provided that the levy for the agricultural sector would be 10%.

In light of the economic situation which the agricultural sector has been experiencing in recent years, due – inter alia – to geopolitical factors which have impacted on agricultural exports, the Government has taken steps in order to assist agriculture by easing the economic situation of the farmers.  Against this background, the Law was amended and a temporary provision has been adopted which provides that for 5 years, as from January 1, 2016 until December 31, 2020, the rate of the levy in that sector will be 0%.

This amendment is expected to decrease State income by some approximately NIS160 million for each of the budgetary years 2016-2018.

In addition, the amendment to the Law exempts certain foreign employees for the purposes of the said levy.  This is in accordance with the Government decision No. 1528 of March 30, 2014 which was concerned with the introduction of an arrangement for the provision of temporary residence permits for investors and expert employees who are necessary for reasons of being USA civilians, and also for their families.  In the decision it was provided that in order that the arrangement for the issue of E-2 permits to Israeli civilians in USA it is necessary that a similar arrangement will apply in Israel for USA civilians.  Thus, the definition of 'foreign employee' in the Law was amended to exclude a foreign investor who has received approval and a temporary residence visitor's B/5 permit under the Entry into Israel Law, 5712-1952 as well as a necessary employee who has received approval and a temporary residence visitor's B/51 permit under the said law, and their partners.

Reference:   The Law for the Israel Economic Recovery Plan (Legislative Amendments For Achieving Budgetary Targets for the Financial Years 2003 and 2004) (Amendment No. 18 and Temporary Provision), 5776-2016