Tax Refunds for Foreign Workers — What You Need to Know?

Who is a Foreign Worker and Who is Eligible for a Tax Refund?

A foreign worker in Israel is a non-Israeli citizen living in the country for a limited period — typically on a work visa, student visa, or through a religious minority program. They pay income tax on their salary just like any Israeli employee, but under special conditions that sometimes allow for significant refunds.

The question often asked is: "Am I entitled to a tax refund?" The answer depends on several factors — the type of visa you hold, the duration of your employment in Israel, your previous country of residence, and whether you paid excessive tax advances. Generally, foreign workers who worked in Israel for a short period or had excessively high tax deductions withheld are entitled to a refund.

What is important to remember: a tax refund for a foreign worker is not automatic. You need to know exactly what requires review, which documents to submit, and whom to contact. Mistakes in this process can trigger an Israel Tax Authority audit or delay your refund by months.

How Does Income Tax Work for Foreign Workers?

A foreign worker pays income tax on his salary in Israel at a statutory rate — usually between 10% and 50% depending on income. The deduction is made directly from the payslip by the employer. This seems simple, but two common issues arise here:

First issue: The employer sometimes applies a general or incorrect deduction that does not match the tax status of the foreign worker. For example, a foreign worker who worked only six months in the year may be entitled to a lower tax rate, but the deduction was calculated at the full annual rate.

Second issue: Foreign workers who have not submitted an annual report to the Tax Authority — do not even know that refund rights exist. Most foreign workers assume that the payslip deduction is "the end of the story," but it is not.

In short, the annual report for a foreign worker is the tool that allows you to review all deductions, check if they are correct, and receive a refund if you paid too much.

What Happens in the Annual Report?

In the annual report (Form 101), you report to the Tax Authority all your income for the year — both from employment and from any other source. The Tax Authority calculates the tax that should be paid on your total income, and then compares it to the amount already withheld by the employer from your payslip. If too much was withheld — you receive a refund. If too little was withheld — you must pay the difference.

For a foreign worker who worked only part of the year, or whose income was relatively low, the refund can be substantial. We have seen cases of foreign workers who received a refund of several thousand shekels because the deduction was calculated on the basis of a full year, but they worked only half a year.

Key Steps in the Tax Return Filing and Refund Process

1. Document Collection: You will need all payslips from the year, an employment confirmation letter from your employer (if not provided), and any additional income documentation (temporary work, self-employment, etc.). If you are a foreign worker who left Israel, you will also need confirmation of your departure date.
2. Eligibility Verification: Not every foreign worker is required to file an annual tax return. This depends on your income and tax status. Generally, if your income exceeded a certain threshold or if you worked only part of the year, you must file. If in doubt, it is advisable to consult with a tax accountant or contact the Tax Authority.
3. Filing the Return: The Tax Authority allows digital filing through its website (with ID credentials and password) or through a tax accountant. It is advisable to file on time—generally by the end of May in the year following the tax year. If you file late, it is not necessarily a problem, but it may delay your refund.
4. Tax Authority Review: After submission, the Tax Authority will review your return. This typically takes a few weeks to several months. If your return is correct and there are no questions, you will receive your refund directly to your bank account.
5. Receiving the Refund: The refund is typically transferred within 1–3 months of return approval. If you have already left Israel, it is important to maintain an Israeli bank account number or provide instructions for the refund to be transferred abroad (subject to banking conditions).

One point that is not always clear: if you are a foreign worker who left Israel, you can still file an annual tax return and receive a refund—even after you have left. The Tax Authority does not require you to be in the country to file or receive a refund. This is one of the things that surprises many foreign workers.

Common Mistakes Foreign Workers Make — and How to Avoid Them

In our work with foreign workers, we have seen several mistakes that occur repeatedly:

• "I did not file a return because I thought I didn't need to." Many foreign workers assume that withholding from their paycheck is sufficient. In reality, if you worked only part of the year or if your income was low — you likely need to file and claim a refund. Do not assume — check.
• "I filed an incorrect return and now I'm worried about an audit." If you discover you made an error on a return you already filed — do not wait. You can submit an amended return to the tax authority. This is much better than the tax authority discovering the error itself.
• "I lost my pay stubs and don't know how to file a return." If you left Israel and lost documents — you can still request copies from your employer or the tax authority. It takes time, but it is possible. Do not give up on a refund just because of missing documents.
• "I filed a return but did not receive a refund — something is wrong." Sometimes the refund is delayed due to a tax authority inquiry or a problem with the return. It is advisable to check the status of your return through the tax authority website or call them. Do not wait in silence.
• "I did not report additional income from self-employment or other wages." If you worked as a self-employed person or received income from a second job — that income must be reported on your annual tax return. Concealing income can result in substantial penalties.

When Should You Consult an Accountant Regarding Tax Refunds?

Not every foreign worker needs an accountant to file an annual report. If your situation is straightforward — you worked for one company, received one payslip per month, and have no professional expenses — you can file independently through the Israel Tax Authority website.

However, there are situations where professional consultation is highly recommended:

• You are a foreign worker who left Israel and are unsure whether you still need to file a report or if you are entitled to a refund.
• You had multiple employers during the year, or income from self-employment or concurrent employment.
• You are uncertain about your tax residency status (whether you are a "taxable resident" or not).
• You worked in Israel and abroad in the same year and have questions about double taxation.
• You filed a report previously and did not receive the refund you expected — and want to check if there is an issue.
• You are a foreign worker from a country with a special tax treaty with Israel (for example, a government program or special allocation).

Ben Or Kook Accountants specializes in assisting foreign workers with tax and refund matters. We review all details, ensure your report is correct, and handle the entire process so you receive your refund. Your initial consultation with us is free of charge — you can determine exactly whether you are entitled to a refund and what the next steps are.

Practical Examples — Tax Refunds for Foreign Workers

Example 1: Foreign Worker Employed for Half a Year
Daniel, a British citizen, arrived in Israel in January and obtained employment at a technology company. His salary was 12,000 NIS per month. In June, he decided to leave Israel. On his payslip, the employer deducted tax at the full annual rate (as if he would work all 12 months). When Daniel filed an annual tax return, the Israel Tax Authority calculated the tax based on 6 months only. The refund was approximately 8,000 NIS.

Example 2: Foreign Worker with Low Income
Maria, a Filipino citizen, worked as a caregiver in a nursing home. Her salary was 5,000 NIS per month, which is below the tax threshold. Nevertheless, the employer mistakenly deducted tax. When she filed an annual tax return, it was determined that she owed no tax due to her low income. Her refund was approximately 4,500 NIS.

Example 3: Foreign Worker with Income Outside Israel
Johan, a German citizen, worked in Israel and also received dividends from a company in Germany. In his annual tax return, it was possible to apply a credit for tax already paid in Germany (pursuant to an international tax treaty). The refund typically ranges from 2,000 to 5,000 NIS, depending on the size of the dividends.

In all these cases, the examination is individual and depends on the specific details of each person. Not every foreign worker receives the same refund. But the point is that if you don't check — you can be certain you won't receive anything.