Dear Clients,
As we approach the end of 2025, we’ve summarized for you the main tax benefits available for contributions to pension funds and provident funds for the self-employed.
Pension Fund / Provident Fund for the Self-Employed
Since 2017, self-employed individuals in Israel are required by law to make contributions to a pension or provident fund as follows:
- Up to annual income of ₪79,896 (half of the national average wage): a mandatory contribution of 4.45%
- On the remaining income up to the full national average wage (₪159,792 per year): an additional 12.55%
This means the maximum mandatory monthly contribution under the law is ₪1,132.
However, it’s important to remember — higher contributions significantly improve your future pension and entitle you to substantial tax benefits. Therefore, it is often advisable to contribute more than the legal minimum.
Main Tax Benefits on Pension/Provident Contributions
- A contribution of 11% of annual taxable income (up to a salary ceiling of ₪232,800) qualifies as a deductible business expense, up to ₪25,608 for 2025.
- In addition, there is a 35% tax credit on an extra 5.5% contribution (including 0.5% for disability insurance), up to a credit ceiling of ₪12,804 for 2025.
Contributions above the deductible and creditable limits do not provide an immediate tax benefit but increase your recognized pension annuity — a future pension exempt from tax starting at age 60, with additional reduced-tax withdrawal benefits.
Maximum Benefit Example
A self-employed individual with annual income of ₪232,800 or more can contribute up to ₪43,275 and receive a maximum tax benefit of ₪38,412.
In most cases, we recommend contributing the full amount that qualifies for tax benefits — and sometimes even more.
For Individuals Who Are Both Employed and Self-Employed
Employees with additional income not covered by employer pension contributions can also enjoy significant tax benefits for independent pension contributions, following the same deduction and credit mechanism available to the self-employed.
It is even possible, in some cases, to contribute on behalf of a spouse and benefit from these tax advantages.
As above, any contributions exceeding the ceiling are considered a recognized pension annuity, exempt from tax from age 60.
We invite you to contact us for personalized, professional advice 😊
Professional Development Fund (Keren Hishtalmut) for the Self-Employed
A Keren Hishtalmut (Professional Development Fund) is a medium-term savings plan available to anyone with self-employed business income.
Self-employed individuals are entitled to two main benefits:
- Tax-deductible contributions (recognized business expense)
- Exemption from capital gains tax
Recognized Expense
You may contribute up to 4.5% of your annual taxable income (income after deductible expenses).
This contribution is recognized as a business expense, reducing your taxable profit.
For 2025, the maximum deductible contribution is ₪13,203 (4.5% of an income ceiling of ₪293,397).
Capital Gains Tax Exemption
Funds contributed up to the ceiling are exempt from capital gains tax upon withdrawal.
You may contribute up to ₪20,520 in 2025 (in one payment or several installments). Both the contributions and the investment earnings will be fully exempt from 25% capital gains tax if withdrawn after six years.
End-of-Year Action
As 2025 comes to a close, now is the time to take advantage of all available tax benefits by maximizing your contributions to your pension and Keren Hishtalmut plans.