US Professor in Israel: Article 23 Treaty Tax Exemption

A sabbatical is agreed between departments long before anyone speaks to a tax adviser. By the time the question surfaces, the visiting scholar from Ann Arbor or Palo Alto already has an Israeli contract, an apartment in Rehovot, and a start date in October, and the first Israeli payslip has arrived with close to half of it gone. The relief that would have prevented that exists. It is one of the few genuinely generous provisions in the US-Israel treaty. But it is claimed in advance or it is not claimed at all, and a family that discovers it in December is already arguing for a refund rather than avoiding the tax.

This guide is for US-resident academics taking a teaching or research appointment at an Israeli university, and for the department administrators and US tax preparers who handle the paperwork from the other side of an eight-hour time difference. It explains what Article 23 actually gives you, the one filing that has to happen before payroll, and the residency question that a two-year stay quietly raises.

What Article 23 Exempts, and For How Long

Article 23 of the US-Israel income tax treaty deals with teachers. An individual who is a resident of one country and visits the other primarily to teach or carry out research at a university, college, or other recognised educational institution is exempt from tax in the host country on the remuneration for that teaching or research, for a period not exceeding two years from the date of arrival.

Read the words carefully, because each of them does work. "Primarily" means the teaching or research must be the main purpose of the visit, not an incidental activity attached to something else. "Recognised educational institution" means an accredited university or college, which every Israeli research university is, but which a private commercial training body may not be. And "two years from the date of arrival" is a hard ceiling measured from the day you land, not two tax years and not a renewable term.

Two limitations travel with the exemption. It is unavailable to someone who, in the period immediately before, claimed the student and trainee benefits under Article 24(1). And Articles 23 and 24 taken together may run only for such time as is reasonably required to achieve the purpose of the visit, and in no case beyond five taxable years from arrival. The relief is reciprocal, which is why the same article is quoted to Israeli academics visiting Boston. It is capped rather than renewable, so an appointment that stretches into a third year produces Israeli tax on the third year's salary, and it invites the assessing officer to look again at whether the visit was ever primarily academic.

The Israeli Payroll Runs on Its Own Rails

Here is the point most visiting scholars miss. The Israeli side of the arrangement does not defer politely to the treaty. Salary from an Israeli university is Israeli-source employment income under Section 2(2) of the Income Tax Ordinance, read with the source rule in Section 4A. The university is an Israeli employer with a statutory withholding duty. Left to itself, its payroll department will deduct at the ordinary Section 121 marginal rates, which reach 47%, and add the Section 121B surtax of 3% on annual income above NIS 721,560 for the better-paid chairs.

None of that stops automatically because a treaty exists. To switch the withholding off at source, you apply to the assessing officer (pkid shuma) before the first payroll run for a certificate confirming the Article 23 exemption. You support the application with your US certificate of residency, which the IRS issues on Form 6166 after you file Form 8802, and you hand the university the Israeli certificate in its own name so its payroll can rely on it. Allow four to eight weeks for the certificate, which is why the application should go in as soon as the contract is signed, not after arrival.

In Practice: Article 23 of the US-Israel income tax treaty exempts a visiting teacher or researcher from Israeli tax on that remuneration for a period not exceeding two years from arrival, with Articles 23 and 24 together capped at five taxable years. Without action, the Israeli university withholds at Section 121 rates up to 47% plus the Section 121B surtax of 3% above NIS 721,560. To stop it, obtain an exemption certificate from the assessing officer at the Israel Tax Authority before the first payroll run, a process that takes four to eight weeks.

If the withholding has already happened, recovery is a refund claim under Section 160 of the Income Tax Ordinance. The claim is open for six years, the refund carries consumer price index linkage plus 4% annual interest, and in practice it takes four to nine months to be paid. That is money you get back, but it is money out of your account for most of a year, and it turns a clean exemption into a financing exercise.

The Two-Year Stay Creates a Residency Question

A one-semester visit raises no residency issue. A two-year appointment with a spouse and a lease is a different matter, and it is where scholars who focused only on Article 23 get caught.

Under Section 1 of the Income Tax Ordinance you become an Israeli tax resident if your centre of life is in Israel. Two day-count presumptions point to that conclusion: 183 days or more in a single tax year, or 30 days in the year combined with 425 days across that year and the two before it. A two-year posting will meet both. Becoming a resident under Israeli domestic law does not defeat Article 23 for the teaching salary itself, because the treaty tie-breaker in Article 3 resolves dual residence and the exemption survives. What it does is pull your worldwide income into the Israeli net for everything else: your US brokerage accounts, your rental income back home, your spouse's earnings.

Does that mean double tax? Not usually, because the treaty and the foreign tax credit exist to prevent it. But it means Israeli filing obligations you did not expect, and it means a conversation about the Israeli 183-day residency test should happen before you accept the offer, not after your accountant in Israel asks for your US 1099s. Plan the residency exposure. Do not discover it.

There is a separate contribution question that the income tax treaty does not answer. National Insurance and health insurance in Israel are governed by the National Insurance Law, not by the tax treaty, and there is no US-Israel social security agreement, so contributions in one country earn no credit in the other. A visiting academic who becomes an Israeli resident employee can face Israeli National Insurance and health deductions on the salary that Article 23 exempts from income tax, with nothing on the US side to offset them. Confirm your status with the National Insurance Institute (Bituach Leumi) early, because the answer depends on facts, not on the treaty.

In Practice: A two-year posting meets the Section 1 of the Income Tax Ordinance residence presumptions of 183 days in a tax year, or 30 days plus 425 across three years, and Section 131 then requires an Israeli annual return to the assessing officer at the Israel Tax Authority, due by 30 April after the tax year, which brings your worldwide income into scope. Because the treaty does not reach National Insurance and there is no US-Israel social security agreement, the same salary Article 23 exempts from income tax can still carry Israeli National Insurance and health deductions, on which a scholar earning NIS 30,000 a month receives no US credit.

What Falls Outside the Article

Visiting professors rarely earn only their university salary. The extras are where the tax lives, because Article 23 protects the teaching and research remuneration and nothing else.

Consultancy for an Israeli company alongside the appointment sits outside the article. So do paid public lectures given away from the host institution, and any royalties on published work. A paid performance or public appearance is dealt with separately under Article 18 of the treaty, which allows Israel to tax where the gross income exceeds USD 400 for each day of presence. The university's payroll will not separate these strands for you. If part of your Israeli income is a grant, a paid keynote, or advisory work for a startup, that part needs its own analysis and often its own withholding treatment.

Common Mistakes and What They Cost

Common Mistake: Assuming the treaty exemption is automatic and letting the first two or three payroll runs go through at full withholding. Under Section 164 of the Income Tax Ordinance the university must deduct at source until it holds a valid certificate, so it does exactly that. Recovering the over-withheld tax then means a Section 160 refund claim to the assessing officer that runs four to nine months, during which a scholar on an NIS 30,000 monthly salary can be out of pocket by NIS 40,000 to NIS 70,000 in tax that was never owed.

A second frequent error is treating the two-year cap as flexible. Departments extend appointments all the time, and an extension into a third year is often agreed casually by email. That single email can turn a fully exempt posting into a taxable one, and because Article 23 measures from the date of arrival, the third year is taxed at full Israeli rates with no partial relief. The time to model a possible extension is before the original offer is signed.

A third is forgetting the US filing side entirely. A US citizen or green card holder remains a US taxpayer throughout, must report the Israeli bank account opened to receive the salary on an FBAR (FinCEN Form 114) once the aggregate of foreign accounts exceeds USD 10,000, and may have a FATCA Form 8938 obligation as well. The Israeli exemption does not switch off any US reporting duty.

Practical Checklist

• Apply to the Israeli assessing officer for the Article 23 exemption certificate as soon as the contract is signed, allowing four to eight weeks before the first payroll date.
• File IRS Form 8802 early to obtain the Form 6166 certificate of US residency the Israeli application needs.
• Give the university's payroll department the Israeli certificate in its own name, and confirm in writing that withholding has been switched off.
• Count your intended days in Israel against the 183-day and 425-day residency presumptions before accepting the appointment.
• Separate any consultancy, grant, or paid-lecture income from the university salary and get advice on each strand.
• Confirm your National Insurance position with Bituach Leumi, since the income tax treaty does not cover it.
• Keep filing US returns and check your FBAR and FATCA reporting thresholds for the Israeli account.

Speak With an Israeli Attorney

We secure the Article 23 exemption certificate from the Israel Tax Authority before an Israeli university runs its first payroll, and we map the residency and National Insurance exposure that a two-year appointment creates for a US academic and a working spouse. Getting the certificate in place early is the difference between a clean exemption and a year-long refund fight.

Contact us for a confidential initial consultation.