Question: I have been living in Israel for many years and work as an office manager. But now I want a better work-life balance and the opportunity to do work that’s more interesting. I was thinking of setting myself up as a freelance translator, but my American friend told me that Americans can’t freelance without losing tons of money. Is this true?
It is true that freelancing as an American expat is more complex than doing it as a native Israeli or dual citizen of another country. This is because US Social Security requires citizens who are self-employed to pay 15% of their income for their retirement. Assuming that you pay Social Security for 40 quarters, you will receive Social Security benefits when you retire. An extra stipend after retirement is not a bad thing, but the question is, can you afford it now?
The Israeli government requires you to pay income tax and Bituach Leumi and deposit into your pension fund monthly. Once you pay all that and 15% Social Security, will you have enough take home pay to support yourself and your family?
Even if the answer is no, you can still have that work-life balance and inspirational work you’re looking for. There are a number of Employer of Record companies in Israel, which employ people in your situation. They are your official employer, paying you a salary and withdrawing all necessary payments. However, you are totally autonomous in your work. You decide which clients to take on, how much to charge, what hours to work etc. Your clients pay the EOR service and they pay your salary from the amount they have collected for you that month.
You will have to pay a fee to the EOR service, either a percentage of your income or a flat fee. If you expect to bring in a high salary, you are probably better off with a flat fee. If you expect to make a lower salary, a percentage-based fee might be a wiser choice. Before going the EOR route, calculate how much you would pay in Social Security vs. how much you would pay in fees to the EOR and see which is more worthwhile.
Working for an EOR is also a good solution if you work for only one company in the United States. It prevents you from having to open a freelance business in Israel and provides you with a less expensive way to receive your salary, without the added expense of Social Security payments.
Of course, there are additional factors that need to be taken into consideration, such as your income level, the nature of your business and how close you are to being eligible for receiving Social Security benefits. It’s best to consult with a CPA with an understanding of Israeli accounting issues before making a final decision.
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