Keren Hishtalmut: the little-known tax advantage for employees

The Keren Hishtalmut

(training fund) is a medium-term savings fund, often offered by the employer, that combines two rare tax advantages: a tax reduction at the time of payment and a full exemption on exit. Many French-speaking employees in Israel benefit from it without really understanding why this line appears on their payslip, or how to get the most out of it.

What the Keren Hishtalmut is, in concrete terms

Literally, keren hishtalmut translates as "advanced training fund" or "continuing education fund". Originally, this scheme was meant to finance employees' professional training. In practice, it now works mainly as a medium-term savings plan, funded jointly by the employer and the employee, with particularly advantageous tax treatment as long as certain rules are respected.

Unlike the retirement pension (Keren Pensia or Bitoua'h Menahalim, managers' insurance), the Keren Hishtalmut is not compulsory for the employer: it is a benefit that the employer chooses, or not, to offer employees, sometimes negotiated at the time of hiring or a change of role.

How the contribution is split

The principle rests on a shared contribution, in which the employer generally pays a larger share than the employee. This split, as well as the salary ceiling that determines the part of the payment benefiting from the tax advantage, can vary between companies, the agreements in force and legislative changes. To know the exact rate applied in your case and the ceiling in force at the time you read this, it is better to check directly with your employer, your accountant or your broker, as these parameters are revised regularly.

The double tax advantage that makes the scheme special

What makes the Keren Hishtalmut interesting is the combination of two mechanisms which, taken separately, already exist elsewhere, but which, together, are fairly rare.

It is this double mechanism, deduction on entry and exemption on exit, that explains why many financial advisers in Israel present the Keren Hishtalmut as one of the most tax-efficient savings tools available to employees, within the limits set by law and subject to the conditions applicable to your situation.

An early withdrawal is not always a good idea

Withdrawing the funds before the six-year deadline remains possible in most cases, but this generally means losing the benefit of the tax exemption on exit. Before dipping into this account for a one-off need, it is useful to measure the real cost of this early withdrawal, which can prove significant once tax is applied. For a decision of this kind, personalised advice remains preferable to a general rule, as individual situations differ so much depending on the amount accumulated, the age of the account and the project being financed.

And for self-employed people?

Self-employed workers can also open a Keren Hishtalmut, but under rules and ceilings of their own, different from those applying to employees. The general principle of deduction and exemption remains comparable, but the thresholds and conditions deserve to be checked case by case with a professional, in particular if the activity generates income that varies from one year to the next.

Why employers offer this fund

For the employer, offering a Keren Hishtalmut represents a cost, but also a valued retention tool in a labour market where this kind of benefit is common, particularly in certain sectors such as technology or skilled professions. It is sometimes included from the job offer, sometimes negotiated later, on the occasion of a promotion or a salary renegotiation. If your current employment contract does not provide for one, it may be worth raising the subject directly with your employer or your human resources department, in particular if colleagues in a similar post already benefit from it.

What to check before signing

Before opening a Keren Hishtalmut, or accepting the one a new employer offers, a few points deserve your attention: which insurer or management company runs the fund, which investment track is offered by default, and what management fees apply over time. As with a pension account, in many cases you can choose your own provider rather than put up with the employer's default choice. A broker can help you compare the available options and check that the conditions really fit your profile and your savings horizon.

A tool to fit into an overall savings strategy

The Keren Hishtalmut

does not replace a retirement pension: it comes rather as a complement, as a medium-term savings reserve, more flexible than a classic pension account since it becomes available after only a few years. To understand how it fits with your other arrangements (Keren Pensia, Kupat Gemel (provident fund), life insurance), our Retirement Insurance page presents an overview of the savings and protection solutions available in Israel.

If your employer offers you a Keren Hishtalmut, or if you are self-employed and want to assess whether it suits your situation, contact us : we can help you understand the precise conditions applying to your case and the best way to make use of it.