Media Centre

Financial Assistance Program Law

9 November 2023

Dear Clients and Colleagues,


The Israeli parliament recently passed the Financial Assistance Program Law (Temporary Order – Operation Iron Swords), 5784-2023, including certain amendments regarding the payment of expenses for placing employees on unpaid leave. Below we set forth a general description of the proposed compensation; details can be found in the Law itself. We will add a link to our “Client Update” with the law’s publication in Israel’s  “Official Gazette.”

Due to the complexity of the Law, we recommend that claims for compensation be submitted through expert professionals. Please reach out to any of the individuals below or another Herzog team member for further advice.

This client update broadly addresses the compensation structure for all businesses in Israel (the “green route”) but we note that a business operating in a “Border Community” (i.e. certain communities declared as such by the Minister of Finance) is entitled to full compensation for indirect damages due to the conflict in accordance with the Property Tax and Compensation Fund Law, 5571-1961 and regulations enacted pursuant to that law (the “red route”). Currently there are ongoing discussions regarding expansion of the list of Border Communities. We will update further once this is finalized.

In addition to the green route for all businesses in Israel and the red route for Border Communities, an additional category of businesses – those that operate within the “orange zone” as defined by the Home Front Command – may benefit from a third route which is set out in the Property Tax and Compensation Fund Regulations (Damages Payments) (Temporary Order – War Damages and Indirect Damages), 5784-2023 (the “Compensation Fund Amendment”), currently under review by the Knesset’s Finance Committee. We will send a further update once this program is finalized.

Businesses in a Border Community or the orange zone will also be permitted to make claims pursuant to the Financial Assistance Law’s green route, although parallel claims via both the Compensation Fund Amendment and the green route will not be allowed, and it is likely that compensation under the latter will be lower.

Our office has gathered a dedicated team of experts that can assist businesses and employers in submitting claims for compensation for damages. We would be pleased to assist you in reviewing your entitlement to compensation and proceeding with a claim.


The Green Route

In light of the current situation in Israel and the harm that has been caused to Israeli businesses, governmental compensation is not limited to Border Communities. The Financial Assistance Law sets out a broad framework for compensation for all Israeli businesses that were hurt by the ongoing hostilities. However, because all elements of the economy have suffered, the compensation offered by the Law is partial and will be given to cover fixed expenses expenses and salary costs only, in an attempt to help businesses cope with the current situation and its economic consequences.

The Law distinguishes between businesses with annual turnover of up to NIS 300,000 (“small businesses”) and those with turnover of between NIS 300,000 and NIS 400 million (“large businesses”). Those with turnover of more than NIS 400 million are not entitled to compensation under the Law.


Small Businesses

The compensation program for small businesses is relatively simple. The program requires that the business’s annual turnover decreased by at least 12.5% (for those who report on a bi-monthly basis). Compensation is paid as a fixed grant and is calculated based on the the size of the business. For businesses with an annual turnover exceeding NIS 107,000, the compensation amount will increase based on a “damage factor” set forth in the law (i.e. compensation will equal the set compensation times this “damage factor”).


2022 Turnover (NIS) Minimum Compensation (NIS)
12,000-50,000 1,750
50,000-90,000 3,150
90,000-107,000 4,200
107,000-150,000 2,650
150,000-200,000 3,125
200,000-250,000 4,000
250,000-300,000 4,675


Damage Factor According to the Level of Injury

Injury (September – October) Damage Factor
12.5-20% 1
20-30% 1.5
30-40% 2.4
40-50% 3


For example, a business with annual turnover of NIS 170,000, whose compensation would have been NIS 3,125 but suffered a 35% decrease in turnover will receive 2.4 times the compensation, or NIS 7,500.


Large Businesses

The compensation framework for large businesses consists of two components: compensation for fixed expenses and compensation for salary expenses. The first is intended to compensate the business for fixed expenses, such as rent, during the time that the business’s income was affected. This portion consists of the total monthly current expenses multiplied by the “fixed expenses factor”. The fixed expenses factor is an approximate and fixed percentage of fixed expenses; no proof of actual fixed expenses is required.

The second component compensates for wages paid during the period of hostilities despite the business’s income being affected, and is designed to incentivize the continued compensation of employees, provided that the total amount does not exceed a certain ceiling.


Compensation for Fixed Expenses: As mentioned, this component consists of the total current monthly expenses multiplied by the fixed expenses factor.

The total monthly expenses are determined according to the turnover input reported to the VAT authorities in the period between 1.9.2022 – 31.8.2023, including input with zero VAT (excluding input for the purchase of equipment), divided by 12. Thus, a business whose current input in 2022 was NIS 3.6 million will be deemed to have current monthly expenses of NIS 300,000.

The fixed expenses factor is derived according to the damage to the monthly/bi-monthly turnover during the eligibility period (i.e. the war) compared to the corresponding turnover in 2022 (the base turnover), according to the following:

Injury (September-October, Bi-Monthly Reporting) Injury (October, Monthly Reporting) Fixed Expenses Factor
12.5-20% 25-40% 7%
20-30% 40-60% 11%
30-40% 60-80% 15%
40-50% 80-100% 22%


For example, a business with monthly reporting and whose October 2023 turnover was 70% lower than that of October 2022 will [receive compensation for this component] of 15%. If the average monthly input (i.e. the total annual input divided by 12) of the same business was NIS 300,000, the compensation received would be NIS 45,000.

Compensation for Salary Expenses: This component compensates the business for wages paid in October despite its revenues having been harmed. The salary expenses are set according to the lower of: (i) 75% of the wages reported on Form 102 multiplied by 1.25 (which factor is intended to cover the employer’s costs) or (ii) the average salary in the market multiplied by the number of employees, multiplied by 1.25.

The salary costs are multiplied by the extent to which the turnover was harmed, resulting in “the qualifying salary portion”.

For example, a business that employs five people and reported a total salary of NIS 50,000 on Form 102 will have salary expenses of 50,000 * 0.75 *1.25, or NIS 46,875. This figure is then multiplied by the decrease in turnover. Using 70% as the example, the compensation for this component will be NIS 32,812.

In the foregoing example, the total compensation (fixed expenses and salary expenses) is NIS 77,812 (45,000 for fixed expenses and 32,812 for salary expenses).


The Claim Process

Claims may be submitted online from the 16th day of the month following the end of the eligibility period and up to 90 days thereafter. If certain conditions are met, the deadline for filing claims can be extended. Once a claim has been submitted, the “Manager” (an employee of the Tax Authority) will make a decision on the application within eight months; this period may be extended in certain cases by an additional 30 days. If no decision is made, the claim is considered accepted. In addition, if no decision has been made within 21 days of the filing, the business will receive an advance payment of 60% of the claimed amount. If no decision has been made within 150 days of the filing, an additional 10% advance will be paid.

The Manager’s decision may be appealed to  senior official in the Israeli Tax Authority. This decision can be challenged at an appeals committee, and a further appeal can be taken to the Court of Administrative Affairs.

Important Highlights

  • The compensation is for a decrease in income resulting from the current hostilities.
  • Businesses operating in Border Communities, which are entitled to pursue the red route (full compensation for indirect damage), may file a claim via the red route or the green route but may not pursue both simultaneously.
  • The compensation is capped based on the annual turnover of the business. For example, a business with turnover of up to NIS 100 million will be limited to NIS 600,000 in aid and those with turnover of NIS 300-400 million will be capped at NIS 1.2 million (For businesses whose turnover is between NIS 100 -300 million – there is a linear ceiling calculated according to NIS 600 plus 0.3% of the part of the turnover that exceeds NIS 100 million, but not more than NIS 1.2 million)
  • There are special provisions regarding applicants that are “public institutions” and kibbutzes.
  • There are special provisions for businesses that opened during 2022 or 2023, given that their annual turnover for 2022 is not representative.
  • Businesses with turnover greater than NIS 400 million are not entitled to compensation.
  • The transaction turnover of an injured party that is registered in the VAT register as part of the “Association of Dealers” will be examined in the context of the consolidated turnover of the Association, for the purposes of both determining entitlement and applying the compensation ceiling.
  • Special provisions were adopted for calculating damages for fuel and diamond dealers, contractors and farmers.
  • Different provisions were adopted regarding the eligibility period for businesses that use cash accounting and those that have consolidated financial reporting, as well as for those that use single-month reporting versus bi-monthly.
  • Subsidized entities (i.e. certain entities listed in Section 21 of the Budget Basics Law), healthcare entities, government companies, health funds, statutory corporations, financial institutions, and those whose inventory consists of rights in real estate, among others, are not entitled to compensation.


Relief and Other Changes for Employees on Unpaid Leave

Given that the ongoing hostilities have caused many employers to suffer financial hardship and to cope with employees that cannot be employed at their former levels, and in light of the fact that the compensation under law does not give a full refund for wages paid, certain temporary relief provisions have been added to the National Insurance Law (Combined Version), 5555-1995 regarding entitlement to unemployment benefits to those sent on unpaid leave. The following provisions will apply while the temporary order is in effect (currently from October 7, 2023 until the end of November 2023):

  • The minimum period of time for unpaid leave is at least 14 days (instead of 30 days).
  • The certification period for eligibility to pay unemployment benefits will be 6 months of employment out of the previous 18 months prior to the date of being sent on leave, instead of 12 out of 18 (and a disabled individual that receives a disability stipend need only have been employed for 3 months).
  • Unemployment benefits can begin regardless of the employee’s use of paid vacation days.
  • If the maximum entitlement period ends during the time for which the temporary order is in effect, it will be extended until the temporary order is lifted. Additional relief is available for residents of areas that were evacuated due to the war and were sent on unpaid leave.

The temporary order also sets out a special arrangement for women whose partner was called up for reserve military duty or to serve in an essential workplace, and who is the caregiver of a child up to age 14 or a child with special needs.

An employer who sends an employee on unpaid leave is exempt from paying the National Insurance Institute payments during the pendency of the temporary order.

If an employee is sent on unpaid leave after she returns from maternity leave, this period will not be counted in the 60 days of protection from termination according to the Female Employees Law, 5714-1954.

Given that the entitlement to unemployment pay is only conferred on those up to age 67, similar to the approach during the Corona crisis, a temporary order was passed stating that those over 67 who were sent on unpaid leave will also be entitled to compensation in place of unemployment pay.

Employers that wish to discuss the possibility of sending employees on unpaid leave are invited to contact us.

We will send further updates as this area develops.



With hopes for quieter days,

Tax Department, Labor Department

Herzog Fox & Neeman

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