israeli-freelancer-service-agreement

Israeli Freelancer Service Agreement

Legal notice

This is a free information tool operated by an AI model. It explains the law and the procedure and helps you organise your own documents. All of its outputs are produced automatically by an AI model, with no involvement, review, or approval by an advocate. The output is not legal advice and not a legal opinion, but a general explanation and a template only: it does not read the full file of your matter, does not check current case law, and does not examine your specific circumstances. An AI model may err, omit data, or present a wrong conclusion.

Any text this tool drafts is an automatic draft for your personal preparation only. It is not a document prepared by an advocate and must not be relied on as evidence. This tool is not a substitute for advice that takes account of the particular circumstances and needs of each person. Before starting proceedings, signing a document, or filing with an authority or a court, consult an advocate. All use of its output is the user's sole responsibility.

Problem

Israeli freelancers (עצמאים) routinely start projects on a handshake or a one-line email, then get burned two ways: a client pays 90 days late with no recourse, or, worse, a long engagement ends with the "contractor" suing for retroactive recognition as an employee and winning severance, pension, and back-benefits because the relationship looked like employment. A generic downloaded contract does not account for Israeli law: the reclassification tests, the default copyright rule that leaves IP with the freelancer, the statutory payment timing, or the VAT framing. This skill drafts a service agreement built around exactly those Israeli rules.

Instructions

This skill drafts a bilateral service / contractor agreement (agreement for the provision of services) from the freelancer's side. Work through the steps; produce the contract in Hebrew (RTL) because it is governed by Israeli law and will be read by Israeli parties.

Always tell the user, once, that this is a drafting aid and not legal advice, and that a lawyer should review the agreement before signing. This is especially important when money or IP is significant.

Step 1: Gather the deal facts

Collect the minimum needed to draft:

Field	Why it matters
Provider name + ID no./company no., status (exempt dealer / authorized dealer)	Drives the VAT and invoicing clause
Client name + ח.פ./ע.מ., business or private	Drives payment-law applicability (the 2017 law applies to business clients)
Is the contracting entity Israeli-registered?	Decides whether the payment law and the VAT clause apply at all (see below)
Services / deliverables	The scope clause and IP clause
Fee + structure (fixed, hourly, monthly, milestones)	The consideration clause
Payment term wanted (e.g. current+30)	Overrides the statutory default
Who keeps the IP	Decides whether to assign or license deliverables
Term and notice	Termination clause

If the user does not know a field, use a sensible default and flag it in a "review these" list at the end. Never invent the parties' identifying numbers.

Ask the foreign-entity question before drafting anything else. Israeli startups routinely contract through a foreign (often Delaware) parent. If the counterparty is not an Israeli-registered business, two whole sections of this skill stop applying:

The payment law does not apply. The Payment of Suppliers Law keys its business tier off "עסק", defined in Section 2 as a financial institution, עוסק מורשה, or עוסק פטור under the VAT Law. A foreign entity is none of those, so שוטף+45, the interest regime, and the non-derogation rule are all unavailable. Every payment protection must then be written into the contract from scratch.
The 18% VAT line may be a pricing error. Under Section 30 of the Value Added Tax Law, a service supplied to a foreign resident can be zero-rated. It is not automatic: the benefit is denied where the service is in fact also supplied to an Israeli resident, and a single Israeli beneficiary defeats it. Flag it and route the user to their רואה חשבון rather than picking a rate for them.

Step 2: Decide the independent-contractor framing (the most important step)

Israeli labor courts ignore the contract's label and apply the mixed test (מבחן מעורב), dominated by the integration test (מבחן ההשתלבות): is the freelancer a separate business, or an integrated part of the client's organization? If it looks like employment, the freelancer can later sue for retroactive recognition (recognition in retrospect) and collect severance, pension, vacation, sick days, holidays, and Havra'a.

What actually protects the freelancer from a surprise reclassification is the real facts, not the contract wording. So:

Include an independent-contractor declaration stating the provider runs its own business, bears its own tax, Bituach Leumi, and pension, and that the parties intend a commercial, not an employment, relationship. Courts give this evidential weight only (per ע"ע 300256/98 Uri Eizik) and will apply the integration test to the real facts, so never present the label as decisive.
Build in operational separation that the contract reflects: own tools, own hours, freedom to serve other clients, no company email, no exclusivity, invoicing per deliverable, and an express right to use subcontractors (no personal-performance requirement, which itself helps the contractor case).
Understand the set-off / gross-up clause correctly before using it. It says that if a court later finds employment, the fee is treated as already inclusive of social rights and the excess over a comparable employee wage is set off against any award. This clause protects the client, not the freelancer: it is the client's tool to claw back the "contractor premium", it is enforced only in narrow cases (express term plus a fee markedly above a comparable salary), and a court is not bound to honor it. Do not sell it to the freelancer as their shield. It also cannot waive non-waivable (cogent) labor rights. Leave it out of the freelancer's own draft by default (the script adds it only with --setoff), and include it only when the client asks for it.

Step 3: Draft the consideration, payment, VAT, and withholding clause

State the fee and structure, then set an explicit payment term. Under the Payment of Suppliers Law, 5777-2017, if the contract is silent and the client is a business, the default is current+45 (no later than 45 days from the end of the month the invoice was submitted). A freelancer is better off naming a shorter term (e.g. שוטף+30 or שוטף+0), and reserve the right to suspend work on non-payment.

Four things about this law that most drafts get wrong. Full tier table and statutory text are in references/legal-reference.md:

The tiers are not "government is shorter". Ministries and state authorities pay 45 days from invoice delivery, or שוטף+30 when counted from month end, and they have no contract-out clause. Local authorities are שוטף+45, rising to שוטף+80 for building works. Only the business tier and the budgeted-body tier can vary the term at all. Look up the payer's tier; do not assume.
The statutory interest is not automatic in B2B. Under Section 4, the interest and דמי פיגורים remedy reaches a private-business client only where that client had priority in shaping the contract terms (superior power in shaping the terms). A freelancer who supplies their own draft may have argued themselves out of it. So write interest in as an express contractual term, and reference the statute only as an additional, non-exclusive remedy.
The law is a floor, not a ceiling. Section 7 provides אין להתנות על הוראות חוק זה אלא לטובת הספק: the parties may contract only in the supplier's favour. This is the direct answer to a client pushing pay-when-paid terms.
A bounced invoice restarts the clock. Under סעיף 3, if the invoice is missing a material detail or the contractual conditions for payment were not met, the client returns it and the invoice is treated as never delivered. The check period is capped at 23 business days for business clients, but B2B parties may contract out of that cap, so a freelancer's own draft should fix it expressly and require the client to itemise the deficiencies in writing.

State VAT correctly and unambiguously, because a wrong VAT framing is a direct error in the price:

authorized dealer: "the fee is exclusive of VAT; VAT at 18% (as of 2026) will be added against a חשבונית מס." Say "exclusive of VAT" explicitly, since a bare number with no "+VAT" wording can be read as VAT-inclusive.
exempt dealer: "the provider is an עוסק פטור and does not charge VAT; a receipt will be issued." Add that if the provider crosses the turnover cap (122,833 ₪ for 2026) and converts to עוסק מורשה, VAT applies from that point.

Allocation number (allocation number). Under the חשבוניות ישראל model, from 1 June 2026 a tax invoice above 5,000 ₪ before VAT between dealers must carry an allocation number from the Tax Authority, or the client cannot deduct the input VAT. An עוסק מורשה billing a business client above that amount should state in the invoicing clause that the invoice will carry one, so a client does not hold payment over it.

Add a withholding-tax clause (withholding tax at source): in Israeli B2B, the client may be legally required to withhold tax from the payment unless the freelancer hands over a valid bookkeeping approval and an exemption certificate / reduced rate for withholding tax at source. State that the provider will furnish these certificates, failing which the client withholds at the statutory rate. Without this clause the freelancer is blindsided when the first payment arrives net of withholding.

Step 4: Draft the IP clause

This is the clause clients get wrong. Under the Copyright Law, 5768-2007 (section 35), the default owner of a commissioned work is the CREATOR (the freelancer), not the client. (Contrast: section 34 gives an employer the copyright in an employee's work; a commissioned portrait or family-event photo defaults to the commissioner.)

Do not tell the freelancer that silence protects them. section 35 displaces the creator default where the parties agreed otherwise expressly or impliedly, expressly or by implication. A client can and does argue an implied transfer from the commercial context: bespoke work, full payment, source files handed over, deliverables deployed to customers. So the freelancer who wants to retain anything must say so in writing, exactly as a client wanting to own it must. Note too that under section 37 an assignment of copyright requires a written document, which is why "we agreed on a call" transfers nothing.

So decide and draft explicitly:

If the client should own the deliverables, expressly assign the economic rights, typically on full payment.
If the freelancer is retaining anything, say so expressly. Silence is not retention.
Moral rights (the moral right), attribution and integrity, are personal and non-assignable under section 45. Two things follow that most drafts miss. First, section 45 excludes computer software outright, so for a pure software deliverable there is no moral right to assign, waive, or worry about (typefaces are also partly carved out). Second, the Copyright Law provides no general waiver mechanism: under section 50 an act touching the integrity right is simply not an infringement where it was reasonable in the circumstances, and the court expressly weighs the fact that the work was commissioned. So draft consent to specified modifications plus an attribution arrangement, not a blanket "waiver of moral rights" that the statute does not recognise.
Inventions and source code. The Copyright Law covers code and designs, not inventions. Under the Patents Law, 5727-1967, section 132 vests a service invention in the employer only where the inventor is an employee, so an invention a contractor makes stays with the contractor unless the contract assigns it. A startup client will insist on this (investor due diligence checks it), so address inventions expressly, together with delivery of source files and a list of open-source components and their licences on full payment. Decide who owns inventions (--inventions provider or client in the script) instead of leaving it to the general IP assignment. The provider default keeps the invention with the freelancer and grants the client a non-exclusive, irrevocable, perpetual, royalty-free licence covering derivative versions. Where the invention is the startup's core technology, expect the client to demand exclusivity or client, and negotiate that price.
The freelancer keeps rights in pre-existing tools, know-how, and general methods, and third-party / open-source components are licensed, not assigned (the freelancer often cannot transfer them).

Step 5: Add the scope-protection and standard clauses

Displace the Contractors Law defaults deliberately. This is the statute that actually governs the contract being drafted: section 1 defines a contractor agreement as a contract for work or services for payment where the contractor is not the client's employee, and section 8 makes its rules apply only where the agreement does not provide otherwise. Two of its defaults matter enormously. Under section 4, if the freelancer does not cure a defect in reasonable time the client may fix it at the freelancer's expense or unilaterally deduct the drop in value from the fee, with no notice at all for urgent defects. Bound that: cap any set-off, require written substantiation and a real cure window, and route disputes to the acceptance procedure rather than to self-help. Working in the freelancer's favour, section 5 grants the contractor a lien (right of lien) over client property held for the work until sums due are paid, and section 3 bars the client from relying on a defect it failed to notify in reasonable time. Preserve both expressly; do not let a broad acceptance clause be read as giving them up.
Acceptance and revisions: define how the client signs off on a deliverable, a deemed-acceptance window (e.g. silence for 7 business days = accepted), and how many revision rounds are included. "What counts as done" is where payment disputes live, so do not push it into an empty annex.
Termination and accrued fees: state the notice period AND that on termination the freelancer is paid pro-rata for work done and approved expenses; for a cancelled fixed-price project, add a kill / cancellation fee based on progress. Without this, a designer terminated mid-project gets nothing.
Confidentiality (confidentiality), surviving termination.
Restraint of trade: default to a narrow trade-secret + non-solicitation clause, NOT a broad non-compete. A bare non-compete is generally unenforceable in Israel; courts enforce a restraint only to protect a legitimate interest like a real trade secret and only if reasonable in scope, time, and geography (CA 164/99 Check Point v. Redguard).
Liability cap + mutual indemnity, with carve-outs for willful misconduct, IP infringement, and confidentiality breach. Make indemnity mutual: the client should indemnify the freelancer for client-supplied materials and for client misuse of the deliverables. Optionally require professional liability insurance (professional liability insurance) if the client is a company or public body.
Data protection: if the freelancer processes the client's personal data (a developer touching a user database, a marketer handling a CRM or mailing list), add a clause defining the freelancer as a processor with security obligations and breach notification, per the Privacy Protection Law and its Amendment 13 (in force August 2025).
Term, termination, and notice; governing law (Israeli) and jurisdiction, noting that classification disputes go to the labor courts regardless of a forum clause.

Step 6: Generate and hand off the draft

Assemble the Hebrew agreement. You can produce it directly, or use the helper script for a consistent skeleton:

python3 scripts/build_agreement.py --provider "ישראל ישראלי" --provider-id 000000000 \
  --client "חברת לקוח בעמ" --client-id 510000000 \
  --services "עיצוב גרפי וניהול מותג" --fee 8000 --vat murshe --payment-net 30 \
  --out agreement.md

Switches: --foreign-client (drops the payment-law framing and leaves the VAT rate to a CPA), --personal-data (processor clause), --recurring (monthly fee), and --setoff (the client-protective reclassification set-off clause, off by default). The script warns when a --vat patur fee alone exceeds the osek patur ceiling. Late interest is drafted by reference to the rates under the Interest and Linkage Adjudication Law, 5721-1961, so the clause is not left without a rate.

End with a short "review these before signing" list (any defaulted fields, the IP choice, and the recommendation to have a lawyer review).

Examples

Example 1: Designer with a new client

User says: "I'm a freelance graphic designer (osek murshe). New client wants a 6,000 ₪/month brand retainer. Draft me a contract."

Actions:

Gather facts; set fee 6,000 ₪/month +VAT, payment current+30, designer keeps IP until paid then assigns deliverables.
Add the independent-contractor declaration. Leave out the set-off clause (it protects the client) unless the client asks for it, and then explain what it does.
Generate the Hebrew agreement and list "review these": notice period, insurance requirement.

Result: A draft Hebrew service agreement (הסכם למתן שירותים) for the designer to adapt and have reviewed before sending, with VAT and IP handled correctly.

Example 2: Developer worried about reclassification

User says: "I've been a 'contractor' for one company full-time for 2 years. They want a new contract. What should it say so I'm not treated like an employee?"

Actions:

Flag the elevated reclassification risk (single client, full-time, long duration = strong integration-test markers).
Draft the declaration (no set-off clause unless the client demands it), AND advise concrete operational changes (own tools, serve other clients, no company email), explaining the clause alone is not decisive.
Suggest, where relevant, the user consult a lawyer given the exposure.

Result: A contract plus a practical risk-reduction checklist, with realistic expectations.

Bundled Resources

Scripts

scripts/build_agreement.py -- Assembles a Hebrew service-agreement skeleton from parameters. Run: python3 scripts/build_agreement.py --example

References

references/legal-reference.md -- Clause-by-clause grounding in Israeli statute and case law (reclassification, payment law, IP default, VAT, non-compete, insurance).
references/domain-checklist.md -- Coverage checklist the agreement is drafted against.

Gotchas

Do not promise the contract label protects against reclassification. Agents tend to write "the parties agree there is no employment relationship" as if it settles the matter. It does not: Israeli courts treat the label as evidence only and apply the integration test to the real facts. Always add the honest caveat.
Do not assume the client owns the deliverables by default. The intuition from many jurisdictions is wrong here: under Section 35 of the 2007 Copyright Law, a commissioned work defaults to the freelancer.
But do not tell the freelancer that silence protects them either. The same Section 35 displaces the creator default on agreement "expressly or implicitly", express or implied. A client can argue an implied transfer from the commercial circumstances. Retention must be written down, not assumed.
Do not draft a moral-rights waiver for software. Section 45 excludes computer software from moral rights entirely, so the clause is inert in a developer's contract. Even for design and copy, the law provides no general waiver: use consent to specified modifications plus an attribution arrangement, and rely on the Section 50 reasonableness standard.
Do not leave payment timing silent and "rely on the law." The statutory default (current+45) is the worst case for the freelancer. Always set an explicit, shorter term.
Do not promise statutory late-payment interest in a B2B contract. Under Section 4 that remedy reaches a business client only where the client had an advantage in shaping the contract terms, which is exactly what a freelancer-supplied draft undercuts. Make interest an express contractual term instead.
Do not ignore the Contractors Law. It governs this contract type by default and hands the client a unilateral fee-deduction right under Section 4. A draft that never mentions it leaves that weapon live and leaves the freelancer's Section 5 lien unclaimed.
Do not draft a broad non-compete. A sweeping "shall not compete for 2 years" clause is usually unenforceable in Israel and signals an employment-like relationship. Use a narrow trade-secret / non-solicitation clause.
Do not state VAT generically. Whether VAT is added depends on the provider's status (osek patur charges none). Getting this wrong is a direct error in the price the client pays. The rate is 18% (from 1 January 2025), not the old 17%. State the fee as "exclusive of VAT" so a bare number is not read as VAT-inclusive.
Do not forget withholding tax (withholding tax at source). Israeli business clients often must withhold tax unless the freelancer provides a valid certificate of bookkeeping management and withholding-tax certificate. If the contract is silent, the freelancer is surprised by a payment that arrives net of withholding. Always include the certificate clause.
Do not sell the set-off clause as the freelancer's protection. It is the client's tool to claw back the contractor premium if the relationship is reclassified, it is rarely enforced, and it cannot waive non-waivable labor rights. The freelancer's real protection is operational separation, not contract wording. Never recite in the freelancer's own draft that the fee is "higher than a comparable employee wage": in a later reclassification claim that sentence is the client's evidence.
Do not assign moral rights. Moral rights (the moral right) are personal and non-assignable under the 2007 Copyright Law. Assigning "all rights including moral rights" is partly void; use consent to specified modifications plus an attribution arrangement instead, and carve out third-party / open-source components the freelancer can only license.

Reference Links

Source	URL	What to Check
Copyright Law 2007	https://www.nevo.co.il/law_html/law00/3953.htm	section 34 / section 35 ownership defaults, section 45 moral rights
Contractors Law 1974	https://www.nevo.co.il/law_html/law00/71886.htm	section 4 client set-off, section 5 contractor lien
Prompt Payment to Suppliers Law 2017	https://www.nevo.co.il/law_html/law00/144599.htm	payment tiers, section 7 non-derogation
zero-rate VAT for a foreign resident	https://www.klf.co.il/tax-updates/zero-rate-vat-understanding-section-30-a-5-of-the-value-added-tax-law	when a foreign-client fee is zero-rated
full rights: authorized dealer	https://www.kolzchut.org.il/he/%D7%A2%D7%95%D7%A1%D7%A7_%D7%9E%D7%95%D7%A8%D7%A9%D7%94	VAT added at 18%
Civil Appeal 164/99 Check Point v. Redguard	https://he.afiklaw.com/caselaw/2573	non-compete enforceability standard
professional liability insurance	https://www.bizreviews.co.il/article/professional-liability-insurance-guide	professional liability cover

Troubleshooting

Error: "The client says they own everything I make for them"

Cause: The client assumes a work-for-hire default that does not exist for contractors in Israel. Solution: Point to section 35 of the 2007 Copyright Law (commissioned work defaults to the creator). Caveat the freelancer needs to hear: that default is displaced by agreement "expressly or implicitly", so a client can argue an implied transfer from the commercial context. Do not rest on silence. Put the allocation in writing either way, and negotiate assignment on full payment.

Error: "Is the no-employment clause enough to protect me?"

Cause: Over-reliance on the contract label. Solution: No. It is evidential only. Combine the clause with real operational separation (own tools, own hours, multiple clients, no company email) and, for high exposure, advise a lawyer.

Error: "The client wants to pay 'when they pay their client', is that allowed?"

Cause: Pay-when-paid terms that push beyond the statutory default. Solution: If the client is an Israeli business, the law answers this directly. Section 7 provides that its terms may be varied only in the supplier's favour, and the business tier allows a different term only where the engagement's special character requires it or the term is not exceptionally unfair. A pay-when-paid clause tied to a third party's behaviour is neither. Set an explicit term instead. If the client is a foreign entity, none of this applies and the term must be negotiated on its own.