Which form of small business is better to open – Osek Patur or Osek Murshe?
First-time entrepreneurs often ask the question — what type of company is more advisable to open? This question is especially relevant in Israel for small companies because there are two main options here — Osek Patur and Osek Murshe — and few know the differences between them. Below we will describe the main advantages of these types of business management and let you know which and when is better to open.
Special aspects of Osek Patur
The main distinguishing feature of this type of business is the absence of the need to pay Value Added Tax (VAT) from all trading operations. This fact gives it the opportunity not to add the amount of VAT to the value of goods and services for customers.
Special aspects of Osek Murshe
In its turn, this type of business is obliged to pay VAT from all of its trade transactions. But at the same time, the osek murshe has the right to refund VAT on incoming transactions necessary for the operation of the enterprise (purchase of raw materials, rent of premises, equipment, etc.). Thus, it is possible to refund a portion of the investment.
Advantages of osek patur as compared to osek murshe:
- Absence of VAT. Thus, the owner of osek patur can offer his private customers lower prices for his services as compared to other types of enterprises by deducting the amount of taxes without sacrificing the cost recovery.
- Reporting. Osek Patur submits only one final annual report to the VAT accounting service. Osek murshe, in its turn, is obliged to provide current reports every two months (and sometimes every month). At the same time, all the conditions of interaction with the tax administration and the national insurance service remain similar for both types of business and the difference concerns only the reporting and payment of VAT.
- Simple re-registration into osek murshe. In the event of an increasing turnover of the osek patur, it can easily become an osek murshe. But it should be remembered that in the month in which the turnover will exceed the permissible norm, it will be necessary to submit the report as an osek murshe and pay the VAT. However, from the same time the enterprise gets the opportunity to refund the input VAT.
Advantages of Osek Murshe as compared to Osek Patur:
- Anyone can open it. With osek patur, there are strict requirements for those who may choose to register such type of enterprise. So, the annual turnover of the business should not exceed 98707 shekels (correct for 2017, the amount changes annually). Representatives of some professions, such as architect, doctor, veterinarian, real estate broker, etc., cannot be registered as Osek Patur. Such specialists, to conduct private practice, must be registered as an osek murshe.
- Return of the input VAT. Osek murshe must pay VAT, but they have the opportunity to refund VAT on all purchases necessary for business development. This makes it possible to compensate for part of the investments, as well as to more profitably interact with other enterprises that have been registered officially as an osek murshe, because such companies can make the reciprocal payments of input VAT against submitted invoices.
- There is no upper limit to the turnover. Osek Patur does not have the right to exceed the amount of 98707 shekels per year. Otherwise, it actually loses all its advantages. This has given rise to a slightly negative reputation of this type of business as being both small and insolvent which will certainly not contribute to working with large customers. The osek murshe does not have any upper limit. Therefore, it can freely expand and work with large customers even in the already existing legal form of activity.
When is it better to register Osek Patur, and when Osek Murshe?
If you plan to work mainly with private persons (for example, to make tailor-made clothes at home or to mend shoes, etc.) and your estimated annual turnover will not exceed 98707 shekels, it is better to formalize your business as an osek patur and offer to your customers more favorable prices due to deduction of the amount of VAT. At the same time, there should not be a lot of expenses for setting up the enterprise (purchase of materials, purchase of premises, etc.), otherwise you will lose too much because of inability to compensate for the input VAT.
In the event when your main trading partners are companies, it is worth to register the osek murshe. So, you will be able to offer your customers the opportunity of mutual deductions for the incoming VAT. Also, this type of business should be formalized if significant investments are required to start the enterprise. Due to the return of the input VAT, they can be partly compensated.
In any case, it should be remembered that each situation is specific, therefore only a professional can correctly analyze and advise the right form of legal organization of the enterprise. Applying to the company “Shmuel Brodetsky Rohe Heshbon” you not only get help in selecting the type of activity for your future business, but also receive a full range of services for its registration in state institutions.