Opening a small business unit exempt from vat in Israel
The exact analogue of the term “Osek Patur" is missing in English. This category includes businesses that are very small in terms of the annual turnover of funds and not obliged to charge the value-added tax on their services, VAT (MAAM in Hebrew).
From the very beginning, we want to point out that not in every branch dealing with the sale of services or goods it is possible for an individual entrepreneur to open a business of this type.
Therefore, the first step is to contact the audit office which will supervise your financial affairs.
The firm Brodetsky Shmuel Roe-Hesbon renders a full range of services, it is perfectly familiar with the local conditions and lets you receive faultless servicing. All aspects related to how to set up and register as an individual entrepreneur, which documents for opening the IE you will need will be covered in a full, accessible, and detailed.way
After agreeing to meet with the auditor (rohe-heshbon), make a list of questions missing nothing, take with you a copy of the identity card (teudat zehut) and a copy of the certificate of professional education that gives you the right to engage in a particular business. In addition, you should carry with you some order forms (hazmanot) confirming that your product or service is ordered.
Be sure to carry a sample or a description of the product or service that you are about to sell. This is necessary both to assess the feasibility of the idea, and to determine whether it is possible to open an Osek Patur in this area. Try to determine for yourself the name of the company – this will help when opening a bank account and registering.
Quite often, a tentative business plan is needed to determine the turnover of your business. The audit firm will either develop it independently or direct you to a specialist who specializes in it. In addition to saving you a lot of time and money on doing calculations, the specialists will also tell you how to get low-interest or interest-free loans from foundations for support of business initiative, to start and develop your business. Spending a few hundred shekels, you will actually acquire thousands or even tens of thousands to promote your business.
Many organizations in Israel work only with businesses that give tax receipts (heshbonit mas), or with Osek Murshe. This status in the eyes of customers and business partners appears more solid. What type of business (Osek Murshe or Osek Patur) is more profitable for you to open, the advantages and disadvantages of each type of enterprise, you can read about this on our website in the article “Patur or Osek Murshe – advantages and disadvantages" following the link.
Osek Patur (this should be remembered) is limited in the turnover of funds. The amount is recalculated each year. At the beginning of 2024, the turnover was limited to 120 000 shekels. What to do if this amount is exceeded, you will be prompted by the auditor.
Advantages of this form of business:
There is no need to issue tax receipts and to charge the value-added tax. You will only issue ordinary receipts (kabalot).
You need not report on the results of brief periods (every two months), all documentation is saved for the annual report.
All expenses involving office rent, equipment, hardware, consumables, the part of funds expended on trips around the city and in the countryside, other specific payments are considered as recognized and will be written off the annual tax. In a conversation with the auditor, you will receive a list of recognized expenses for your professional profile.
Our firm recommends opening a separate bank account for doing business, which makes it possible to clearly separate business expenses and profits from proceeds not related to business activity, household expenses, etc. The account can be opened simply in the name and surname of the entrepreneur, it may include the name of the business and personal information of its owner.
Registration in the VAT Department (MAAM)
Registration in the VAT Department (MAAM) is a compulsory stage, although small businesses that do not issue tax receipts do not allocate VAT. Any further steps are impossible without such registration.
Tax office (Mas Ahnasa)
Any business owner, small or large, applies to the tax office (Mas Ahnasa) for registration of the company. Our audit firm Brodetsky Shmuel Roe-Heschbon always accompanies the new entrepreneur, and completely takes over the filling in of complex documentation in Hebrew. An important point is to determine the tax rate. Initially, it is set quite arbitrarily. Experienced rohe-heshbon is able, based on certain laws, to reduce the percentage of tax or even to secure full exemption from the profit tax (ptor mal)for you in the first year, which will save you hundreds of shekels and help you to boost the turnover. This is especially important for the entrepreneur who is a new immigrant.
After registering with the Internal Revenue Service, you can already order receipt books (Pinkas Cabalot). All receipts must be typographically numbered with a designation of the name of the business. They are issued strictly in sequence, if a cancellation (bitul) is made, the consumer is obliged to return to you the first copy of the receipt to be attached to the book until submitting the annual report.
The National Insurance Service (Bituah Leumi)
The National Insurance Service (Bituah Leumi) is also an obligatory registration instance for you. For a novice entrepreneur, we properly formalize the documentation, and this allows you to get a serious discount on or full exemption from contributions (fees). Bituah leumi covers expenses for disability, long-term incapacity for work of the business owner and other insurance cases. Detailed information will be given to you by Brodetsky Shmuel Roe-Heschbon.
After completing all the above formalities and filling in the required forms, you can start an independent activity.
The auditor will teach you how to properly manage order books, account for the receipts and expenditures of funds, will explain the procedure for issuing receipts (strictly in order, each receipt in proper number of copies, etc.). All business expenses should also be documented (how – the expert will tell).
Rules of registration of Osek Patur for non-residents
Only a non-resident who is in the process of obtaining Israeli citizenship through the stepwise procedure of spouse legalization can register Osek Patur. At the same time, Osek Patur is finalized as a joint business of a foreigner and an Israeli citizen. In this situation, an Israeli plays the role of a guarantor before the tax authorities. When a foreigner completes the stepwise procedure and receives his teudat zehut, he will be able to change the registration of the Individual Entrepreneur to himself.
As you see, you have a solid and constant financial and legal support, given which you can safely start operations, advertise your company, acquire a clientele of regular customers and implement your ideas by offering goods and services.
Brodetsky Shmuel Roeh-Heshbon means getting all kinds of advice, support and help in various situations. Your success is our success too!
