During my search for a job I was offered a small amount of work as an independent worker. In the UK I would invoice for my work and declare my earning to the tax authorities in my annual tax return. This is not the case in Israel. Here you must declare your expected income and pay a specified amount to Bituach Leumi (ביטוח לאומי) each month based on that declaration.
To work as an independent in Israel you must be registered as Atzmai. Having done much research I would consider the process to be fairly straightforward, but as with anything in Israel, it involves 3 separate offices. I was told by many people I would need the services of an accountant, but do I?
Note, you can be registered as Atzmai and be an employee of a company.
There are two types of Atzmai (עצמאי).
1. Osek Patur (עוסק פטור)
An Osek Patur has declared earnings of less than NIS 77,993 (as of 1/2013) in any business year and is not required to charge Ma’am (מע’מ) / VAT. An Osek Patur may not reclaim Ma’am on business purchases. You may only issue receipts on payment, you do not invoice for work. If you exceed the NIS 77,993 throughout the business year you must request to change your status to Osek Morshe the following month. As an Osek Patur you are required to pay Bituach Leumi contributions once a month (initially based on your estimated income) and submit a tax return to Mas Hachnasa at the end of each year. Note, you can’t go back to being Ma’am / VAT exempt for 2 years following a change in your status.
However certain professions, including Accountants, Doctors and Lawyers are unable to register as Osek Patur and must be Osek Morshe.
2. Osek Morshe (עוסק מורשה)
An Osek Morshe has declared earnings of more than NIS 77,993 (as of 1/2013) in any business year and is required to charge Ma’am (מע’מ) / VAT. An Osek Morshe is entitled to reclaim Ma’am (מע’מ) on business purchases. You may issue an invoice.
A separate business bank account is not required. The business year in Israel is from 1 January to 31 December.
The following three steps are required to register as Atzmai (עצמאי).
1. Ma’am (מע’מ) / VAT (Sales Tax)
Once you have decided whether you are an Osek Patur or an Osek Morshe you will need to go to your local Ma’am office. Here you are required to open a file / Tik (תיק) with you Teudat Zehut (תעודת זהות) after which you are issued a certificate showing your Atzmai status. You may also need to take your checkbook with you.
Note, if you have a joint bank account you will both need to be present and both with your Teudat Zehut.
It is time to buy a Pinkas Kabalot (פנקס קבלות) / receipt book and a stamp with your name and business number (this will be your ID number) from a stationery store.
2. Mas Hachnasa (מס הכנסה) / Income Tax (IRS)
You will need to find the section for Oved Atzmai. The Mas Hachnasa will ask to see your certificate from Ma’am and complete the necessary forms. Once registered you are required to complete a tax return each year (you may opt to have an accountant assist with this). If necessary, an account book can be purchased from a stationery store. In the first 12 months of aliyah olim are exempt from income tax on income up to approximately NIS 105,000. The exemption is calculated on a points-based system and it reduces on a sliding scale up to 3.5 years from the date of aliyah.
You may also want to speak to an accountant about deductible expenses, especially if you work from home.
Once a year you will be required to file a tax return. Tax forms are usually sent out in February of the following tax year and you will have until 30 April to submit these forms.
3. Bituach Leumi (ביטוח לאומי) / National Insurance (Social Security)
Finally, download and complete the form 6101 from the Bituach Leumi to open a Tik (this is for payment of National Insurance contributions). You may have to provide previous pay slips. Also required is confirmation from your bank showing ownership of your bank account. The form can be mailed, faxed or given in person at your local Bituach Leumi office.
Bituach Leumi will take between 6.72 – 11.23% for Bituach Leumi / National Insurance contributions and between 3.10 – 5.00% for Mas Briut (מס בריאות) / Health Insurance contributions. Olim are exempt from Bituach Leumi for a period of 12 months, unless income exceeds the set minimum. Otherwise you are required to pay a minimum of NIS 161.00 (as of 1/2013) per month to Bituach Leumi regardless of whether you are working or not (a woman who is married to an insured person and who does not work outside her home is exempt). Contributions will be assessed annually based your tax return.
Note: Under the State Health Insurance Law, all Israeli residents must pay health insurance contributions from their income. Persons who do not work and who do not have income from any source (a woman who is married to an insured person and who does not work outside her home is exempt) pay a minimum health insurance contribution of NIS 101 (as of 1/2013).
In order to de-register from these statuses, you must complete a form for Ma’am and inform Bituach Leumi.
Links to forms and relevant information.
The following information is to be used as a guide only and for accurate information about becoming an Atzmai, the services of a professional should be sought.
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An older version of the guide appeared on my blog.