As promised, I am putting together a step-by-step guide with all the links to official forms and contacts for getting registered as a freelancer or a self-employed business owner here in Israel.
Initially, I intended to do an overall guide for private business registration, but taking into account that I am making baby-steps in the Israeli small business world, I decided to start by describing the process that I went through to register as a small private business – VAT exempt trader (“osek patur” in Hebrew.)
First of all, a few words about why I decided to become a freelancer. Company X hired me as a freelancer to do some internet research and asked me to provide an “osek” number so they could pay me (originally “osek” in Hebrew means someone who is doing business in Hebrew). Anyways, I needed to get it done finally. At first, I feared the bureaucracy of the tax authorities and preferred my employers to do the paperwork for me. As a result, I turned down some offers from NGOs in Israel, which generally prefer to pay as “osek” instead of entering into an employee-employer contract. In reality, I discovered that becoming “osek” is not rocket science and one can do it even with limited Hebrew.
Let’s look closer to my initial conditions to register as an “osek patur.” I had an offer to work on a freelance basis with a company, which needed me to do some research for them. Plus, I had some ideas about how I can earn money by doing other services like content writing, translating and online marketing. For all these services I wanted to be paid officially and on a contract basis.
What qualifies one to be a small business owner or an “osek patur” in Israel?
There are two options for small business forms– ”osek patur” or ”osek murshe”. Much has been written about these two types of small businesses both by private people and consulting (see useful links below). In short, the difference is in the VAT dealing, size of possible earnings and accounting procedures.
I asked myself two critical questions to be sure about my choice.
How much I expect to earn a year? Do I need to have expenses on equipment or other business related expenses, so that I can get a VAT-return?
I was not expecting to earn more than 100,000 NIS a year, and this sum was eligible for “osek patur” status since its annual earning is limited up to 99,003 NIS for 2018. It can change every year, if you see that the sum will be exceeded, you can always upgrade to “osek morshe” status (above 99 003 NIS limit).
Also, I am only going to use my laptop and a working table at home, so I do not need to buy any equipment for the time being. I was OK with the second criteria. No need to become a medium-business (“osek murshe”) and pay the 17% VAT on every shekel I earn.
What I did not foresee is the list of eligible professions. The “osek patur” can be opened only by certain professionals, excluding doctors, veterinaries, teachers, writers, business consultants, etc. Check for the full list here. Luckily I still qualified for the “osek patur,” as my services for the first company were pure research. I reached out to my fellows in the “osek patur” field, who earn as translators and they told me there are different interpretations of what is translation work and it is not so critical if you find an optimal wording with a contractor. Anyways, it is advised to consult professionals on this issue. You can make an appointment to get a free consultation at the Israeli Tax Authority.
After clarifying what suits my particular case, I went to my local Tax Authority office (part of the Finance Ministry and also known as Income Tax Office or Rashut HaMissim.)
Here’s a step-by-step guide on how to register as a small business owner – “osek patur”
- Finding your local Israeli Tax Authority office. Check here the addresses according to your hometown and work hours. If you live in Haifa, you need to get to downtown at HaPalyam 15. I arrived at a tall government building, past regular bag checking for security and went to 7th floor, where officials dealt with Sale Tax (known as Ma’am or VAT) and took a number for the line. Not so many people, as I arrived by 11.00 and most probably early morning visitors have already left.
- When my number appeared on the screen, I went to the assigned desk and presented the form 821 that I already filled up in Hebrew earlier at home. Here you need to give basic details about your business, including name, ID, address, description of the business and expected annual revenue. Plus, you will be required to provide copies of your Israeli ID, a check from an Israeli bank in your name. As a business address, I indicated my home address. The official asked me questions to confirm what I wrote in the form, I showed a copy of my first services contract, and it was fine. After this short process, I got an A4 size black and white paper with a number and my name on it. This whole procedure that was called opening a “tik” or a file to be a business owner took less than 10 minutes.
- Next, I went down to the ground floor that would be Income Tax (Mas Hachnasa in Hebrew). There I handed them two other forms I filled up earlier at home – form 5329 and 2542. Here I gave basic details about myself and my business. While earlier forms were all about individual details, the Income Tax file is joint between husband and wife. If you have one, bring with you details of your spouse. I also showed a number of my “osek patur” I got earlier on the 7th floor. The officials told me that I will get a letter by post and will understand what to do next. I guess, the letter will explain to me how I am going to report my taxes.
- At last, I went to other building – the National Insurance Institute of Israel (Bituakh Leumi in Hebrew), which is luckily just across the street – 8 Pal-Yam Blvd. Check other branches’ addresses here. I went to the first floor, took a number for the line and waited my turn. Here I had to file another form – 6101. I gave the necessary details about myself and my business, including other employment, the number of weekly hours I will be spending on the business and my expected average monthly profit. These serve to assess National Insurance contributions. This visit also took less than 20 minutes including the waiting in line.
- Having finished with the government officials, I looked up information on how to issue the invoice for the first part of my services. After checking a few options on Google search, I ended up with online service company Invoice4you, which is marketing itself as one of the oldest and best for digital invoices in Israel. The company offers one month free trial for new users and a telephone consultation on how to navigate the website. The regular monthly cost for using their services is 15 NIS. I printed my first invoice with the help of the consultant and sent it to my contractor together with the number of my “osek patur”, that I received at above-described step 2, details of my bank account. The next two hours the money was already in my bank account.
Next, I will have to repeat the process described in point 5 and wait for the envelope with instructions how to file my tax details. I will write about it once it happens.
Here are more useful resources to help you with private business registration and understanding basic taxation in Israel: