Q: How do I Register as a Self-Employed Individual (Atzmai) in Israel?
Learn the basics of self-employment in Israel, from registration as an Atzmai to taxes and beyond.
Hundreds of thousands of people in Israel have made the choice to be self-employed, and you can too. Working for yourself gives you the freedom to set your hours and choose who you work with. Here we will break down the basics of becoming a self-employed individual, known as Atzmai, in Israel. You’ll be on your way to starting your independent business in no time! The information here should not be used in place of legal counsel.
The basics of Atzmai in Israel
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To work as an independent contractor in Israel, you will have to register as a self-employed individual (Atzmai). To do so, you will have to reach out to three different Israeli offices, namely income tax, value-added tax (VAT), and the National Insurance Institute (NII). If you are a foreign national and you want to work in Israel, you will need a work permit. To register for atzmai, an Israeli ID is needed, so unless you obtain citizenship or open a limited liability company, you will need a resident to act as a business representative for you. It can be helpful to use an umbrella company or an agent to help you sort all of this out and sponsor a permit for you.
Two types of Atzmai
Before registering, you must know that there are two types of Atzmai in Israel. There is the Osek Patur and the Osek Morshe:
Osek Patur is the standard small business structure that people just starting out often use. Not all professions can register as Osek Patur, like doctors and lawyers, so be sure to make sure your business qualifies. You cannot be classified as Osek Patur if you make over 100,000 shekels annually. If you do make more than that per year, the Osek Morshe is the structure for you. Osek Morshe is slightly more complicated and requires that you register for VAT, but you can get refunds on VAT, and Osek Morshe allows for more growth and development in your business later on.
Registering as an Atzmai in Israel
1. VAT Registration
Once you decide between Osek Patur and Osek Morshe, you can get started with registration. First, it is a good idea to have a separate bank account for your business, so if you do not already have one you should open one up. Then to register as Atzmai, you can head to the VAT department (Ma’am). Here you are required to open a file (Tik) with your Teudat Zehut (Israeli compulsory ID), which will get you a certificate that proves you are Atzmai.
If you are registering as an Osek Patur (standard small business), then you do not need to register as a VAT payer – you do still have to register your business with the department to become certified. It is a good idea to bring your checkbook here, and if you have a joint bank account with someone, they will also have to be present. Then you can go ahead and buy a receipt book and a stamp with your name and business number from a stationery store.
2. Income Tax Registration
The next step is to register with the Income Tax Office, known as the Mas Hachnasa. There, they will ask you to show your certificate of Atzmai and complete some forms. This is also where they decide your annual tax rate (somewhere between 10% and 46%). You will be required to file a tax return once a year (usually sent out in February of the following tax year and due before April 30th). Remember that you can deduct business expenses from your taxes. You can hire a tax accountant to help you with your payments and deductions if you want to.
3. National Insurance Registration
Your final step is to register for National Insurance (Social Security) known as Bituach Leumi. You can download and complete form 6101 from the Bituach Leumi to open a Tik. You are required to have confirmation from your bank showing that you own your bank account, and you may have to have proof of previous payments. You can mail, fax, or drop off the form at the Bituach Leumi office.
The amount you pay for contributions and social security will be decided based on your income after expenses. Again, a tax accountant may be useful here to help you in figure out what you need to pay for your first year (in addition to business costs and deductibles). You don’t want to fall behind on payments, so it can be a good idea to set money aside for your taxes and contributions, so you don’t run into any unwanted surprises. Remember that you will likely have to declare your assets and liabilities.
Compliance with taxes, VAT, and Invoicing in Israel
Now that you are a registered Atzmai, you will have to make sure your business complies with Israeli tax and invoicing regulations. Reporting taxes can be fairly straight forward, but you do have to report to three different offices. You have VAT obligations (if an Osek Patur, you only have to declare to the office that you did not exceed the turnover limit), Income Tax obligations (annual balance sheet), and Insurance/Social Security payments (annual report on advance payments).
If your business deals with VAT invoicing there are some things you should keep in mind. For one, VAT invoices must be issued within 14 days of a taxable supply. Also, VAT invoices in Israel need to include the following:
- Supplier’s VAT number, and a label of “Tax Invoice” and “Authorized Entrepreneur”
- Invoice date
- The word “original” should be printed on the original invoice only
- A description of the taxable supplies (including weight, quantity, etc.)
- The taxable amount, VAT added, and gross amount
- If it is a foreign currency invoice, it should include the New Israeli Shekel (NIS) amount and the conversion rate
That’s all you really need to know to become self-employed in Israel!
Those are the basics of self-employment in Israel. Now you know what to expect when becoming an atzmai. With this information and proper planning, you’ll have a successful independent small business in no time! The atzmai process isn’t too hard as long as you follow proper steps and guidelines. Don’t be afraid to start your journey to self-employment in Israel today!
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Updated: March 4, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.