Self-Employed (Freelancer/Independent) in Israel.
During my search for work I have been offered a small amount of work as an independent. 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 an 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?
You can be registered as an Atzmai and be an employee of a company.
There are two types of Atzmai (עצמאי) in Israel.
An Osek Patur (עוסק פטור) has declared earnings of less than NIS 76,884 (as of 1/2012) 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 76,884 throughout the business year you must request to change your status to Osek Morshe the following month. Note, you can’t go back to being Ma’am / VAT exempt for 2 years following a change in your status.
An Osek Morshe (עוסק מורשה) has declared earnings of more than NIS 76,884 (as of 1/2012) 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 once payment has been received.
A separate business bank account is not required. The business year in Israel is from 1 January to 31 December.
The following three (3) steps are required to register as an Atzmai (עצמאי) in Israel.
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.
Please note, if you have a joint bank account you will both need to be present with your Teudat Zehuts.
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.
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). An account book can be purchased from a stationery store. Olim are exempt from income tax for a period of 12 months, unless earnings exceed approximately NIS 105,000 per business year.
You might also want to speak to an accountant about deductable 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.
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 147.00 for month to Bituach Leumi regardless of whether you are working or not. Contributions will be assessed annually based your tax return.
In order to deregister from these statuses, you must complete a form for Ma’am and inform Bituach Leumi.
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.