Definition of legal structure
The legal form of sole proprietorship in Israel is similar to self-employed status as we know it, i.e. the legal form is registered under the self-employed status of the individual.
Your structure number will therefore be your Teoudate Zeoute number, so there is no "legal separation" between the shareholder and the legal structure.
The self-employed status does not require any legal opening, as no legal structure is created as such.
That way, you don't need a lawyer, or to draw up articles of association or other partnership agreements.
If you intend to employ staff, we strongly recommend that you draw up solid employment contracts, which will enable you to clearly define the relationship established, and the expectations expected from both parties.
Registering with the tax authorities
Opening the file with the tax authorities is very quick, but requires several administrative forms to be completed.
Tax and social security obligations
The self-employed person will be subject to progressive taxation as well as the payment of bitouah leoumi (social security contributions) and VAT, depending on his status.
From a tax point of view, there are 2 types of sole proprietorship in Israel:
- Ossek patour (invoicing without VAT), which can be applied to any self-employed person with annual sales of less than around 100,000 shekels (see table below, by year). (Except in exceptional cases - doctors, lawyers, etc.).
- Ossek Mourchei (invoicing with VAT), which applies to any self-employed person with annual sales in excess of around 100,000 shekels (see table below, by year).
He must submit an annual profit and loss statement summarizing income and expenditure to the mas ahnassa (Israeli tax office), together with the annual tax return.
There is often no need to make monthly declarations, but only at the end of the year.
However, it is quite likely that the mas ahnassa, or Bituah Leumi, will require monthly installments.
It's important to point out that certain business sectors are not allowed to bill as Ossek Patour. These include lawyers, doctors and consulting services.
Read also: Questions & Answers : The Ossek Patour
- He must declare his sales to VAT (maam) and the tax office (mas ahnassa) on a regular basis (usually every 2 months) by making the various payments.
- Can reclaim VAT paid, unlike Ossek Patour.
- He must pay monthly installments to the bituah leoumi.
- He may have employees, to whom he will pay a salary and declare them in accordance with Israeli law.
Balance sheet and annual declaration
The self-employed person must submit an annual profit and loss statement summarizing income and expenses to the mas ahnassa (Israeli tax office) with the annual tax return.
Read also: Understand how Israel's tax brackets work.