Navigating the Osek Patur limit for revenue.
Starting a small business in Israel can be an exciting venture, especially with the support of the Osek Patur status. This status allows small business owners to operate without the complexities of VAT registration and extensive bookkeeping. However, there comes a point when your business might outgrow this status, and it’s crucial to understand what happens when you hit the Osek Patur limit of revenue for the year. Let’s dive into the details to ensure you’re well-prepared for this transition.
The Transition to Osek Murshe
Once your business revenue hits the 120,000 NIS mark, you must apply to the tax office to convert your file to an Osek Murshe. This transition brings several changes that you need to be aware of:
VAT Collection: As an Osek Murshe, you will start collecting VAT on all your income. This means adding VAT to your invoices and remitting it to the tax authorities.
VAT Reclaim: On the flip side, you can now reclaim VAT on your expenses. This can be a significant benefit, especially if you have substantial expenses that include VAT.
Invoicing: As an Osek Murshe you are required to issue “tax-invoices”. You will need to update the settings in your invoicing platform.
Bi-Monthly Reporting: You will need to report your income and VAT bi-monthly. This regular reporting ensures compliance with tax regulations but requires diligent record-keeping.
Bookkeeping: Maintaining accurate bookkeeping records as per the tax authority’s guidelines is essential. This includes detailed records of all income and expenses.
- Increased accounting fees: With the increased responsibilities and services required as an Osek Murshe, your accounting fees will also rise. Most accountants charge a monthly fee for managing the additional requirements, such as VAT reporting and compliance.
Adjust your tax prepayments
As your business income increases, so should your tax prepayments to Bituach Leumi (National Insurance) and income tax. Higher income generally means higher tax liabilities. It’s crucial to review and adjust your prepayments to ensure you’re not caught off guard by a large tax bill at the end of the year. Consulting with a tax professional can help you manage these prepayments effectively.
Can I convert from an Osek Murshe back to an Osek Patur?
Once you have registered as an Osek Murshe this is not a temporary status. You will remain an Osek Murshe until you either close your file or convert back to an Osek Patur. However, to change to an Osek Patur, you must remain under the revenue threshold for two years.
Conclusion
Once you reach the Osek Patur limit it’s really important to update the tax office as soon as possible. Onboard the changes without delay to avoid an unnecessary mess.
In many cases, your customers may themselves be registered for VAT – which means they can reclaim the VAT they pay you. But to do so they will need the tax invoice from you.
If you have reached the Osek Patur limit, get in touch with your accountant. Or if you don’t yet have an accountant, reach out to Dray Accountants for assistance.