Setting up a self-employed (עצמאי) business, in 3 steps
Article written by Rifka Lebowitz and Binyamin Radomsky.
Binyamin is a CPA working for Aboulafia Avital & Co in Jerusalem, You can also read the article and more on his site here: http://taxinisrael.blogspot.co.il/2014/01/setting-up-self-employed-business.html
Thinking of opening a small business? For many this is a dream to do what they love, but the bureaucracy can seem overwhelming. So we have written out the steps you need to take with the three government offices. It’s not that hard and can be done via a professional or you can do it yourself. We have sent many new Olim to do this themselves at the various government offices and most have come back successful.
You’re starting to go into business, and have decided to start out as self-employed (atzmai’i in Hebrew).
Amongst the many other items that you need to consider when starting up is ensuring that you are correctly set-up with the various tax authorities. Please note that all steps should be completed in all circumstances, and should be done in the order described below.
You can use an accountant (who is linked up to the tax computers) to do this for you. The paperwork required is the same, but will otherwise save you having to queue up and fill in the forms yourself. The accountant is also likely to ask you to sign a power of attorney so that they can act on your behalf with the various authorities. The forms are all in Hebrew, and must be filled out in Hebrew.
Before you start, check to see which Ma’am and Mas Hachnasa office applies to you by typing in the name of the place that you live into the box at the top of this page. Normally (but not always), the offices will be in the same building.
Step 1 – (מע”מ: מס ערך מוסף), Ma’am, VAT (Value Added Tax)
You need to complete form 821 (available here) in which you give basic details about your business, including name, ID, address, description of business and expected annual turnover (i.e. what you expect to receive from your clients, before deducting expenses). These last two items will determine whether you are registered as an “osek patur” or “osek morshe” (see here for further discussion).
As well as completing the form, you will be required to provide copies of:
1. Israeli ID (Teudat Zehut), bring the original with you and a copy.
2. Check from an Israeli bank in your name, or the name of your (unincorporated) business. As an alternative, a certificate from the bank confirming the account details and identifying the owner of the account will suffice. If the bank account is held jointly with your spouse, they will need to sign a waiver allowing the authorities to put a lien on the account in the event that complications arise (e.g. unpaid bills).
Personal finance tip: Open a separate account for your new business, you can do this before you open the business. It makes tracking your income and expenses easier, allows you to take a “salary” no matter how small at first, and as you are probably expecting the business to grow it’s best to have the set up in place from day one.
3. If required for the profession in which you will be operating, your practicing license/certificate (e.g. doctors, lawyers, accountants etc.).
4. Rental/purchase contract for office. If you are working from home, you should provide a signed (by you) letter to that effect, allowing the authorities access to your records. This is not always requested if you are doing the registration yourself, but it cannot harm to have such a letter available.
Step 2 – מס הכנסה, Mas Hachnasa, Income Tax
You need to complete form 5329 (available here) in which you give basic details about yourself and your business. Whilst the Ma’am file is individual, the Income Tax file is joint between husband and wife.
If you are intending to take on employees, this form also has room for the application to open the נויכיים, Nicuyim, Deductions file at the tax office.
Whilst not specifically asked for, it is a good idea to attach the same documents as for opening the Ma’am file, when you open the file at Mas Hachnasa. I would also suggest attaching a copy of your VAT registration certificate תעודת עוסק מורשה/פטור. This would have been handed to you when you finished your registration with VAT.
Step 3 – ביטוח לאומי, Bituach Leumi, National Insurance/Social Security
You don’t actually need to go the Bituach Leumi office to do this, but can fax the papers over. You will still need to know which office to send to, and that can be found here.
You need to complete form 6101 (available here) in which you give basic details about yourself and your business, including whether you are also employed, the number of weekly hours you will be spending on the business and your expected average monthly profit. These serve to assess how much you need to pay on account.
Rifkas’ Personal finance tip: While Bituach Leumi may not start charging you right away, make sure to pay or put aside 10% of your income to pay this, and try to set up payments within a few months; this can be by credit card or automated withdrawal from your account, so you don’t fall behind on payments. Even if your payments are not 100% accurate, as you don’t know exactly what you will be earning, this way you ensure you have the money aside to pay the difference when asked.
Once all of these are in place, you are fully set-up with the authorities and are good to go. Happy business!
If you are great at what you do, but not so great with the money side of your business, contact Rifka to find out how you can make more.
“As a small business owner I didn’t want to limit the success of my business by my lack of financial expertise. Rifka guides me to set goals, make responsible decisions and gives me tools to understand the financial aspects of running a small and growing business”. Tali Tarlow CEO Jerusalem Scavenger Hunts.