Whether you are a newbie oleh fresh of the boat or an Oleh vatik that has been living in Israel for years, opening a business in Israel is a serious endeavour that requires a great deal of care and consideration. So we, at English Speaking Networking, have come up with a guide to help you navigate this rather overwhelming journey.
- You will pay more taxes
Whether you have been a freelancer outside of Israel or always been employed – being freelance in Israel is an expensive game and you will end up paying more tax. This means that if you are registering as a freelancer for only a small amount of income or a side hustle, it is worth talking with an accountant and deciding if it’s really financially worth it.
- Bituach Leumi
A phrase that fills every business owner in Israel with dread, Bituach Leumi will take money from your account every month. Rather dependant on your earnings, as an employee, you would only pay a portion of this whilst the rest would be covered by your company. However, as a self-employed freelancer, you will need to pay all of this and the minimum is still fairly high.
As of fairly recently, paying into a pension in Israel is a legal requirement, which to be fair is rather logical. We will all grow old and need a pot of money waiting for us. However, once again you are covering the entirety of this whereas, in normal circumstances, your company would help you. Not only that, but the minimum is also over 800 NIS which is the same whether you are earning 1000 NIS or 10000 NIS a month.
- Osek Patur vs Osek Moshe
Now, once you are earning over 100,00 NIS, we have rounded up for convenience, but the amount changes slightly every year. In 2019 it was 98707, and in that year once you hit that golden figure you are essentially considered another category of the business owner and considered an Osek Moshe. What this means is that you will start paying VAT (which is fun and games let me tell you, more importantly, it means that you must start saving for VAT or you will get caught out.) You will also have to file your receipts every two months and start paying your accountant a heck of a lot more. There is absolutely no avoiding this and you must check your earnings consistently because as soon as you hit 100,000 NIS you must change your status, Even if you don’t the government will still recognise you in a different category and if you don’t start charging your clients VAT, you will have to pay it. Trust us, we have heard horror stores – you must stay on top of your finances.
- Hatzharan hon
Another fun part of being an Osek Moshe is that the government will, at some point, request from you a Hatzharon Hon. Yes, being a freelancer in Israel is truly a joy. What this means is that you will have to fill in an exceedingly in-depth form so the government knows exactly what your assets are. Your accountant will charge somewhere around 1000/2000 NIS for this and we cannot stress how important it is that you use that resource. The Hatzharon Hon is its own special breed of bureaucracy, and even with fluent Hebrew can be complicated. Do not try this at home.
- Keren Hishtalmut
This is a fairly helpful savings device created by the government that allows you to put up to 18,000 NIS away a year, the interest on this is normally around 3% although, of course, this can vary. You can deposit either at the end of every month or at the end of the fiscal year (December), although once in the money can only be taken out after six years. The upside of this is that once the money is taken out it’s free from capital gains tax which is rather helpful. We highly recommend using a Keren Hishtalmut as it is really is a fantastic tool that can help you save for those big life marks.
- Should you register as a company in Israel
Now, in Israel you you can remain an Osek Moshe indefinitely, which is rather handy, frankly, you could hire people and still remain an Osek Moshe. The main real advantage is that it limits your liability and is fairly helpful if you are leaving significant amounts of money in the business. However, if that isn’t the case then we would recommend remaining an Osek Moshe because Israeli bureaucracy is no joke.
So, to summarise if you are looking to start a business in Israel you must remember that, you have to earn a lot more than you would as an employee. This is for a few reasons – firstly freelancers and business owners in Israel are taxed inordinately and so you will suffer as a result. And, more than that, for many of the items we mentioned above- the Keren Hishtalmut, Pension and Bituach Leumi – an employee in Israel is mandated in Israel to pay towards that, helping you out enormously. As a freelancer, you are forced to pay it all alone, which can become very expensive indeed.
So it is a serious decision indeed.
Also – we have been told by our lawyers to add a slight dispensation here and add that our word is not gospel and if you are seriously considering opening a business you should absolutely consult with an Israeli accountant, pensions advisor etc.
And, of course, we feel compelled to add that if you are hoping to a business in Israel and looking to gain some new clients then please do feel free to come along one of English Speaking Networking events we have branches in Jerusalem, Tel Aviv, Herzliya and Haifa and we offer a space for English speaking business owners to really grow their business, just send us an email at email@example.com