I am so glad that I did not write this post such a bombastic title, I am not deserving!
As many of you know, Rachel Berger is a senior executive (to use Old Countryspeak) at Nefesh Benefesh, and if I haven’t plugged that organization until now on my blog, my bad, here it is.
Anyway, somehow I came across this guide, and then found it was barely findable, so I am assuming Rachel won’t mind my posting it here. As a non-professional, I do not attest to the correctness of her writing, nor of mine, blah blah blah. YMMV.
Date: Aug 21 2009 – 5:46pm
Establishing a Business
Step 1: Opening a File for VAT
To open a Tik (file) for Ma’am (VAT), you will need to go to the local tax office. To find the local tax office, check online or in a phone directory under “Mas Hachnasa” (income tax). You will need to bring your Teudat Zehut (ID card) with you and fill out forms with the required information. The type of Tik that you open depends on how much you plan to make a year, i.e., the scope of your business.
If you expect to make under 70,000 NIS: Open a Tik for an Osek Patur, which means that you are exempt from Ma’am and – basically – do not need to interface with the income tax offices, which is very convenient. You will need to buy a Pinkas Kabalot (receipt book) so that you can issue receipts for your clients. A Pinkas Kabalot can be found in any office store. can will use the receipts from this Pinkas for bookkeeping purposes.
If you expect to earn over 70,000 NIS: Open a Tik for an Osek Morshe. You will receive an official Ma’am book. Clients will be charged Ma’am and you will basically be required to forward the Ma’am that they pay to the Ma’am office. When you sign up, make sure to ask the exact details of where and how you make the payment.
Step 2: Mas Hachnasa (Income Tax Authorities)
To open a file as an Oved Atzmai (freelancer) , you need to take the Osek Patur or Osek Morshe certificate to the Mas Hachnasa (income tax) office. Find the department in Mas Hachnasa that handles freelancer, and fill out the necessary paperwork. Once you’ve completed the registration, you will be required to submit a tax form once a year, which you will be receiving in the mail from the tax office.
Buy an accountant book – Sefer Tikbulim V’Tashlumim – at any office store, and use it to keep track of your payments and expenses. If you are careful about recording your transactions, it will make it easier to fill out the annual tax form.
Save all of your receipts and relevant paperwork, for a period of seven years. While noone wants to be audited, it does happen, and the only way to protect oneself is by saving all of the necessary documents.
An Atzmai who works from home can deduct some expenses from home bills such as electricity, internet, phone costs, Arnona (property tax), etc. The percentage of the deduction is based on the area used for the business. For example, if a house has four room and one of the rooms is used for business, the deduction that is recognized would be a quarter of the total cost. For more information about what can be deducted, speak to a qualified accountant.
Step 3: Bituach Leumi
When you open a file at Mas Hachnasa, a file is automatically opened for you at Bituach Leumi (National Insurance Institute).
The Bituach Leumi office will send you a form requesting your employment details, including any pay stubs that you have, and an Ishur (statement) from the bank providing that you are the owner of your bank account.
Once you submit this form, Bituach Leumi deducts 9% to 16% of your income as either Bituach Leumi or Mas Briut, depending on how much money you earn. The exact amount that will be deducted is listed on the Bituach Leumi website (HYPERLINK “http://www.btl.gov.il/”www.btl.gov. il).
Step 4: Declaration of Capital
Approximately every four years, you will be asked to submit a declaration which indicates your net worth, including your earnings and any properties that you own. It is recommended that an accountant with expertise in Hats’harat Hon prepare this form on your behalf.
Senior Career and Business Developer
Well, it seems I’ve been an atzmai for about two years two months!
I apologize to you, my faithful readers, for not updating this blog more frequently, not to mention for not providing more significant and relevant and helpful (and authoritative) information. You can dock my salary:-)
Seriously, I would appreciate feedback, which would motivate me to write more…
Now that we’ve gotten that off of my chest, here are my comments on completing a Doch Shnati Annual Tax Return:
1. So far, far the second year running, the deadline has been extended from April 30 till May 31. This might be the third year running, or perhaps this happen every year, but I’ve only been watching this year and last. A little odd, as it is hard to imagine a reason to extend that they couldn’t have foreseen, but Welcome To Israel, I guess..
2. Unfortunately, I did not photocopy my Doch Return form from last year, or at least I cannot find it:-), as having it with the questions I had might have made things easier for me this year. The good news is that it ended up being not that hard at all anyway.
3. Here are the questions that I wrote down and got answered by Zehava when I went for the guidance hours:
Line 3: What is the sum that my wife reports (her Tofes 106 has a whole bunch of numbers)
Sections Daled through Yod: Need I cross out the fields that I do not have to fill out?
Line 43: Is this relevant for my wife?
Line 45: Is this relevant for me?
Line 62: Is this relevant for my wife and me?
Line 67: Donations – need I bother submitting?
Line 69: I live in Maale Adumim – is this relevant?
Line 70: Is this relevant for my wife and me or just for me?
Line 71: What do I report for my wife, and is this relevant for me (I did some work during the national elections for a party, they said the 25% tax [ouch!] is definitely non-refundable)?
No line: Need I complete form 1320?
4. The answers:
Sections that I do not need to fill out do not need to be crossed out – don’t bother.
The lion’s share of my questions dealt with my wife’s tofes 106. (Lines 3, 43, 44, 49, 50, 64, 71). Here is the solution, which would have saved me a lot of time with Zehava, and will save you time:
Every line on the Doch Shnati form has a field, often two (for the filer and for his/her spouse). Each field has a code number clearly associated with it. For example, line question 43 has field code 218 for the filer and 219 for the spouse.
NOW, look at the Tofes 106 – every relevant line has a Mem Heh code associated with it. Guess what – that Mem Heh stands for Mas Hachnasa! And guess what – those code numbers match the code numbers on the Doch Shnati form that I discussed in the last paragraph! So all you have to do is connect the dots. Every line in your spouse’s Tofes 106 that has a Code Mem Heh in it, find the identical code on the Doch Shnati, and copy the sum on the Tofes 106 belonging to that code number into the associated field on the Doch Shnati. Simple and fun as that!
I hope this is as clear as it is to me.
The only other questions I had:
Line 45: my Bituach Leumi payments: well, since I know I am below the minimum, I know my payments are about 100 NIS a month. Zehava wasn’t too worried about my reporting the exact total of my payments to Bituach Leumi, so I just wrote down 1300 (one month for good luck). YMMV – you should look this up in preparation for filling out the Doch Shnati and get it exact.
Line 62: Bituach Hayyim Life Insurance: I will find the annual reports I get from the companies that send me for my wife’s and my policies, I expect that there will be a Mem Heh code on those pages too, at least it shouldn’t be too difficult to figure out what numbers go in these fields. As with the philanthropic donations below, this information should result in a tax refund!
Line 67: Charity donations: find all the receipts of donations to Malkarim (NPOs) that say “mukar letzarkei mas hachnasa” and submit them in the original, you evidently get a third back if you have donated more than 400 NIS this year. (if you donated less than about 10% of your income, you should consider upping your donations. Thus spake your conscience:-)
Line 69: Maale Adumim is not a special area, probably just Sderot and Kiryat Shmoneh, but YMMV. Couldn’t hurt to fill out if you think it might be helpful.
Line 70: I just copied from Line 1 – my reported income (sum total of all receipts issued as reported in my receipt book). Form 1320 is a worksheet that helps you clarify your deductions (like transportation, office supplies, etc. – expenses needed to generate income). Since I knew my gross income before deductions was low enough to report as is without calculating deductions, I just did that. Hopefully next year I will happily fill out form 1320:-).
Line 71: In fact, the 25% tax paid on work for political parties is unrefundable. Ouch indeed.
SO… My action items are:
1. find those Life Insurance annual receipts and enter the relevant number in fields 036 and 081, Line 62.
2. Find all my charity receipts and enter the relevant number in fields 037 and 237, Line 67.
3. Complete my personal details in the Yesh Lershom Pratim Adkaniim box (the third section on Page 1). Zehava had kindly pasted my sticker in the section above this.
4. Complete the Bank Details on Line 76, so they can deposit my refund (yay).
5. Submit the Doch with spouse’s Tofes 106, Life Insurance original receipts, charitable donations original receipts, and tofes 1320, to the Information Window at mas Hachnasa, 216 Rehov Yaffo, sixth floor. Get it stamped and get a Meushar certified copy.
6. Do all this before June 1.
PS I see that last year’s entry might be helpful too:
Here’s a site/page that looks good too:
PS from this page: https://atzmai.wordpress.com/2008/06/26/bituach-leumi-take-two/ I learned that I am actually probably paying 148 NIS a month to Bituach Leumi. I should review this blog more often!
Some one else posed this question and I am posting it here, with my answers interspersed. Hope it hopes him and you!
I have been reading your blog about succeeding as an “Atzma’i” for advice about my situation. I am a 24 year old recent oleh from Boca Raton, FL now living in Jerusalem.
>>Welcome! my sister is from Boca, we should compare notes..
I am in the midst of my enlistment process for the IDF, having already hope to be drafted in the summer.
>>Behatzlacha rabba on that too!
In the meantime, I’ve been hired as an outside contracted translator for a consulting firm based in Tel Aviv, on a part-time basis. My employer says that her company can only pay me if I open an “Osek Za’ir” file, because I am not a company employee and they do not want me to be entitled for full employee benefits.
>>They are thinking inside the box that they know. The know that they do not want to hire you, for the reason you mention and maybe others. They know that they have to work within the framework of the law, so they cannot pay you “under the table.” They realize that they will not be paying you so much that it would make it worth your while to open up a tik as osek mursheh, and they are familiar with the less known possibility of Osek Zair, which seems to fit your situation, so that is what they are recommending/requiring of you.
Researching your site and speaking to other people, it seems she meant an “Osek Patur”.
I intend to work at this position until my army draft, no more than 4 or 5 months. Moreover, the total salary I earn won’t amount to more than 20,000 shekels.
>>If this (or even as much as about 60K NIS) is all that you will make during calendar year 2010 in receiptable work (not as an employee, or as a soldier I would venture to guess – any position with a tlush maskoret) then they are right – you can be an osek zair, and probably should be.
I’ve spoken to some employment specialists from Nefesh B’Nefesh, and a few Jerusalem-based accountants about my status and which option of registering as an independent seeks me best. The consensus among them seems to be that I should open an Osek Patur of the “third category”- as an atzma’i- with a Koach Adam company.
>>I am not sure what you mean here. When you go to open as an Osek Patur (in the VAT office), you actually first open as an Atzmai in the Mas Hachnasa office. There, at Mas Hachnasa, they ask you what you want to do as your business, but I don’t remember categories, you just tell them Translation Services or Translating and Business related services or whatever, they don’t really care too much about small businesses that barely bring them tax income at all .. I for SURE don’t understand this Koach Adam part..
(One account told me to look up a Jerusalem-based company called Oleh Sapir in the white pages, which I couldn’t find) According to them, I open a file with this company, and my employer sends my paychecks to this firm, who takes a small commission to handle my case.
>>Ahh. “Oleh Sapir” is probably Yeul Sachir, a company that I am quite familiar with, and owe my loyal readers a deeper post about. I can see how someone might call this a Koach Adam company, but it works quite differently from standard koach adam companies, like Manpower.
With Manpower, they collect potential workers for positions that they specialize in, then companies who want to hire someone to do that job but want to save themselves some headaches (interviewing, training, benefits, etc etc) and frequently for a short term contract, go to Manpower and get someone.
With Yeul Sachir, the service professionals do the services they specialize in, but they also do the marketing of their services, and have a personal relationship with the companies/people they do business with. Yeul Sachir does the finance work, bills your client and collects (with help from you) and pays you with a tlush, as you are legally their employee. They take a cut of 7% up to 400 NIS a month for their services.
They maintain that the advantages of this option include: easy opening and closing my file as an Osek Patur,
>>Actually, establishing a repationship with Yeul Sachir obviates the need to open or close an Osek Patur file at all.
no taxation on American assets,
>>I am not sure of this one
and no hassle opening my own Osek Patur at varius bureaucratic agencies while I am being interviewed by the army agencies to secure my placement.
as above, no need to interface at all with Mas Hachnasa or VAT
I am still confused about how to proceed, as I am in the dark with the Israeli tax system and bureaucratic institutions. I would greatly appreciate any advice you can give me about how to go about this.
>>Notwithstanding the extensive descriton I gave above of Yeul Sachir, since it looks like you are only going to bill about 20K NIS this calendar year, and since I assume your client will be a business, which means they do not care whether they “pay” their service providers VAT or not (because the deduct it), Rodan Gordon (principal at Yeul Sachir) would probably encourage you to open a tik as an Osek Zair.
Try calling him at 02-6510666, tell him Gidon sent you.
Jessi wrote in a comment to a previous post. I will use this post to respond:
My name is Jessi and I have come across your website before but today when searching for information on specific atzma’i status, I noticed with pleasant surprise that you have me in your blog roll I know I have been in contact before with Jeremy over at Shomer Shkalim, but had no idea that you would also include me! So thanks….I do need to really get on top of publishing more. Really – I’ve been beyond horrible at posting.
Anyways – I have a question that you may or may not be able to answer for me:
I myself also am a freelancer, however as far as I know, I’m not any one status or the other. I have always just been referred to as an atzmait. I have a “file” open up at the tax office but whenever I gained a new client, I would get their business number and would be issued a teum mas. This has always been sufficient for what I have done.
However, I have a new company that wants to hire me on and they asked me to have an osek mershuh status – which from what you have found out and from what I have been told, I need to earn at least 64,000nis/year in order to qualify for this status and while it would be nice to do so, that is nowhere near what I will be making with this company – in fact, in a year, I would only project to make about 18,000nis.
So my problem lies here – this new company would like me to issue receipts to them (which is understandable) – I normally if a client asks, just write one off Excel or some other billing software I’m using at the time and then send it in and keep copies for my records. However, now I’m worried – do I actually need an official receipt book with my tax status on it? Or can I just purchase one from Office Depot and be done with it?
Also, this project is only about 5 months in scope, so I don’t know if since I will be under the “radar” as people have been calling it, is it really worth it to go through the whole process of opening a new file?
Oh and I shall also be adding you to my blog roll in reciprocation.
while i was at it, I scanned this book. Now you know what it looks like from the outside (from the inside, you’ll have to wait for another slow news day).