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
Obviously, the answer is as much as you can.
But I have recently noticed that there are a few bureaucratic bodies who care how much I make, and charge me. And some of them charge me more if I make more than a certain amount (in some cases, they charge me nothing if I stay clear of that minimum), and some charge me more (relatively) if I make less than a certain amount.
VAT only “charges” me if I make more than about 60,000 NIS a year. (Yes, I realize it’s more complex than that, they don’t really charge me etc, but for the sake of my own radar, let’s keep it at that.)
Bituach Leumi charges me a minimum of about 80 or 110 NIS a month (I can’t remember and can’t be bothered to go find the paper that hinted at this number). This is even if I make 80 NIS a month, or less – even someone who is unemployed is required to pay National Insurance premiums monthly. And once you make more than 17,443 NIS a year, your premiums go up (not sure how much, but it starts at about 6% I think (that’s about 1000 [the premium you pay annually for up to the minimum income rate) divided by 17443 (the minimum income you start paying more than the minimum premium on).
Here are the other offices that care about my income as an atzmai (and even as an employee, for the most part):
The IRS: Evidently, if you are a US citizen, you are required to complete an annual tax return. In principle, you will owe no income tax if you make less than some amount (depending on number of dependents etc.) For me, this number seems to be a walloping $70,000 or $90,000, whatever, they are both pie in the sky right now. BUT, you are entitled to up to $1000 per child rebate (I use the good help of Jeff Melamed for this http://groups.yahoo.com/group/ustaxreturnREFUNDS/). That “Up To” depends on your income. When you start making less than a certain amount, then your rebate per child is less. This depends on the number of kids you have etc. etc., my “aim for” amount to get the the maximum is about $46,000 a year household income.
FBAR: This requirement is not a tax, it is simply a reporting requirement. If you have a cumulative balance of more than $10,000 in all of your overseas (i.e., not USA) accounts, including banks, keren hishtalmut, and dunno what else, you have to report all of these accounts. You get to the cumulative balance by finding the highest recorded balance of each account for the year (say, Feb 15 for one bank, Dec 31 for the just-put-in account) and adding them up. This thingie got a lot of press this year, because it is the first time they are clamping down on enforcement, with draconian penalties threatened. (If you are interested, I checked my balances for every year since 2003, the year they are checking on since nowadays, and I was only on their radar for 2 of those years). (This link is a good start if you haven’t heard about this until now: http://muqata.blogspot.com/2009/06/us-citizens-in-israel-have-you-filed.html)
Doch Shnati: As I have blogged here before (most of this blog is about this), if you keep pretty good records of your income and your spouse’s income, then go ask for help towards the deadline during Mas hachnasa’s free advice hours, you should be OK. BTW, for me, I think I would have had to staert paying Israeli Income Tax at household income of no less that 200,000 NIS a year.
So, if you have the same factors as me, then here are the annual numbers that raise a flag:
17,443 NIS – what to aim for if you want to pay the lowest amount percentage and cash-wise for Bituach Leumi.
60,000 NIS – when an Atzmai moves from being an Osek Patur to an Osek Mursheh.
$10,000 – FBAR reporting requirement
$46,000 – household minimum to get the maximum Child Tax Credit refunds
200,000 NIS – start paying Israel Income Tax (Mas Hachnasa)
$70,000 – start paying US Income Tax
DISCLAIMER: I wrote most of the above from my own limited knowledge, with barely even using Google. I hope I haven’t made any glaring mistakes, and I will appreciate any corrections and additions.
As you know, it’s not what you know, it’s who you know.
To paraphrase, a different pakid can get you the information that you need in 10 minutes that another one couldn’t in an hour.
The last time I went to Bituach Leumi here in Maale Adumim, my number came up and I was steered to the noticeably younger of two pkidim. After the fact, I thought that I should have gone to the older one, assuming he would have been the more experienced, and therefore more able to understand my question and provide me with a satisfaqctory answer. That’s because the younger pakid seemed to have done neither. I walked away that day with a completely unclear task list, no answer to my question[s], a certainty that I would aim to be steered to the older pakid the next time, and a perhaps a subconscious decision to put off going back to Bituach Leumi for a long time.
Today I finally went back. I had to get some info about my father, and figured I might as well try to get the info I was looking for before and do the things I should do at the same time.
Well, the younger pakid wasn’t there today, but there was a younger pkida and an older pakid, probably he was the same one as the last time. I aimed at him and got him! But when I started explaining that I am an atzmai, he said “go to the pkida.” Oh well.
But, this time it was all for the best, because Ortal was very patient and helpful, and knows her stuff.
So, without further ado, here is what I learned!
1. You can either be an atzmai or not a atzmai.
2. If you are an atzmai, you either are an atzmai that is oneh lahagdara (fulfills the criteria) or is eino oneh lahagdara (doesn’t fulfill them). The only difference is whether or not you are covered in the anaf nifgaei avodah (department of work injury insurance).
1. I am an atzmai. (Remember, osek zair, patur, and mursheh are only relevant for VAT. For Mas Hachnasa, Bituach Leumi, and maybe others, there is no difference).
2. The hagdara/criteria:
A. works at least 20 hours a week, even if you make close to zero money.
B. Works at least 12 hours a week and makes at least 15% of the average wage (about 1200 NIS a month).
C. Works at least an hour a month and makes at least 50% of the average wage (about 4000 NIS a month).
If you filfill one of these criteria, you will pay about 10% of your monthly net income, but no less than 148 NIS a month.
If you don’t fulfill any of these criteria, you are an atzmai she-eino oneh lahagdara, and you pay 141 NIS a month, a percentage of the average monthly salary (schar hamemutza bameshek).
I’m not sure what the work injury insurance actually covers, but 8 NIS a month sounds like a bargain, so I am going to declare that I work at least 20 hours a week. Chances are, I can aim and succeed in getting 1200 NIS a month, but I can also declare the 20 hours a week work clocking (websurfing and emailing = research and development of my business).
I will scan a copy of the form you have to fill out and comment on it and translate it. In the comments, we can discuss your situation and see if you should do differently from me!
After doing Step One, opening up a Tik Osek Patur at VAT, then pretending that I don’t have to go to Mas hachnasa because they automatically sent me some papers, then not printing a receipt book as they told me to because I didn’t find the best solution yet, I finally got around to going to Bituach Leumi.
Here in Maale Adumim, we have a few government satellite offices that are a best kept secret. For example, the Misrad Hapnim branch gives [95% of] the same services you get at the Jerusalem Helene Hamalka main branch, with 1% of the line/queue and 500% of the niceness. I have been in Bituach Leumi offices in JM and in the one here in MA, and would guess the numbers are about the same if not better. Except that the MA BL branch is only open 8-12:30 Wednesday morning.
Anyway, I had some previous business (you could say run-ins) with Bituach Leumi, but I figured that with a little expectations clarification (tiyum tzipiyot – one of my favorite things), we could get onto the same page, with me getting what I want and them getting what they want.
So what did I want?
- To clarify my status as a low-income “oved atzma’i,” a “lo-sachir” ( or perhaps “atzma’i ve-eino-sachir”).
- To clarify the points at which the premium rates change.
- To figure out how I can assign myself to the lowest possible bracket.
What did they want?
- For me to fill out Form 6101 (Din Vecheshbon Rav Shnati = Multi-Annual Report), based on my self-definition as an “oved atzma’i,” fulfilling one of the following three conditions:
a. Works at least 20 hours a week on average.
b. Monthly average income is at least 50% of the national average income.
c. Works at least 12 hours a weekand have an average monthly income of at least 15% of the national average income.
We spent about an hour each asking for the above from the other, and not getting it:-(
What I did get was a print out of my statement from Feb 1 2000 through Mar 19 2008.
On my way out, I called a friend of mine who has worked in bookkeeping/accounting for the past decade or so, to see if he could help me get the info that I was after, seeing that it didn’t seem to be a national security secret issue. He chided me for not dealing with an experienced accountant (as the BL clerk encouraged/urged/required me to). I was frustrated as: A. No-one would give me a list of such accountants and B. Why should I pay an accountant $100 for an hour’s consultation when I’m going to end up an osek patur??
Anyway, I am going to stop now, and hopefully complete this story before Wednesday, when I’ll go back to Bituch Leumi (I didn’t say which Wednesday…)