Bituach Leumi for self-employed

In the same way that employees are required to pay Bituach Leumi on their salary, so too is a self-employed person required to pay Bituach Leumi on their earnings (profit).

The boundaries for the lower and upper levels of tax are the same as for employees, but the percentages to be paid are higher. This is partly due to the tax reduction available for payments of Bituach Leumi for those who are self-employed, and also because there is no employer contributing for this income.

There are also different categories of self-employment at Bituach Leumi. These affect both the amounts that you pay and the potential benefits available.

The first test is based on the average number of hours per week to be worked on the business. Anything over 20 is considered full-fledged self-employment. Less than that, and the status will depend on average monthly earnings, which will need to below either 15% or 50%, depending on the situation, in order to be considered non-fully fledged self-employed for these purposes.

Bituach Leumi will charge you a fixed amount per month based on your status and expected earnings. I recommend that you set up a standing order to pay this. Here are links to set this up on your credit card or directly from your bank account.

Once your annual tax return has been filed, Bituach Leumi are given the details of your earnings, and issue a final calculation. This is based on the actual reported profit, divided into the number of months that you declared you were self-employed during the year. Overpayments will be refunded, underpayments will need to be paid - both with the addition of 0.5% interest per month (as Bituach Leumi is a monthly tax) as well as linkage to the retail price index (הצמדה).

It is possible to amend (be it increase or decrease) the basis on which you are paying your payments on account to Bituach Leumi. However, it is only possible to do so during the tax year. Once 1st January comes round, the only way to amend a prior year is by filing the tax return. Be aware that Bituach Leumi, as opposed to the Income Tax office, doesn't like receiving surprises from you. So if you want to pay a bit more, you have to formally increase the basis of your earnings. Any amounts that they consider to be overpaid (because the amount is not due) will be refunded within a month or two.

Setting up a self-employed (עצמאי) business

Co-written with Rifka Lebowitz

Rifka  is a personal and business financial consultant, Visit Rifka's site at www.rifkalebowitz.com

 

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, Decuctions 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.

 

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!

 

Form 101 for employees - 2014 version

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As previously discussed, all employees are required to fill in form 101 for each place of employment, and give it to the person in charge of the salaries. Technically, this needs to be filled in on the 1st of January (for continuing jobs), but for practical reasons it’s sufficient to have it filled out before the January salary is processed.

If your employer doesn’t give you one, you can download a blank form from the tax office here.

Below is a short guide to filling in the form for the 2014 tax year.

Section א

Employer’s details – to be filled in by them


Section ב

Employee’s basic details – should be reasonably self-explanatory


Section ג

Children under 18 – relates to any child born in 1996 or later. There’s space for 13 children, which should be enough!

Column 1 is to be ticked if child is under your supervision (i.e. they live with you).

Column 2 is to be ticked if you get child support from Bituach Leumi for this child. I assume this should be ticked by mothers or single fathers only.

Column 3 – child’s name

Column 4 – child’s ID number

Column 5 – child date of birth

Columns 3, 4, 5 should all be supported by the appendix to your ID card.


Section ד

Details of income from this employer

 
In the first box, tick the appropriate detail. Most likely you will be getting משכורת חודש (monthly salary) or קיצבה (pension). Refer to the notes at the bottom of page 2 if you are unsure.

Under תאריך תחילה put the later of 01/01/2014 and your first day of employment with this employer.


Section ה

Details of other income

This is probably the most important section of the form. It is imperative not to make a mistake here, especially if you have more than one employer.

If you have only one employment, tick the very top box (in its own section), and move on.

Otherwise, tick the second box down, and then tick the type of other income that you have (as per section ד). You will then need to tick as follows:

First box – if you wish this employer to be your “main” employer (i.e. they treat your salary as if it’s the only one that you get – generally the payer who is likely to pay you the most during the year), tick this, and move on.

Second box – if this employer is not your “main” employer, tick this. If you do not present your employer with a Teum Mas (see here for further discussion), you will have tax deducted at 48% - you have been warned.

Third box – if you have a Keren Hishtalmut with your “main” or another employer, only tick this if you are being fully taxed on the employer contributions (if in doubt, do not tick). See here for further discussion on this subject.

Fourth box – if you have a pension fund and/or disability insurance with your “main” or another employer, only tick this if you are being fully taxed on the employer contributions (if in doubt, do not tick). See here for further discussion on this subject.

If you have more than one employer, I strongly suggest seeking help in filling this section out.


Section ו

Spouse’s details – Reasonably self-explanatory. Of course, only relevant if you’re married.


Section ז

Changes during tax year – Most likely the birth of a child.

 
Section ח

Tax credits – Second most important part of the form.

(1)   Assuming you are resident in Israel, tick the box

(2)   Tick if you are disabled or blind, and have confirmation from the tax office to this effect.

(3)   Tick if you and your family live in a “development area” or “special yishuv.” This is not relevant for most people.

(4)   Tick if you are an Oleh Chadash / Katin Chozer (made Aliyah in August 2010 or later), or a returning resident (who was non-Israeli resident for at least six years) who came back to Israel between 16 May 2010 and 30 September 2012.

(5)   Tick if spouse has no income and you are either disabled/blind (as per (2) above) or have reached Israeli retirement age.

(6)   To be ticked by a single parent, provided that they are supervising at least one child and are receiving child benefit from Bituach Leumi for that child.

(7)   To be ticked by mothers of children (who live with her) born in 1995 or later, or fathers who meet the criteria in (6) above. Then fill in the number of children who meet the following criteria:

a.       Children born in 1996 or 2014

b.      Children born between the years of 2009-2013

c.       Children born between the years 1997-2008

(8)   To be ticked by fathers and mothers who do not meet the criteria in (7) above. Then fill in the number of children who meet the following criteria:

a.       Children born in 2011 or 2014

b.      Children born in 2012 or 2013

(9)   To be ticked if you are supervising a child who only has one parent.

(10) Tick if you are an unmarried parent of a child whom you are not supervising, but are providing monetary support. A court judgment to that effect should be handed to the tax office.

(11) Tick if you are remarried and are paying alimony to the former spouse. Again, a court judgment to that effect should be handed to the tax office.

(12) Tick if you are aged 16 or 17 as of 01/01/2014.

(13) Tick if you have recently finished army or national service. Dates of start and finish should be provided, as well as documentary evidence to that effect.

(14) Tick if you have finished an academic degree and/or professional qualification in prior years. Form 119 needs to be completed as well to ascertain how many credits you are eligible for.


Section ט

Teum Mas – Normally this is not filled in, as you would go straight to the tax office to get a Teum Mas.


Section י

Declaration – date and sign the form.