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.