Annual Tax Report: A Guide for Freelancers in Israel

1. What Is the Annual Tax Report?

As a freelancer in Israel, you are legally required to file an annual tax report (Doch Shnati) with the Israel Tax Authority. This comprehensive report details all of your economic activity during the previous fiscal year.

The fiscal year in Israel is identical to the calendar year -- from January 1 through December 31. This means that the annual report for the 2026 tax year covers all activity between January and December 2026 and is filed in 2027 or later.

Think of the annual report as your final settlement with the tax authorities. It is where the exact calculation takes place -- determining whether you owe additional tax or are entitled to a refund. If you paid advance payments (Mukdamot) toward your income tax during the year, they are credited against the final tax. Most micro-business owners (turnover up to 122,833 NIS in 2026) are exempt from advances and pay the year's tax once, with the shortened annual report.

A full annual report is filed on Form 1301. The assessing officer can generally examine a report within 4 years from the end of the tax year in which it was filed, and books and documents must be kept for longer: 7 years from the end of the tax year, or 6 years from filing that year's report, whichever is later.

2. Who Must File an Annual Report?

Every freelancer in Israel -- whether an Osek Patur (exempt dealer) or Osek Murshe (licensed dealer) -- is required to file an annual tax report, regardless of income level or the number of months of activity during the year.

Even if you opened your business mid-year and operated for only a few months, you must still file for that tax year. The report covers the whole year and all of its income, while the business part covers the months you were active. Similarly, if you closed your business during the year, a final annual report for that year is mandatory, due by the normal deadline.

Beyond freelancers, the following individuals may also be required to file:

• Salaried employees with additional income sources
• Property owners earning rental income
• Individuals with foreign income from outside Israel

A new Osek Patur who opens the file online is registered as a micro-business owner by default unless they opt out, and a micro-business owner files a shortened annual report instead of the full one. An Osek Murshe whose turnover is within the Osek Patur ceiling (122,833 NIS in 2026) can also join the micro-business track if they meet the conditions. If you are not sure which report you need to file, check early, because the track affects whether you pay advances during the year as well as your filing deadline.

3. What Does the Annual Report Include?

The annual tax report is a comprehensive document that covers all income from all sources:

• Business income -- All revenue from freelance activity, based on invoices and receipts issued.
• Salary -- If you also worked as an employee alongside your freelance work.
• Passive income -- Interest on deposits, dividends, rental income from properties.
• Foreign income -- Any income originating from outside Israel.
• Spouse income -- Married couples who live together have one tax file, so the report normally includes both spouses' income, unless separate reports are filed.

On the other side, the report also includes all deductible expenses that can be subtracted from income, as well as tax credits, exemptions, and deductions that reduce your overall tax liability.

An expense is claimed in the report on the basis of a document, such as an invoice or receipt you received from the supplier. A micro-business owner can instead choose a flat expense rate of 30% of turnover without listing actual expenses, so it is worth comparing which gives the lower tax: your documented expenses or the flat rate.

4. Preparing the Annual Report

The annual report must be prepared according to the rules set out in the Income Tax Ordinance and Income Tax Regulations. Given the complexity of tax law, many freelancers work with a CPA or tax adviser to prepare their report, although the law does not require it and you can file it yourself.

How Is Tax Calculated?

The annual report is a self-assessment: you, or your representative, calculate the year's tax, and the assessing officer may examine the calculation later. The calculation follows these steps:

• Total income for the tax year
• Minus recognized (deductible) expenses
• Minus depreciation on business assets
• Minus deductions, such as pension and study-fund (Keren Hishtalmut) deposits, up to the legal ceilings
• Equals: Taxable income (Hachnasa Chayevet)
• Tax is calculated according to the progressive tax brackets
• Minus credit points (Nekudot Zikui) and other tax credits, such as the credit on part of your pension deposits
• Minus advance payments and tax withheld at source during the year
• Result: Amount owed or refund due

Israel's Progressive Tax Brackets

Income tax in Israel is calculated using progressive marginal rates. This means higher income is taxed at higher rates, but only the portion within each bracket is taxed at that bracket's rate. The brackets and the credit-point value are normally indexed to inflation each January, but under current law indexation is frozen for 2025 to 2027, and the 20% and 31% brackets were widened by law from 2026 (as of October 2026).

Understanding the bracket system is important because it affects how much you benefit from deductible expenses -- every shekel of recognized expenses comes off the top of your taxable income, so it saves tax at your highest marginal rate first, and at a lower rate only once it takes your income down into a lower bracket. If your credit points already cover the tax on your income, an extra expense saves no income tax.

Deductions and credits work differently: a deduction lowers your taxable income, while a credit is subtracted from the tax itself. Each credit point is worth 2,904 NIS a year (as of 2026), and every Israeli resident gets at least 2.25 points. Credit points can bring your tax down to zero, but not below it: if your tax is already zero, unused points are not paid out as a refund.

5. Required Appendixes and Schedules

At the end of the fiscal year, several appendixes and schedules are prepared for the annual report. Some are required by the Income Tax (Bookkeeping) Instructions; others, such as a cash count and an asset register, are usually prepared by a CPA or tax adviser for the report. The main ones are:

• Inventory count -- For businesses that hold physical inventory, a count and valuation of the stock at year-end.
• Cash count -- The amount of cash held in the business register at year-end.
• Customer balances -- Outstanding amounts owed by clients who have not yet paid.
• Supplier balances -- Outstanding amounts you owe to your suppliers.
• Asset register -- A list of business assets with their depreciation status.

The exact schedules required depend on the type and size of your business, which determine which part of the Bookkeeping Instructions applies to you. An Osek Patur needs only a minimum system under the Instructions (receipts or a daily takings book, plus a file of expense documents) and does not have to prepare these year-end lists.

Year-end lists reflect the position on December 31, so it helps to go over unpaid invoices and suppliers you have not yet paid at the end of December. On every plan, Keep shows which clients still owe you money, which makes the customer balance list easier to prepare if you need one. If you must take an inventory count, you can take it up to a month before or up to a month after the balance-sheet date, but a count more than 10 days away from it needs advance written notice to the assessing officer.

6. Filing Deadlines

Filing deadlines for the annual report vary depending on your filing method:

• Filing yourself -- By law, an online report is due by May 31 of the following year, and self-employed people with business income file online as a rule (April 30 applies to paper reports from filers who do not keep double-entry books). Micro-business owners file a shortened annual report instead, due by law on March 31. The Israel Tax Authority sometimes extends these dates: for the 2025 tax year, the online deadline was extended to June 30, 2026, and the micro-business shortened report to August 31, 2026 (as of September 2026).
• Filing through an accountant -- Reports filed by a CPA or tax adviser follow the Israel Tax Authority's yearly extension arrangement for representatives. Each representative files their clients' reports in stages, against dates set anew every year, and each client gets their own due date. For the 2025 tax year, the last stage for individuals' reports is February 28, 2027 (as of September 2026).

Late filing leads to fines for every full month of delay (for a late online report, an administrative fine of 600 NIS per month, as of 2026), plus interest charges. If you do not file, the assessing officer can issue a best-judgment assessment (Shuma) that estimates your income without your figures. That estimate can be higher than what you actually owe, and it is up to you to prove otherwise.

What Happens If You Do Not File?

Failing to file your annual report is a serious matter. Consequences include:

• Administrative fines that accumulate monthly
• Interest charges on any unpaid tax
• An estimated assessment based on the authority's own calculations
• Potential criminal proceedings, since filing late without the assessing officer's approval is a criminal offense
• Difficulty obtaining a withholding-tax certificate and a bookkeeping approval (Ishur Nihul Sfarim), which clients and public bodies may ask for

The filing date and the payment date are linked: a tax balance is normally paid when the report is filed, and linkage differences and interest run on it from the start of the year after the tax year. So when you expect to owe tax, filing later does not stop linkage differences and interest from accruing.

7. Tax Refund or Additional Payment?

The annual report culminates in one of two outcomes:

You Owe Additional Tax

If your total advance payments and tax withheld at source during the year were lower than your actual tax liability, you will need to pay the difference. This commonly happens when:

• Your profit grew faster than your advance rate assumed, moving income into higher tax brackets
• Your advance payment rate was set too low
• You had additional income sources not covered by advance payments

You Are Entitled to a Refund

If your advance payments and tax withheld at source exceeded your actual tax liability, you are entitled to a refund from the tax authority. Common scenarios include:

• Deductible expenses and deductions that your advance rate did not fully take into account, so your final tax came out lower than what you paid
• Credit points you are eligible for (new immigrant credits, academic degree credits, etc.) that your advances did not take into account
• Withholding tax deducted by clients at a rate higher than your actual rate
• Lower income than anticipated when advance payments were set

A similar reconciliation happens with National Insurance (Bituach Leumi): the contributions set during the year are later adjusted to the final income-tax assessment.

By law, a refund on a report based on proper books or documents is generally due within 90 days of filing or by July 31 of the year after the tax year, whichever is later, with linkage differences and interest. If you get a large refund year after year, you can send the assessing officer a reasoned request to lower your advance rate (Form 2216a).

8. How Keep Helps with Annual Report Filing

Filing an annual tax report does not have to be stressful. With Keep's digital bookkeeping, the income documents you issue stay in one place throughout the year.

• Year-round records -- Every invoice and receipt you issue in Keep is produced as a digitally signed PDF, on every plan. On the recommended plan, you also upload business expenses in a click, as a photo or a file.
• Reports to the tax authorities -- The recommended plan includes reports and payments to the tax authorities, and the personal accountant also handles the wealth declaration (Form 1219) when one is required.
• Professional guidance -- On the recommended plan, a personal accountant gives you professional guidance and represents you before the tax authorities.
• Business overview -- On every plan, the dashboard shows your income, expenses and profit for a date range you choose.

On the recommended plan, Keep offers the annual report at a special price, separate from the plan's monthly price.

Even when a representative prepares and files your report, the duty to file is yours as the business owner. It is worth going over the draft before it is filed and checking that it includes all of the year's income, including income that did not come from the business.

9. Frequently Asked Questions About the Annual Tax Report

Keep Team

The Keep team creates guides and resources to help freelancers and small business owners in Israel manage their accounting, taxes, and finances with confidence.