Key Takeaways
- A self-employed person deals with three authorities on an ongoing basis: VAT, income tax and National Insurance. An Osek Murshe files a monthly or bi-monthly VAT report by the 15th of the month after the period (the 19th when reporting and paying online), and an Osek Patur, as a rule, files only an annual turnover declaration with VAT by January 31; advances are paid monthly to National Insurance, and to income tax only when the tax assessor has set them.
- Income tax advances are set by the tax assessor as a percentage of turnover and paid by the 15th of the month, or the 19th when paying online. A micro-business owner (turnover up to 122,833 NIS for 2026) is usually exempt and pays the tax once a year, with the annual report.
- A self-employed person with no employees files no periodic reports with National Insurance (Bituach Leumi), but pays a fixed monthly advance by the 15th for the previous month, which can be updated if income changes by at least 10%.
- An Osek Murshe must file a VAT report even for a period with no income or expenses (a zero report). A VAT report filed late carries a fine of 247 NIS for every two weeks or part of two weeks of delay (amount from July 2025, index-linked).
- Since June 1, 2026, an allocation number is required on a tax invoice above 5,000 NIS before VAT when the customer is an Osek Murshe who wants to deduct the VAT on it. Without it, the customer cannot deduct the VAT or claim the expense for income tax.
1. VAT Reporting: Osek Patur vs. Osek Murshe
Immediately after completing the process of opening a file with the tax authorities, ongoing reporting obligations begin. The method of VAT reporting is determined by your business classification, which depends primarily on your annual turnover.
Osek Patur (Exempt Dealer) -- Annual Reporting
An Osek Patur does not charge VAT to customers and cannot deduct input tax on expenses. Their reporting obligation is limited to a single annual declaration of total business turnover for the previous tax year.
The purpose of this declaration is to verify that turnover did not exceed the Osek Patur ceiling set by law (122,833 NIS for 2026), which is normally updated annually according to the consumer price index. The declaration is due by January 31 of the following year and is normally filed online through the Tax Authority's personal area or by a representative.
From the day it becomes clear that your turnover for the current year exceeds, or will exceed, the ceiling, you are no longer an Osek Patur, and the change to Osek Murshe must be reported to VAT without waiting for the end of the year. Delaying this report can result in retroactive VAT, plus interest, linkage differences and penalties, on every transaction from the date you should have become an Osek Murshe.
Osek Murshe (Licensed Dealer) -- Periodic Reporting
An Osek Murshe must file ongoing reports on all transactions. The reporting frequency depends on annual turnover:
- Monthly reporting -- For businesses whose turnover exceeds the threshold set in VAT regulations (1,775,000 NIS as of 2026).
- Bi-monthly reporting -- For smaller businesses.
Each report includes two main components:
- Output tax (Mas Isakot) -- Total VAT collected from customers on sales or services.
- Input tax (Mas Tshumot) -- Total VAT paid to suppliers on recognized business expenses.
The amount due is the difference between output and input tax. If input tax exceeds output tax, you are entitled to a VAT refund. The reporting deadline is the 15th of the month following the reporting period.
If you report and pay online and are not required to file the detailed report (PCN874), you can file the periodic report and pay by the 19th of the month instead of the 15th; if you must file the detailed report, it is due by the 23rd. In some professions, such as law, accounting, engineering and architecture, you must register as an Osek Murshe regardless of turnover.
2. Israel Invoice Model and Its Impact on 2026 Reporting
The Israel Invoices model, in place since May 2024, links invoices to VAT reporting. Businesses that file the detailed VAT report (PCN874) list their invoices in it, and the Tax Authority checks the allocation numbers and invoice details in that report against the data their suppliers reported.
Under the VAT Law, input tax cannot be deducted on a tax invoice that requires a valid allocation number (Mispar Haktsa'a) -- an invoice above the legally defined threshold -- but does not carry one. In the detailed report, the input VAT on such an invoice is removed automatically from the total input tax.
The threshold for mandatory allocation numbers has come down in stages and, since June 1, 2026, has stood at 5,000 NIS before VAT. A unique allocation number from the Tax Authority is required on a tax invoice whose amount before VAT exceeds the threshold, when the customer is an Osek Murshe who wants to deduct the VAT on it. Sales to private consumers, zero-rated transactions and documents that are not tax invoices do not need one.
The law does not require invoicing software: manual invoices are still lawful, and allocation numbers can also be requested without software, in the free app the Tax Authority offers in its personal area. A business that issues many invoices above the threshold to business customers may still save work with software connected to the Israel Invoices system.
An allocation number can be requested after the invoice is issued, but the customer cannot deduct the VAT until the number exists. It is therefore worth requesting it when you issue the invoice, especially for business customers paying larger amounts. An Osek Patur does not issue tax invoices, so the requirement does not apply to them.
3. Income Tax: Advance Payments and Reporting
While VAT is a tax on turnover, income tax is levied on net profit (income minus deductible expenses). Since final profit is only known at year-end, ongoing payments are made through advance payments (Mukdamot).
The tax assessor sets an advance payment rate as a percentage of turnover, based on past data, or for a new business on the income estimate the owner provided. Reporting and payment are monthly, or bi-monthly where the advance booklet allows it, by the 15th of the month (the 19th when paying online). A micro-business owner (Baal Esek Zair, annual turnover up to 122,833 NIS for 2026) is usually exempt from advances and pays the year's tax once, with the short annual report. A new Osek Patur who opens the file online is registered as a micro business by default unless they opt out.
You can ask the tax assessor for a reduction in advance payment rates (Form 2216a) if your expected profit is lower than the advances reflect; it is approved only if you can back this up. If the reduction turns out to be too large, linkage differences and interest apply to the shortfall. When profitability rises, you can pay more during the year to avoid linkage differences and interest on the balance at year-end.
All advance payments are provisional. The final settlement occurs only after filing the annual tax report.
When you receive the advance booklet from the tax assessor, it is worth checking that the rate matches your expected profit and asking for a reduction early in the year if it is too high. An early request keeps the money in the business during the year, instead of waiting for a refund after the annual return.
Impact of the Israel Invoice Model on Income Tax
The invoice model's implications extend beyond VAT. Recognition of a business expense for reducing taxable income requires proper documentation under the bookkeeping rules, not necessarily a tax invoice; an Osek Patur supplier, for example, cannot issue a tax invoice at all. Since August 1, 2025, an Osek Murshe who receives a tax invoice above the threshold (from June 1, 2026: more than 5,000 NIS before VAT) without an allocation number loses both the VAT deduction and the income-tax deduction for that expense (Income Tax Ordinance s.32(18)).
4. Withholding Tax Certificates
Many businesses are required to present clients with a valid withholding tax certificate, which sets a full exemption or a reduced rate. Without such a certificate, a client that is legally required to withhold (for example, a public body or a larger business) deducts a percentage from the payment and transfers it directly to the Tax Authority.
Tax withheld at source is not an extra tax: it counts toward your income-tax advances for the same year, and whatever is not offset during the year is credited in the annual return. Maintaining a valid certificate is critical for cash flow management, because without it part of each payment from clients that must withhold is held by the Tax Authority until it is offset.
The certificate is issued electronically: businesses that meet the criteria get it automatically, and it can be viewed and printed on the Tax Authority website. If you did not get one, you apply to the tax assessor, yourself or through a representative. It is valid for the tax year and until March 31 of the following year, and depends on, among other things, filing your annual and periodic reports, keeping proper books, and having no significant tax debts without a payment arrangement.
The advance report has a separate field for tax withheld at source, and when the withholding is larger than that period's advance, the excess can be offset against later advances in the same year. The offset requires a written statement from the client of the amount withheld, and offsetting without one can bring a fine of three times the amount. If you pay no advances, for example as a micro-business owner exempt from them, the credit comes only in the annual return.
5. National Insurance (Bituach Leumi) Advance Payments
Similar to income tax, National Insurance contributions and health insurance premiums are paid based on net profit through ongoing advance payments.
The National Insurance Institute sets a fixed monthly advance amount (in NIS, not percentages) based on your latest income-tax assessment, or for a new business on the expected income declared when the file was opened. Payments are due by the 15th of each month for the previous month, regardless of actual turnover that month.
You can ask to update advance payment amounts at most once a quarter (Form 672) if your expected income has changed by at least 10%.
Importantly, self-employed status with National Insurance provides social benefits (maternity pay, military reserve compensation, etc.). Maternity pay and work-injury benefits, for example, are calculated on the income on which advances were charged or paid, and entitlement also depends on meeting the self-employed definition and paying contributions on time.
Once the income-tax assessment for the year is set, National Insurance recalculates the contributions: if too little was paid, it collects the difference with linkage differences, and if too much was paid, it refunds the excess. If you employ staff, you also file monthly employer reports.
6. Zero Reporting -- Mandatory Even Without Activity
A common mistake among new business owners is assuming that if there was no income during a reporting period, there is no need to file a report. This assumption can be costly.
An Osek Murshe must file a periodic VAT report for every reporting period. This obligation is fixed and continuous, regardless of whether any transactions occurred: even with zero income and zero expenses, you must file a "zero report" on time. An Osek Patur files no periodic VAT reports, and a self-employed person with no employees files no periodic reports with National Insurance.
Failure to file on time, even for a zero report, can lead to:
- Tax set by the authority -- When no report is filed, the Tax Authority may set the tax from the scope of transactions, or by estimate where there is no data.
- Late-filing fine -- A VAT report filed late carries a fine, by law, of 247 NIS for every two weeks or part of two weeks of delay (the amount since July 2025; it is index-linked).
- Late-payment charges -- When tax is also due, paying late adds linkage differences and interest, and for VAT a weekly late-payment penalty.
A zero VAT report is filed the same way and by the same date as a regular report, with zero sales and zero inputs. An Osek Patur with no income at all still files the annual declaration by January 31, with zero turnover. If a period had only expenses, the report is not a zero report: an Osek Murshe reports the input tax and may be due a refund.
7. How to Pay: Payment Methods and Dates
Taxes can be paid online, but payment vouchers have not been abolished. For VAT, the Tax Authority lists payment by credit card on its website, by bank debit authorization, through a representative who holds such an authorization, or by a barcoded voucher paid at the Postal Bank. National Insurance advances can be paid by bank standing order, by credit card online or by phone, or in cash at the Postal Bank.
A practical way to ensure timely payment is to set up a direct debit authorization (standing bank order) for each authority. With the Tax Authority, when the authorization is given to a representative (a CPA or tax adviser), the payment is debited from your bank account on the date the representative sets when filing the report, which can be the last payment date. With National Insurance, if you pay by bank standing order, you are debited on the 22nd of each month for the previous month, which is National Insurance's fixed collection date.
This mechanism prevents technical delays that could incur fines and interest, even when the report itself was filed on time.
For VAT, the late-payment penalty is 0.25% of the overdue amount for each week or part of a week during the first six months of delay, and 0.5% per week after that, on top of linkage differences and interest. If you pay yourself rather than through a representative, paying on the Tax Authority website right after filing keeps the payment from lagging behind the report.
8. How Keep Simplifies Ongoing Reporting
Keep is a digital bookkeeping system that keeps your business documents and data in one place. Here is how it helps with ongoing reporting:
- Reports and payments to the tax authorities -- in the recommended plan, including VAT reports (for an Osek Patur, the annual declaration). The annual report is offered at a special price and is not included in the monthly price.
- Unlimited invoices and receipts -- on every plan, produced as digitally signed PDFs.
- Expense upload in a click -- in the recommended plan, by photo or file.
- All your business data in one place -- a dashboard with income, expenses and profit for a date range you choose, on every plan.
- Professional support -- in the recommended plan, a personal accountant for professional guidance and representation before the tax authorities.
Even when an accountant handles the reports, the business owner remains responsible for filing and paying on time. Recording expenses and issuing documents during the month, rather than on the last day, means the report rests on complete figures. It is worth keeping the filing confirmations and payment confirmations, so you can show you met the deadlines if a question comes up.
With Keep, the documents and figures your ongoing reporting relies on are kept in one place, and the recommended plan includes reports and payments to the tax authorities, with a personal accountant for professional guidance -- so it is easier to meet the deadlines.
9. Frequently Asked Questions About Ongoing Reporting
Does an Osek Patur have to report VAT every month?
No. As a rule, an Osek Patur files no periodic VAT reports, only one declaration a year of the previous year's turnover, by January 31. The declaration is filed even in a year with no income, with zero turnover. Monthly or bi-monthly reports are filed only by an Osek Murshe.
What is a zero VAT report and who has to file it?
A zero report is a periodic report for a period with no income or expenses. An Osek Murshe must file one with VAT for any such reporting period. There is no zero report for National Insurance, because a self-employed person with no employees files no periodic reports with it.
What happens when an Osek Patur passes the ceiling mid-year?
From the day it becomes clear that this year's turnover exceeds, or will exceed, the ceiling (122,833 NIS for 2026), the business is no longer an Osek Patur, and VAT applies to every transaction from that day. The change to Osek Murshe is reported to VAT without waiting for the end of the year. Delaying it can result in retroactive VAT, plus interest, linkage differences and penalties, on every transaction from the date the business should have become an Osek Murshe.
When are Bituach Leumi advances due for the self-employed?
By the 15th of each month, for the previous month. If you pay by bank standing order, National Insurance collects on the 22nd, which is its own collection date for standing orders, not a late payment. The amount is fixed and does not depend on that month's turnover.
Can withholding tax be offset against income tax advances?
Yes. Tax your clients withheld at source counts toward your income tax advances for the same year, provided you have a written statement of the amount withheld. Whatever is not offset during the year is credited in the annual return, and if you paid more than the final tax, the excess is refunded.
