Establishing an Osek Murshe (Licensed Dealer) requires three registrations with two bodies: a VAT file and an income tax file with the Israel Tax Authority, and registration with the National Insurance Institute. This classification applies to business owners whose annual transaction volume exceeds the Osek Patur ceiling (122,833 NIS as of 2026), or to people in the professions and fields that are required to register regardless of income level. The bureaucratic process demands precision in form completion and a thorough understanding of ongoing reporting obligations to avoid fines and financial penalties.
Key Takeaways
- Opening an Osek Murshe takes three registrations: a VAT file (Form 821) and an income tax file (Form 5329) with the Israel Tax Authority, and registration with National Insurance. An Osek Murshe opens the files through a representative, such as an accountant, tax adviser or lawyer, or without one, by filing Form 821 at the regional VAT office and Form 5329 with the Tax Assessor.
- You must register as an Osek Murshe when your annual turnover is expected to exceed the Osek Patur ceiling, 122,833 NIS as of 2026, or when your field is listed in Regulation 13, such as law, medicine, engineering, architecture and real estate brokerage, even if your income is low.
- An Osek Murshe files a VAT report every two months if turnover is up to 1,775,000 NIS, or every month above that (as of 2026), by the 15th of the month after the period. A zero report is filed even for a period with no transactions.
- A tax invoice above 5,000 NIS before VAT to a business client that deducts VAT needs an allocation number from the Tax Authority (as of September 2026). Software is not required: you can also request the number in your personal area on the Tax Authority website.
- VAT paid on equipment for setting up the business before registration can be deducted under Section 40A of the VAT Law, if you can show the purchase was used for the set-up. The deduction is generally claimed within six months of the invoice date.
Who Is Required to Register as an Osek Murshe Under VAT Regulations?
The definition of "Osek Murshe" is not always a matter of free choice - it derives from two primary parameters: business turnover and type of occupation.
The financial parameter: When annual turnover (total sales, not profit) is expected to exceed the Osek Patur (Exempt Dealer) ceiling - 122,833 NIS as of 2026 - there is a legal obligation to register as an Osek Murshe. The ceiling is generally indexed to the Consumer Price Index each January; it was 120,000 NIS in 2024 and 2025.
The professional parameter: Regulation 13 of the VAT (Registration) Regulations specifies a closed list of professions required to register as Osek Murshe from the first shekel, regardless of transaction volume. This list includes architects, engineers, private investigators, lawyers, physicians, and real estate agents, among others.
A professional on this list cannot register as an Osek Patur, even if their annual income falls below the threshold. Failure to register at the correct status, or to update a registration that no longer fits, constitutes a violation of the VAT Law and can lead to administrative and criminal sanctions.
An Osek Patur whose turnover is expected to pass the ceiling during the year must move to Osek Murshe status, so it is worth tracking your cumulative turnover and contacting the VAT office or an accountant before you reach it. It is also worth checking the full Regulation 13 list: it also covers companies, vehicle dealers and brokers, driving schools, and kindergartens and schools that teach for profit.
Step 1: VAT Registration
The first step is opening a file at the regional VAT office for your business or residential address: in person, or through a representative linked to the Tax Authority's computer system (SHAAM), such as an accountant, tax adviser or lawyer. The process requires precise completion of Form 821 for business registration, where you must declare the projected annual transaction volume and your economic sector classification, and attach your ID card, the lease or purchase contract for the business premises, a bank confirmation for the account the business will use (an individual does not need a separate business account) and proof of the expected activity.
Upon receiving your Licensed Dealer certificate, the business may begin issuing tax invoices and collecting VAT from clients. VAT registration forms the foundation for the subsequent process with Income Tax.
It is important to note that the type of activity you report determines whether you may register as an Osek Patur or must register as an Osek Murshe, and which bookkeeping rules apply to you. Ensure that the reported sector precisely matches the nature of your business activity, and if it changes, notify VAT in writing within 15 days.
An individual's dealer number is their ID number, so you do not receive a new file number. At the end of registration at the VAT office you receive a temporary Osek Murshe certificate, and the permanent one is sent by post later. The certificate is displayed prominently at the business, and the dealer number appears on every invoice and receipt.
Step 2: Income Tax Registration
You must open an income tax file no later than the day your business activity starts. A representative linked to SHAAM can open the VAT and income tax files in one request. If you open the files without a representative, the income tax file is opened after VAT registration by completing Form 5329, which contains personal details and a declaration of additional income sources.
The Tax Assessor decides whether you pay advances and at what percentage of turnover (excluding VAT). Advances are usually paid monthly, and bi-monthly only if your advance booklet allows it. A micro-business owner (annual turnover up to 122,833 NIS as of 2026) may be exempt from them. This registration will later serve as the basis for filing an annual income tax return at the end of the tax year.
In the current era, the trend is toward enabling these processes digitally, streamlining the procedure and eliminating the need for physical visits to the Tax Assessor's office. An Osek Patur can open the files through the Tax Authority's online service. An Osek Murshe usually opens them through a representative linked to SHAAM; if you file yourself, Form 821 goes to the regional VAT office and Form 5329 to the assessing office, at the branch or through the Tax Authority's online enquiries system.
The annual income tax return (Form 1301) is filed after the end of the tax year, and a self-employed person with business income generally files it online. The statutory deadline is 30 April of the following year, or 31 May for online filing. A micro-business owner files a shortened annual report instead, by 31 March. The Tax Authority sometimes extends these deadlines, as it did for tax year 2025, so it is worth checking the current date before filing.
Step 3: National Insurance Registration and Classification
The third step is establishing your status with the National Insurance Institute, as soon as you start working as self-employed. If you already have a Tax Authority file, you submit the Multi-Year Report Form (Form 6101). You can also register with National Insurance together with the Tax Authority file, through the combined digital process.
National Insurance premiums are a percentage of your business income: advances during the year, then a settlement based on your income tax assessment. Working hours are not part of the calculation itself. They only help decide your status ("self-employed meeting the definition" or "self-employed not meeting the definition"), and your status decides which rules and rates apply.
An incorrect classification on this form may lead to impaired future social rights, such as work injury compensation or maternity benefits. It is crucial to fill in the details accurately and to update the Institute when your status changes, for example when you stop working as self-employed. If your income changes by at least 10%, you can ask for your advances to be recalculated, at most once a quarter.
In 2026 you meet the self-employed definition if you work at least 20 hours a week on average, if your monthly income is at least 6,885 NIS, or if you work at least 12 hours a week with a monthly income of at least 2,065 NIS. If you meet the definition, you pay 7.70% on monthly income up to 7,703 NIS and 18% on the part above it, up to a ceiling of 51,910 NIS a month (ages 18 to retirement age).
What Are the Ongoing Reporting Obligations of an Osek Murshe?
After completing registration, the dealer enters a routine of reports and payments. An Osek Murshe must file a periodic VAT report: every two months if turnover is up to 1,775,000 NIS, or every month above that (as of 2026). The report is due by the 15th of the month after the reporting period (usually the 19th when filing online), and a zero report is filed even for a period with no transactions.
The report includes total transactions executed and VAT collected (outputs), offset against VAT paid on business expenses (inputs). Avoiding errors in expense management enables optimal VAT offsets and reduces the VAT due for each reporting period.
Additionally, monthly advances to National Insurance, and income tax advances where they were set, must be paid on schedule. A material cash flow consideration relates to pricing transactions according to the current VAT rate (18%), set as part of the January 2025 VAT increase.
Ignoring the updated tax rate in profitability calculations, or under-charging clients, is a common mistake that can erode business profit margins from the earliest stages.
It is worth collecting expense invoices throughout the period, not just before the report, and checking that each one is a tax invoice in the business's name: only then can you deduct its VAT (except for set-up expenses before registration, under Section 40A), generally within six months of the invoice date. A report filed late carries a fine of 247 NIS for every two weeks of delay or part of them (as of 2026).
Israel Invoices Model and Allocation Numbers
In 2026, the Israeli reporting system operates fully under the Israel Invoices model. This model requires obtaining an "allocation number" from the Tax Authority for a tax invoice exceeding 5,000 NIS before VAT when the client is a business that wants to deduct the VAT (as of September 2026; the threshold dropped to 5,000 NIS in June 2026 and was 10,000 NIS before that), in accordance with the statutory threshold reduction schedule.
Without this allocation number, the client cannot offset VAT on the invoice, which may lead to payment refusal from business clients.
The law does not require software: a business using a manual invoice book can request an allocation number free of charge in its personal area on the Tax Authority website and write it on the invoice, even by hand. Invoicing software connected to the service requests the numbers for you, which saves work for a business that issues many large tax invoices to other businesses.
The allocation number is requested by whoever issues the invoice, and they must request it when the client asks. It can also be requested after the invoice was issued, but until the number arrives the client cannot deduct the VAT, so it is worth requesting it when you issue the invoice. The requirement does not apply to receipts, zero-rated transactions or sales to private customers.
Key Differences Between Osek Patur and Osek Murshe
| Parameter | Osek Patur | Osek Murshe |
|---|---|---|
| VAT Collection | Exempt from collecting VAT from clients | Must collect VAT and issue an invoice for every transaction (a tax invoice is mandatory when the client asks) |
| VAT Offset | Not permitted to offset VAT on expenses | May offset VAT on recognized business expenses |
| Revenue Threshold | Limited to a CPI-linked annual ceiling (122,833 NIS as of 2026) | No limit on transaction volume |
| VAT Reporting | Annual report only (turnover declaration) | Monthly or bi-monthly regular reporting |
| Document Type | Receipt (or transaction invoice) | Tax invoice and receipt |
Income tax and National Insurance are not in the table because the basic obligations there are similar for both statuses: an Osek Patur also opens an income tax file, files an annual return and registers with National Insurance. So the choice between Patur and Murshe is mostly about VAT, and you can register as an Osek Murshe voluntarily even below the ceiling, for example when most of your clients are businesses or when you expect large equipment purchases whose VAT you could deduct.
Pre-Registration Expense Recognition: Section 40A of the VAT Law
A common legal issue concerns expenses incurred during the establishment phase, before receiving the dealer certificate. Section 40A of the VAT Law allows offsetting input tax (receiving a VAT refund) on assets and equipment purchased for establishing the business, even if the purchase was made before the formal registration date - provided you can show the purchase was made during the set-up stage and used to set up the business. The deduction is generally claimed within six months of the invoice date, and a tax invoice above 5,000 NIS before VAT also needs an allocation number.
Exercising this right requires presenting proper tax invoices (the section also accepts an invoice that was not issued in the dealer's name) and keeping the original, or a scanned copy that meets the Tax Authority's scanning rules. Organized management of digital receipts from the earliest stage saves significant headaches down the road.
To show that the purchases were used to set up the business, it is worth keeping, next to each tax invoice, a document that links it to the business, such as a quote, an order or a supplier agreement. This deduction is open only to an Osek Murshe: an Osek Patur does not deduct VAT, including on set-up expenses.
Can the Registration Process Be Done Entirely Digitally?
Israeli bureaucracy has undergone significant change in recent years. When you open the files through a representative, there is no need to travel between government offices or wait in lines. The Keep system enables business owners to complete the entire registration process remotely.
You upload a photo of your ID card and of a driving licence or passport, and sign a digital authorisation for representation before the tax authorities. The Keep team submits the applications to VAT, Income Tax and National Insurance, and lets you know when the files are open.
Before submission, the Keep team goes over your details and documents and tells you if anything is missing or needs correcting. Establishing the business is just the beginning - even when a representative handles the reports, the legal responsibility for reports, tax payments and bookkeeping stays with the business owner, so it is worth having professional support after the files are open too.
To start the registration process, contact the Keep team. On the recommended plan, a personal accountant continues to support the business and represent it before the tax authorities.
Opening the files with Keep is a one-time 99 NIS + VAT. After that you pay the plan price, 39 NIS (basic) or 105 NIS (recommended) a month + VAT, and an Osek Murshe adds 123 NIS a month including VAT. There is no commitment, and you can switch plans at any time at no cost.
Frequently Asked Questions About Opening an Osek Murshe
What is the difference between an Osek Patur and an Osek Murshe?
An Osek Murshe charges clients VAT, issues tax invoices, deducts VAT on business expenses and files a periodic VAT report. An Osek Patur does not charge or deduct VAT, and its only VAT filing is an annual turnover declaration, by 31 January. An Osek Patur has a turnover ceiling of 122,833 NIS (as of 2026); an Osek Murshe has no ceiling.
Can I open an Osek Murshe online?
Yes, through a representative linked to the Tax Authority's computer system (SHAAM), such as an accountant, tax adviser or lawyer, who files the application on your behalf. According to the Tax Authority's guide, without a representative an Osek Murshe file is opened at the regional VAT office, and the self-service online route on the website is for an Osek Patur. With Keep, you upload the documents and sign a digital authorisation for representation, and the Keep team submits the applications.
When do I have to register as an Osek Murshe?
No later than the day you start your business activity. You can also register earlier if you can show the business is being set up. An Osek Patur whose turnover is expected to pass the ceiling must update the registration and move to Osek Murshe status.
Does an Osek Murshe have to pay advances?
For income tax, not always: the Tax Assessor decides whether you pay advances and at what percentage of turnover, and a micro-business owner may be exempt. National Insurance advances are paid monthly based on income, and are settled once your income tax assessment is made.
Do I need a business bank account to open an Osek Murshe?
No. An individual needs a bank confirmation for an account the business will use, and does not have to open a separate business account. According to Kol Zchut, a joint account of spouses is also accepted if both sign a declaration that it will also serve the business. A company or partnership needs an account in its own name.
