Opening a Tax Authority File in Israel: A Guide for the Self-Employed

1. Why You Must Register with the Authorities

Anyone who wants to work as a freelancer or self-employed individual in Israel is legally required to open a tax file with the authorities. This is the formal first step that makes you a business owner recognized by the authorities. It does not create a separate legal entity: you and your business remain one legal person. Working without an open file is a breach of the law, and it does not remove your duty to report the income and pay tax on it.

Opening a tax file involves three registrations with two bodies: Value Added Tax (VAT, Ma'am in Hebrew) and Income Tax (Mas Hachnasa), two divisions of the Israel Tax Authority, and the National Insurance Institute (Bituach Leumi), a separate body that is not a tax authority. Each registration covers a different aspect of your financial obligations as a self-employed person.

By law, you must register no later than the day your business activity begins, and you may register earlier. Delays can result in retroactive charges, penalties, and bureaucratic complications that are easily avoidable with proper planning.

Today an Osek Patur can open the VAT and Income Tax files with a single online application, while an Osek Murshe opens the file at the regional VAT office or through an authorized representative (a CPA, tax adviser or lawyer). So knowing exactly where to go, which documents to prepare, and what options are available to you is essential.

What each registration covers: VAT sets your classification as an Osek Patur or Osek Murshe, Income Tax opens the file through which you file your annual return, and National Insurance sets your National Insurance and health insurance advances. Osek Patur status exempts you only from charging VAT and from periodic VAT reports, not from income tax or National Insurance.

2. Step 1: VAT Registration (Ma'am)

There is no single required order for every business: usually the VAT file is opened first, and in the online Osek Patur application it opens together with the Income Tax file. During this step, your business classification is set -- Osek Patur (exempt dealer) or Osek Murshe (licensed dealer) -- and you receive your official dealer certificate.

How to Register for VAT

There are several ways to open a VAT file:

• In-person visit -- Go to the VAT office nearest your business address with Form 821 and all required documents. It is recommended to schedule an appointment in advance through the Israel Tax Authority website. You can also apply through an authorized representative.
• Online submission (Osek Patur only) -- Through the Israel Tax Authority website, an Osek Patur can submit a single free online application that opens the VAT file and the income tax file together. In the same application you can tick the option to open a National Insurance file too. An Osek Murshe cannot use this service.
• Through Keep -- You can open the file with the authorities through Keep, as a one-time service for 99 ILS + VAT.

What Happens Next?

Once your application is submitted, the VAT office reviews your details and determines your classification. If you applied for Osek Patur status, you must meet the legal requirements (primarily the annual revenue ceiling). If you register as Osek Murshe, your dealer number is your ID number (no new number is issued), and you charge VAT on every transaction from the day your business activity begins, which is also the latest day to register.

After approval, you receive a dealer certificate (Osek Patur or Murshe). An Osek Murshe gets a temporary certificate at the office and a permanent one by post later, and must display it prominently at the place of business. The Tax Authority publishes no fixed processing time: files are often opened quickly, but it depends on the review of the application and on complete documents.

In the application you declare your expected annual turnover and describe your occupation, and these details decide whether you can open an Osek Patur file or must register as an Osek Murshe. It is worth estimating turnover as total expected sales before expenses, and describing your occupation accurately. If during the year it becomes clear your turnover will pass the ceiling, you must notify VAT and switch to Osek Murshe, without waiting for the end of the year.

3. Step 2: Income Tax Registration

Opening an income tax file is required for ongoing reporting and submitting your annual tax return. On the regular track, income tax applies to your net profit -- the difference between your revenue and recognized business expenses. On the micro-business track (Esek Za'ir), which a new Osek Patur who opens the file online joins by default unless they opt out, 30% of turnover is deducted instead of actual expenses, so tax is charged on 70% of turnover. Some owners cannot use the 30% deduction, for example business owners who employ workers.

How to Register

• In person -- Visit the nearest tax assessor office (Pkid Shuma) with all required documents and fill out Form 5329 (Report of Personal Details and Declaration of Sources of Income).
• Online (Osek Patur only) -- The Tax Authority website lets an Osek Patur file a single online application that opens the income tax and VAT files together. An Osek Murshe opens the income tax file with Form 5329, or through an authorized representative who files a joint request for VAT and income tax.

Key Information

Upon opening your file, the tax assessor may set your advance payment rate (mikdamot) -- a percentage of your revenue that you pay monthly (or every two months, if your advance booklet sets bi-monthly payments) as an advance on your annual tax. The rate is based on your profession and expected income. Most micro-business owners are exempt from advances and pay the year's tax once, with the shortened annual report.

You should also deal with withholding tax. As a rule, opening the file does not grant an exemption automatically: the tax assessor sets your withholding rate, and if you expect the tax withheld to be more than your tax for the year, you can apply for a reduced rate or a full exemption. The exception is the Osek Patur: since 2017 the Tax Authority has given new Osek Patur files an exemption, unless there are debts or defaults. Without a certificate, clients who are required to withhold, such as public bodies and businesses that must keep double-entry books, withhold 20% of their payments to you, or 30% if you have no bookkeeping approval, which hurts your cash flow. It is worth applying from the very start of your operations.

You file an annual income tax return (Form 1301) for every tax year, and a micro-business owner files a shortened annual report instead. If your actual business expenses are more than 30% of turnover, it is worth checking whether leaving the micro-business track and deducting actual expenses would pay off. If you leave the track after using the 30% deduction, you cannot use it again for the next two tax years.

4. Step 3: National Insurance (Bituach Leumi)

You must register as self-employed with the National Insurance Institute as soon as you start working. You can do it in the combined process on the Tax Authority website, in the online Osek Patur application or a representative's request, by ticking the option to open a National Insurance file too. As a freelancer, you are required to pay National Insurance contributions and health insurance independently (unlike employees, whose employer deducts these).

How to Register

• Online -- In the combined process on the Tax Authority website, if you do not have a Tax Authority file yet: in the online Osek Patur application or in a request filed by an authorized representative, you tick the option to open a National Insurance file too. If you already have one, you complete Form 6101 (multi-year report, din ve-cheshbon rav shnati) on the National Insurance website.
• At a branch, by mail or by fax -- You can print Form 6101 and submit it at a National Insurance branch (service from a clerk requires an appointment), or send it by mail or fax. National Insurance publishes no fixed list of documents you must attach.

How Much Does It Cost?

National Insurance contributions are determined by your estimated income level. At the beginning, when there is no historical data, the Institute sets a monthly advance payment based on your declaration. When your income changes by at least 10%, you can ask National Insurance to update the advances (at most once a quarter), to avoid large differences when the account is reconciled against your final tax assessment.

Note: if you meet National Insurance's definition of a self-employed person, you pay on a minimum income of 3,442 ILS a month (as of October 2026), even when your actual income is lower. If you do not meet the definition, you pay contributions as someone with non-work income: income up to 3,442 ILS a month is exempt, and you pay on the part above it. Even so, if you are not also employed, you usually still pay at least the minimum contribution of 266 ILS a month, even with no income at all.

National Insurance checks whether you meet its definition of a self-employed person: working at least 20 hours a week on average, or earning at least 6,885 ILS a month, or working at least 12 hours a week and earning at least 2,065 ILS a month (as of October 2026). The definition decides how your contributions are calculated and whether you qualify for work-related benefits such as maternity pay, so declare your working hours and expected income on the form accurately.

5. Required Documents

To ensure a smooth process, prepare all required documents in advance:

• Israeli ID (Teudat Zehut) -- The identification document required to open the VAT file, including in the online application.
• Bank account confirmation -- An account-management confirmation from your bank for the account the business will use. An individual does not need a separate business account.
• Lease or purchase contract -- For the premises the business operates from, if they are rented or bought. In the online application you attach a lease only if the premises are rented.
• Proof of expected activity -- For example a professional certificate or license, an agreement with a client, or an invoice for equipment you bought.
• Business activity details -- Description of your business activities and expected revenue.

Alongside the documents you fill in the opening forms: Form 821 for VAT, Form 5329 for Income Tax and Form 6101 for National Insurance. In the online Osek Patur application, a single online form replaces the first two, and you can tick an option in it to open a National Insurance file too. You attach scans of your ID, the bank account-management confirmation and, if the premises are rented, the lease.

6. Osek Patur vs Osek Murshe

Your classification is set when you open your VAT file. If your expected turnover does not exceed the Osek Patur ceiling and your occupation is not on the list of professions for which Osek Murshe registration is mandatory, you can choose between two tracks:

Osek Patur (Exempt Dealer)

Suitable for businesses whose expected annual turnover does not exceed the ceiling (122,833 ILS as of October 2026; it is normally updated on 1 January). Advantages: no VAT collection from clients, simpler reporting. Disadvantages: cannot deduct VAT on expenses, cannot issue tax invoices.

Osek Murshe (Licensed Dealer)

Required when revenue is expected to exceed the ceiling, or for professions listed in the VAT regulations (lawyers, accountants, doctors, etc.). Some businesses choose it voluntarily, for example when their clients are businesses that ask for tax invoices, but that is a commercial requirement of the client, not a legal one. Advantages: can deduct VAT on business expenses (with limits on some expenses). Disadvantages: must collect VAT at 18% (as of October 2026) and file periodic VAT reports, monthly or every two months.

When deciding between the two, it helps to look at who your clients are: a client that is an Osek Murshe deducts the VAT on your invoice, so VAT does not make the deal more expensive for them, while a private client pays it in full. An Osek Patur files only one annual turnover declaration with VAT, by 31 January, while an Osek Murshe files a report even for a period with no transactions.

If you are unsure which to choose, it is worth consulting an accountant. At Keep, a personal accountant for professional guidance is included in the recommended plan.

7. Common Mistakes to Avoid

1. Delaying registration -- Working without an open file can lead to heavy fines, retroactive charges, and even criminal proceedings.
2. Choosing the wrong classification -- Registering as an Osek Patur when you already expect your turnover to pass the ceiling can mean paying VAT, plus interest, linkage and fines, on sales made before you reported the change.
3. Forgetting National Insurance -- If you do not register, National Insurance can charge contributions back to the real start of your self-employment, plus fines and inflation linkage, and you may not receive work-injury benefits for an injury before you registered.
4. Not requesting withholding tax exemption -- Without an exemption or reduced-rate certificate, clients who are required to withhold will deduct tax from your payments. The tax withheld can be offset against your income tax advances during the year, if you pay advances, and the final settlement is made with your annual report.
5. Disorganized documentation -- Arriving at offices without complete documents delays the process and causes needless frustration.

Another mistake is not keeping documents from day one. Books and documents, including receipts for expenses, must be kept for 7 years from the end of the tax year, or 6 years from filing that year's annual report, whichever is later.

8. How Keep Simplifies the Process

Opening a tax file does not have to be a cumbersome and stressful process. With Keep, you can open your file with the authorities and then manage your business documents and payments in Keep.

• Opening the file -- A one-time service to open your file with the authorities, for 99 ILS + VAT.
• Professional support (recommended plan) -- A personal accountant for professional guidance and representation before the tax authorities.
• Transparency -- See the status of your documents and payments, and which clients still owe you money (on every plan).
• All your business data in one place -- A dashboard with income, expenses and profit for a date range you choose (on every plan).

After your file is open, you can issue unlimited invoices and receipts in Keep on every plan. The recommended plan (105 ILS a month + VAT for an Osek Patur) also includes uploading business expenses in a click, and reports and payments to the tax authorities.

Every payment you receive needs a receipt, starting with the first one, and the receipt shows your dealer number (usually your ID number). Even when someone else handles your reports, the duty to file and pay on time stays with the business owner.

Frequently Asked Questions About Opening a Tax File in Israel

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.