Key Takeaways
- A transaction invoice (cheshbon iska) is a payment request: the document in which an Osek Patur sets out the work and the amount due. It does not show that the money arrived; for the payment itself, you issue a receipt.
- An Osek Patur may not issue a tax invoice, and not a tax invoice receipt either, because under the VAT Law only an Osek Murshe may issue a tax invoice. Anyone who issues one without being entitled to do so owes double the VAT shown on it.
- An Osek Patur does not charge VAT and cannot deduct the VAT it pays on expenses. It is still registered with the VAT authority and files an annual declaration of the previous year's turnover by 31 January.
- The Osek Patur turnover ceiling is NIS 122,833 a year as of 2026, measured on income before expenses. Lawyers, accountants, engineers, doctors and other occupations on the regulations' list register as an Osek Murshe even below the ceiling.
- The file must be opened no later than the day the business starts operating. An Osek Patur can open it online on the Israel Tax Authority website, and one application opens both the VAT and the income tax file.
What Is Osek Patur (Exempt Dealer)?
Running a successful business requires a deep understanding of taxation and accounting. One of the key topics every small business owner in Israel needs to understand is the concept of Osek Patur (exempt dealer).
An Osek Patur is essentially a self-employed individual or small business owner who does not charge VAT (Value Added Tax) on their sales. This means you don't need to charge VAT to your customers, but on the other hand, you cannot deduct VAT you've paid on business expenses. That does not mean it has nothing to do with VAT: an Osek Patur is still registered with the VAT authority and has a VAT file. It pays VAT on what it buys and files a turnover declaration once a year.
Understanding this concept is especially important when it comes to transaction invoices - the payment request in which an Osek Patur sets out the work and the amount due. Unlike an Osek Murshe (authorized dealer), which may issue a tax invoice, an Osek Patur may not issue a tax invoice or a tax invoice receipt. It issues a transaction invoice as a payment request, and a receipt for every payment it receives.
To keep the three documents apart: a transaction invoice asks for payment, a receipt confirms that payment was received, and a tax invoice charges VAT and is the document a business client deducts VAT against. An Osek Patur issues only the first two, so it never adds a VAT line to its transaction invoice or receipt.
Who Should Be Osek Patur?
To qualify as an Osek Patur, you must meet two main criteria:
Business Type
There is no legal list of businesses that may be exempt. It works the other way round: the VAT registration regulations list occupations that must register as an Osek Murshe even when their turnover is below the threshold, and any other self-employed person under the threshold can be an Osek Patur, for example many freelancers and service providers in various fields. The mandatory list includes, among others, lawyers, accountants, engineers, architects, doctors, psychologists, physiotherapists, tax consultants, management and organisational consultants, and real estate and vehicle dealers and brokers.
Annual Turnover
Your annual business turnover must be below the threshold set by law. As of 2026, the exemption threshold is NIS 122,833, and it is usually updated on 1 January each year. Remember that this refers to gross turnover, meaning before deducting expenses. If you anticipate your income will exceed the threshold, you must register as an Osek Murshe from the start: an Osek Patur file cannot be opened when the expected turnover is above the threshold.
Professionals on the list register as an Osek Murshe from the first shekel, and a limited company can never be an Osek Patur. If you are not sure whether your occupation is on the list, check before opening the file, because a file opened in the wrong category will need to be reclassified later.
Advantages of Osek Patur Status
Being an Osek Patur comes with several significant advantages:
- Simplicity - Simpler accounting management and no periodic VAT reports. Once a year you file a turnover declaration with the VAT authority and an annual income tax report.
- Price without VAT - An Osek Patur adds no VAT to its price. That is an advantage with private clients, who cannot deduct VAT: at the same pre-VAT price, they pay an Osek Patur less than an Osek Murshe. You still pay VAT on business expenses as usual, and you cannot deduct it.
- Flexibility - Especially suitable for small businesses starting out or businesses with low income turnover, allowing you to focus on business development rather than dealing with bureaucracy.
Simplicity does not mean tax-free: the exemption is from VAT only. You pay income tax and National Insurance (Bituach Leumi) contributions on your taxable income like any self-employed person. A new Osek Patur who opens the file online is on the micro-business track by default, where 30% of turnover is deducted instead of actual expenses. You can ask to leave the track and deduct your actual recognised expenses instead.
Disadvantages of Osek Patur Status
Alongside the advantages, it's important to know the disadvantages:
- No VAT deduction - You cannot deduct VAT on business expenses. This can be a significant disadvantage for businesses with high expenses, as the VAT you paid on those expenses is essentially "lost."
- Business image - Some clients prefer to work with businesses registered as Osek Murshe, as it's perceived as indicating more seriousness and reliability. Some business clients prefer a supplier that issues tax invoices, and sometimes their procurement rules require it. That is a commercial preference, not a legal requirement: an Osek Patur's price carries no VAT, so there is nothing for them to deduct.
- Turnover limit - Osek Patur status applies only while turnover stays below the exemption threshold. If the business grows and exceeds the threshold, it must register as Osek Murshe.
To decide, look at two things: who your clients are and how much VAT you pay on expenses. Private clients and low expenses point toward Osek Patur. Business clients that require a tax invoice, or expensive equipment whose VAT would be lost, are reasons to consider Osek Murshe status even below the ceiling.
How to Open an Osek Patur File
The process of opening an Osek Patur file is straightforward and can be done online through the Israel Tax Authority website. The process involves:
- Filling in personal details and business information (business name, field of activity, address, etc.).
- Attaching required documents such as an ID card and bank account verification.
- Submitting the application and receiving approval from the Tax Authority.
You must open the file no later than the day the business starts operating, and you can open it earlier, while you set up. That way you're ready to receive payments and issue receipts from day one.
At the end of the process you receive an Osek Patur certificate, and your dealer number is your ID number. That number goes on every receipt and every transaction invoice. If the business operates from rented premises, you also attach the lease agreement to the application.
Bookkeeping for Osek Patur
Although an Osek Patur is exempt from filing periodic VAT reports, it is still required to keep simplified books: a receipt for every payment received, and a file of the expense documents it receives. Proper bookkeeping will help you track your income and expenses, make informed business decisions, and be prepared for a transition to Osek Murshe if needed.
Here are some tips for efficient bookkeeping:
- Separate business and personal accounts - It's crucial to separate your business bank account from your personal one. This helps track income and expenses and prevents confusion.
- Categorize expenses - Sort your business expenses into different categories such as rent, electricity, advertising, and equipment. This helps analyze where your money is going.
- Keep documentation - Save all invoices and documents related to your business. This is important for proving expenses in case of a Tax Authority audit. They 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.
- Use accounting software - Accounting software helps save time and effort. Keep offers a simple and efficient solution for Osek Patur bookkeeping.
The law does not require a self-employed person to open a separate bank account for the business; when opening the file, a confirmation of a bank account in your name is enough. Separating accounts is a recommendation, not an obligation, but when all business payments go into one account, it is easier to match each deposit to the receipt you issued and to add up the turnover at the end of the year.
Keep - The Solution for Osek Patur
Keep offers a simple and efficient accounting management solution for Osek Patur businesses. With Keep, you can:
- Issue receipts and payment requests - Issue unlimited receipts and other income documents as digitally signed PDFs, and send clients payment requests, on every plan.
- Track payments and income - See the status of your documents and payments and which clients still owe you money, on every plan.
- Manage business expenses - Upload expenses in a click, as a photo or a file, on the recommended plan.
- Get an overview of your business - All your business data in one place: income, expenses and profit for the date range you choose, on every plan.
- Get support from a personal accountant - On the recommended plan: professional guidance and representation before the tax authorities.
The basic plan costs NIS 39 a month plus VAT, and the recommended plan, which adds expense upload and the personal accountant among other things, costs NIS 105 a month plus VAT. There is no commitment, and you can switch plans at any time at no cost. As an Osek Patur, you pay the VAT on the subscription and cannot deduct it, as with any other expense.
Summary
The transaction invoice is a topic every Osek Patur should understand. Knowing the advantages and disadvantages of Osek Patur status, the file opening process, and proper bookkeeping - all these are essential for your business success.
Two dates are worth remembering: by 31 January you file the declaration of the previous year's turnover with the VAT authority, and the annual income tax report (a shortened report on the micro-business track) follows later, by the deadline the Tax Authority publishes for each tax year. In between, it helps to add up your receipts once a month and check how far you are from the ceiling, so that a move to Osek Murshe, if it comes, does not take you by surprise.
Keep provides the tools and support you need to manage your business professionally and efficiently, from issuing receipts and payment requests to tracking income and expenses. If you have additional questions, our support team is here for you.
Frequently Asked Questions About Transaction Invoices and Osek Patur
What is the difference between a transaction invoice and a receipt?
A transaction invoice asks for payment, and a receipt confirms that payment was received. An Osek Patur must issue a receipt for every payment it receives, and income is recorded in the books from the receipts. A transaction invoice does not show that anything was paid, so it does not replace the receipt.
Can an Osek Patur issue a tax invoice receipt?
No. A tax invoice receipt is a tax invoice in every sense, and under the VAT Law only an Osek Murshe may issue a tax invoice. An Osek Patur issues a transaction invoice as a payment request and a receipt once payment arrives. A client that needs to deduct VAT can do so only against a tax invoice from an Osek Murshe.
What happens if an Osek Patur exceeds the exemption threshold?
It has to move to Osek Murshe status, charge VAT and file periodic VAT reports. As a rule, the change is not backdated to the start of the tax year; it applies from the point at which it is clear that this year's turnover exceeds or will exceed the threshold, and VAT on expenses can be deducted only from the date of the move. So it is worth contacting the VAT authority as your turnover approaches the threshold, before the payment that takes you over it.
Can I switch from Osek Patur to Osek Murshe before reaching the threshold?
You can apply. The request goes to the regional VAT office, directly or through a representative such as an accountant, and the switch depends on the VAT authority's approval. From the switch on, you charge VAT, issue tax invoices and file periodic VAT reports. Switching back to Osek Patur is not immediate, so it is worth weighing the step in advance.
Which reports does an Osek Patur have to file?
An Osek Patur files no periodic VAT reports. Once a year, by 31 January, it files a declaration of the previous year's turnover with the VAT authority, and it also files an annual income tax report.
