Registering a Freelance Business in Israel

Disclaimer: This is not a comprehensive guide, just my experiences in registering as a business in Israel today – at the request of my friend Shoshana 😀 There are two ways to go about this – the hard way or the CPA way! For more than 6 months (on and off) I have been trying to accomplish this task the hard way, i.e., Internet research, meetings at MATI Centers in Jerusalem and Ra’anana (MATI is The Israel Small and Medium Enterprises Authority), blogs like Gidon Ariel’s How to Succeed as an Atzmai… The bottom line is that my Hebrew skills are not good enough to navigate the system of locating the correct offices (and their business hours) or the correct forms (and completing them).

If your Hebrew skills are good, you can probabably navigate the system just fine. You need to go to – and fill out forms at – the appropriate regional office: Israel Tax Authority – even though it’s one authority, my forms needed to go to two different places: 1) Ma’am VAT (value added tax) office in Netanaya 2) Income Tax office in Kfar Saba 3) Bituach Leumi (National Insurance Institute – health and social security)

I posted a plea for help to the Nefesh B’Nefesh e-mail list a week or so ago and was beaten up by people who basically told me to stop trying to pinch shekels and go see an accountant. One of those people (thanks Josh Mark!) referred me to a mensche of an accountant here in Ra’anana: David Brand (110 Ahuza St., phone: 09-7448570, e-mail: br******@***********et.il) who made time to meet with me on Friday morning. David asked me a bunch of questions while entering the information into his computer. Then he printed out the three sets of forms I needed and told me what else I needed to bring, where the offices were and in what order I needed to visit them! I need to preface my experience with the fact that there are two different filing statuses a freelancer needs to consider: The Osek Patur:

• anticipates earnings less than 70k NIS per year.
• is exempt from collecting and submitting the bi-monthly VAT.
• must provide clients with a specially printed receipt (kabalot) that is torn from a bound book (immediately upon receipt of payment).
• must keep a record of business expenses and income.
• must file an annual income tax report (along with any required payment).

The Osek Moshe:

• anticipates earnings greater than 70k NIS per year.
• must provide the Income Tax Authority with a complete statement of all worldwide assets and liabilities.
• must complete an extra form and have spouse sign it if the couple’s joint bank account will be used for the business.
• collects VAT, completes a bi-monthly report in which s/he can deduct any VAT the business paid out for business-related supplies/equipment, and then submits the report with whatever money may be due – or requests a refund if the report total is in the negative.
• must provide clients with a specially printed invoice (chesbon) that is torn from a bound book.
• must provide clients with a specially printed receipt (kabalot) that is torn from a bound book (immediately upon receipt of payment).
• must keep a record of business expenses and income.
• must file monthly or bi-monthly reports (depending upon income level) with the income tax authority.
• must file an annual income tax report (along with any required payment).

I was a bit put off by the idea of going back to the stone age with hand printed invoices and receipts, and was really annoyed to learn that I can’t generate invoices or receipts using American software! I have been using Microsoft Money since 1995 and "upgraded" to Quicken last month when I learned that Microsoft abandoned Money and wrote a script to transfer the Money file into Quicken. I was told that there is "approved" software that can be used, but it’s all in Hebrew and each package (one for invoices and a separate "integrated" one for receipts) could cost three to four thousand shekels! I think this may be one of them, but I couldn’t manage to navigate their site to locate pricing. Figuring that I would not be able to complete the bi-monthly reports (so I’d have to pay an accountant), and that I’d have to pay for the invoice books in addition to the receipt books (which are costing me 200 NIS for a minimum order that contains more than I could possibly use before we move from this address and I’ll need to have new ones printed!), I opted to take the easy route for now and filed as an Osek Patur. I was told that I can change my status later in the year if I find myself earning over 70k NIS. However, I’m not sure what happens to the 69,999 NIS worth of "sales" I didn’t collect tax on – another question for the CPA… So bright and early this morning I headed to Netanya to the Ma’am/VAT office. The Google Map directions got me there without too much difficulty, but finding a place to park was very frustrating! I finally gave up and pulled into a lot that cost me 20 shekels to park for about 30 minutes. With the help of someone’s pen scratchings next to the elevator buttons I discovered that the office is on the second floor. Then I had to pass through security, which included an interrogation of what office I wanted to go to and why… To my surprise I arrived to find 3 employees and only one other "customer" at 9 am (an hour after they opened)! I was invited to a desk by a smiling young woman who looked at my form, photo copy of my teudat zehut, voided check and copy of my lease agreement (all things the CPA told me to bring), and announced that she didn’t need the check or lease copy if I was filing as Osek Patur. She printed a certificate (similar to a DBA certificate in the US) with my business information and stamped it. That was it, all done in less than 5 minutes. Next on the list was a visit to Bituach Leumi in Kfar Saba – CPA Brand had offered to take my other form to the income tax office for me on his next visit there (I suspect he goes often). The traffic was still pretty heavy at that hour and coupled with a "sugar low" my thoughts weren’t quite on the trip as I approached the North Ra’anana/Kfar Saba Junction and took the exit. I was supposed to get off at the South Junction but the car is on auto-pilot to exit at the North junction when coming from Netanya! This error cost me quite a delay because for at least 15 minutes I continued to try to follow the map I had printed (not reading the road signs, but following the flow of the map!) Eventually I realized that nothing looked familiar to me and fortunately as I turned a corner I found a police officer directing traffic around an inconveniently parked delivery truck. So I pulled over and asked for directions (something my husband would NEVER do!) The nice policeman spoke English and drew a map for me on his pad and sent me off with a smile and a wave. If David Brand hadn’t told me that Bituach Leumi was across the street from the Kfar Saba police station I don’t think I would ever have found it. The office is on the second floor of a shopping center (like many Israeli post offices) that is also across from the "central" bus station (around the corner). Again parking was a serious problem and I gave in to the convenience of a paid underground lot – but confirmed with the attendant that Bituach Leumi was in the building first. Upon entering the lobby there was no sign of where the office might be! I took a gamble and went up the escalator behind an old Arab couple and fortunately it was right there in front of me. This time security was tighter… security guard #1 standing at the entrance to a roped off area asked me why I was there. Guard #2 searched my bag and opened every zipper on my leather portfolio questioning what my ancient 128 MB thumb drive was (so that’s where I put it!). Then I walked through a metal detector where Guard #3 was ready and waiting with his wand in case I set off the alarm – I didn’t. At this point I asked if he spoke English – he did – and he told me to go to the information desk to obtain a number and then wait for my number to come up on the screen above the cubicles that lined the left wall.

Normally the security wouldn’t have phased me, but I really got annoyed as I watched the old Arab couple in front of me treated with less scrutiny. The old man set off the alarm, said something to Guard #3 and the guy waved him through. As Guard #2 was looking through the old woman’s huge handbag, he got distracted talking with the pretty young woman a few spots back in line and let the Arab woman (in an oversized burka) go through.

I waited less than 5 minutes to speak with someone at the information desk. The young woman took my form and the photo copy of it I had brought (as I had been instructed), stamped them both and gave me the copy. I asked if I needed to take a number and she told me I was done and free to leave! But leaving wasn’t so easy… in Israel many paid parking lots involve taking a ticket from a machine upon entry and paying at a different machine (with exact change) located somewhere in the parking lot before sliding the ticket into the machine at the lot’s exit booth. I walked the entire floor and couldn’t find a payment machine so I cautiously approached the unmanned booth and had a new payment experience – insert the ticket, read the amount due (12 shekels), and pay only with a credit/debit card. Last stop was the print shop the CPA referred me to – it was only a few blocks from my apartment but I was coming from the opposite direction with the car so I decided to park (another 7 shekels) and find the place. I began to wilt in the late morning sun as I walked up one side of the street and down the other looking for the unnamed shop. I gave up and called the CPA’s office but the receptionist couldn’t understand my English. So I felt awful, but I had to call the man’s cell phone and he "walked" me in to the shop which is actually BEHIND the street he told me to go to – right outside the entrance to the parking garage. The man who greeted me spoke English, showed me two options for the archaic forms, told me he prints a minimum of 5 books with 125 receipts each and the price is 200 shekels. I agreed (like I had a choice?) and gave him the CPA’s business card, instructing him to send the man a proof for approval prior to printing. He told me I can expect to have them by the end of the week. And that my friend is the end of the story (so far) – certainly a lot more difficult than a visit to the county clerk’s office once every few years. Welcome home!