This post presents a concise overview of the availability and requirements for operating as a sole proprietor in Israel in 2025. The focus is on tax status options, relevant thresholds, and procedural details as stipulated by current Israeli regulations.
Sole Proprietorship Status in Israel: Options and Conditions for 2025
In Israel, individuals can conduct business as sole proprietors under two widely recognized statuses: Osek Patur (Exempt Dealer) and Osek Murshe (Licensed Dealer). Both structures enable individuals to invoice clients directly without incorporating a company, but they carry distinct criteria and obligations.
Key Features of Sole Proprietorship in Israel
| Status Name | Annual Turnover Threshold (ILS) | VAT Requirement | Income Tax | National Insurance | Who Can Apply? |
|---|---|---|---|---|---|
| Osek Patur (Exempt Dealer) | ₪119,000 | No VAT charge/collection | Progressive (10%-50%) | Mandatory | Citizens and Residents with turnover below threshold; certain professions excluded |
| Osek Murshe (Licensed Dealer) | >₪119,000 or specific professions | VAT charge and remittance required | Progressive (10%-50%) | Mandatory | Citizens and Residents exceeding threshold or in regulated professions |
Note: ₪119,000 ILS ≈ $34,400 USD (using 1 ILS = $0.29 USD in 2025; approximate rate for reference).
Registration and Taxation
- Registration Bodies: Register with the Israel Tax Authority and National Insurance Institute (Bituach Leumi).
- Income Tax: All sole proprietors are subject to Israel’s progressive income tax rates, ranging from 10% to 50% in 2025, applied to taxable income.
- National Insurance Contributions: Mandatory for all sole proprietors; rates and calculations are determined by the Bituach Leumi, and apply irrespective of VAT status.
Status Comparison Table
| Status | VAT Collection | Income Tax Rate (%) | National Insurance |
|---|---|---|---|
| Osek Patur | No | 10%–50% | Yes |
| Osek Murshe | Yes | 10%–50% | Yes |
How Eligibility Is Determined
The selection between Osek Patur and Osek Murshe depends on your projected annual turnover and, in some cases, your profession. Osek Patur is reserved for those with annual revenue not exceeding ₪119,000 (ILS), with some professions regulated out of eligibility. Exceeding this threshold, or operating in certain professional categories, requires registration as Osek Murshe and compliance with VAT regulations.
Application Process
Starting as a sole proprietor in Israel involves:
- Registering with the Israel Tax Authority to obtain your chosen status.
- Registering with the National Insurance Institute (Bituach Leumi) to ensure compliance with social contributions.
Both Osek Patur and Osek Murshe statuses are available to Israeli citizens and residents—there are no extraordinary restrictions, and the procedure is generally accessible, though differing by industry or turnover.
Summary of Main Conditions and Tax Impacts (2025)
- Osek Patur: Ideal structure for small-scale or early-stage businesses under the revenue cap. Provides VAT exemption but does not reduce obligations for income tax or National Insurance.
- Osek Murshe: Suitable for businesses with higher revenues or those in licensed professions; VAT registration and compliance are mandatory.
- Tax Environment: Progressive income tax rates and mandatory National Insurance payments apply to both statuses in 2025.
Pro Tips for Managing Your Israeli Sole Proprietorship
- Keep track of your annual turnover—crossing the ₪119,000 ILS ($34,400) threshold mid-year means you must switch from Osek Patur to Osek Murshe and begin accounting for VAT.
- Even as Osek Patur, keep thorough records of business income and expenses—this streamlines annual tax and National Insurance filings and reduces compliance risk.
- Consult the official guide for opening a business to ensure that your profession is eligible for Osek Patur status, as some occupations (e.g., regulated professions) require Osek Murshe.
- Schedule periodic reviews of your tax position each quarter, especially if your business is growing, to avoid surprises at year-end or mid-year status upgrades.
- Stay up to date with notifications from the Israel Tax Authority to catch any changes in thresholds, rates, or procedural requirements in real time.
Israel’s approach to sole proprietorship offers two primary pathways—Osek Patur and Osek Murshe—that give flexibility but also demand careful compliance with progressive income tax rates and mandatory National Insurance. The choice between exempt dealer and licensed dealer hinges on turnover and professional status, with the distinction carrying practical implications for bookkeeping and VAT administration. Ensuring timely registration and staying informed about evolving thresholds or regulatory shifts are key to maintaining good standing as a sole proprietor in 2025.