Frequently asked questions
The questions Israeli freelancers ask about invoicing, VAT and the Tax Authority, each with a short answer and a link to the guide that goes deeper.
Invoices and receipts
Which amount does the receipt show on a card sale?
The full amount the customer was charged, not what landed in the bank after the clearing fee. The fee is a cost of the business, not a discount given to the customer.
Is a clearing fee a deductible expense?
Yes, as an ordinary cost of earning income. An osek murshe also deducts the VAT on it as input VAT, against the tax invoice the clearing provider issues.
When is the income recorded, at the charge or at the deposit?
By the date of the sale and the card charge, not the day the money reaches the account. Settlement delay affects cash flow, not which period the income belongs to.
What goes on a receipt for a card payment?
The card type and its last four digits, alongside the amount and date. A full card number is never stored and never printed.
What about a sale split into instalments?
The whole sale is recorded on the date it took place, for the full amount. Splitting the charges is an arrangement with the card company and does not split the income across months.
Do I need a physical terminal to take cards?
No. You can charge through a payment link, a form on your site or an app. A physical terminal is mainly for selling over a counter.
What happens when a customer cancels?
You refund the card with the clearing provider and issue a credit note referencing the original document. Some providers do not return the fee on the cancelled sale, which is worth checking in the agreement.
What is a credit note?
A document that cancels or reduces a tax invoice already issued. It references the original invoice number and reduces output VAT in the period it was issued.
Why can't an invoice simply be deleted?
An issued, digitally signed document is a permanent fiscal record. Deleting it would break the numbering sequence and the cross-check against the other side, so corrections always take the form of another document.
When is a credit note issued?
On a cancelled sale, returned goods, an error in the amount or the customer's details, and on a bad debt recognized as such. In every case the original document stays where it is.
How does a credit note affect the VAT report?
It reduces output VAT in the period it was issued, even where the original invoice belongs to an earlier period. There is no need to amend a report already filed.
Does a credit note need an allocation number?
No. It reverses a deduction rather than creating one. It does reference the original invoice number, so the link is preserved where the original carried a number.
How is a bad debt handled?
Where it is clear the debt will not be collected and the conditions are met, a credit note is issued and reported, recovering the VAT paid on a sale that was never collected. The conditions and documentation are worth checking with an accountant.
When is a receipt issued?
Every time money comes in, dated the day it actually arrived. The receipt records the payment, while the invoice records the sale.
What has to appear on a receipt?
The heading "receipt", the business name and dealer number, the payer's details, a serial number from the receipt sequence, the date payment was received, the amount received, and the payment instrument with its identifying details.
Is a digital receipt treated differently from a printed one?
Not in standing. A receipt issued from software is a computerized document, so it needs a digital signature and locked numbering, and emailing it depends on the recipient's consent and prior notice to the assessing officer.
What about a payment that arrives in instalments?
Each payment gets its own receipt, dated when it arrived and for the amount that arrived. All of them reference the same invoice.
How do I fix a receipt issued by mistake?
Not by editing and not by deleting. You issue a document cancelling the wrong receipt, then a correct one. A credit note cancels an invoice, not a receipt.
A customer withheld tax at source. What goes on the receipt?
The gross amount the payment is credited against, the amount withheld, and the net actually received. The customer's withholding certificate is kept separately and is what offsets the income tax bill at year end.
Does a receipt entitle the customer to deduct input VAT?
No. The deduction rests on the tax invoice. The receipt evidences payment only.
Which invoice does an osek patur issue?
A transaction invoice for the sale itself, and a separate receipt for the payment actually received. An osek patur may not issue a tax invoice.
Why can't an osek patur issue a tax invoice?
A tax invoice is the document that entitles the customer to deduct input VAT. An osek patur charges no VAT, so there is nothing for the customer to deduct, and issuing one breaches the VAT regulations.
What has to appear on an osek patur invoice?
Business name and dealer number, wording identifying the document type, a running serial number, issue date, customer details, a description of the goods or service, and the amount. No VAT line, and no split between a pre-VAT and a VAT-inclusive amount.
A customer is demanding a tax invoice. What do I do?
Explain that your status doesn't allow it. A transaction invoice from an osek patur is full documentation of the expense for income tax purposes. The only thing the customer can't do is deduct VAT, because no VAT was ever charged to them.
Does an osek patur need an allocation number for a large invoice?
No, at any amount. The allocation number requirement applies to tax invoices and tax invoice receipts only, and an osek patur issues neither.
Can the transaction invoice and receipt be one document?
They record two separate events: the invoice records the sale, the receipt records the payment. When payment arrives at the time of sale it's common to issue both together, but they remain two documents with separate numbering.
What does EOM+45 mean?
A payment date counted from the end of the month the invoice was submitted in, not from the submission day. An invoice submitted on 3 March and one submitted on 28 March share the same due date: 45 days after 31 March.
How long does a private business have to pay a supplier?
End of month plus 45 days from the month the invoice was submitted in, unless a different date was agreed in writing, justified by the nature of the engagement and not unreasonably onerous.
How long does a government ministry have to pay?
45 days from submission of the invoice. For construction engineering work it is 85 days. The state cannot contract out of its deadline.
What am I owed if payment was late?
From the due date the debt carries linkage differences and interest, and 30 days later arrears fees are added on top. The addition does not depend on the customer agreeing to it and does not need to be in the contract.
Can a contract set payment at EOM+90?
Not with the state, a local authority or a public body. With a private business or a budgeted institution a different date can be set in writing, but only where the nature of the engagement justifies it and it is not unreasonably onerous.
Does the clock start at delivery or at the invoice?
At submission of the invoice to the right party on the customer's side. That is why the invoice should go out the day the work was delivered rather than at the end of the following month, and why proof of the submission date is worth keeping.
Which invoice does an osek murshe issue?
A tax invoice for the sale and a receipt for the payment received. When both happen at once, a single tax invoice receipt replaces the pair.
How long do I have to issue a tax invoice?
Fourteen days from the date the VAT charge arises, under section 46 of the VAT Law. Issuing it before that date is not allowed.
When does the VAT charge arise?
On services, when payment is received and on the amount received, unless the business turned over more than ILS 15 million in the previous year. On goods, on the day they are delivered to the customer regardless of payment, except for small businesses meeting the section 29(1b) conditions.
Can a customer demand a tax invoice before paying?
No, where the business reports on a cash basis. Section 47(a1) bars the buyer from demanding the invoice before payment, which is what stops a business remitting VAT on money it hasn't collected.
Above what amount does a tax invoice need an allocation number?
Since June 2026, above ILS 5,000 before VAT, per invoice. Without the number the customer cannot deduct the VAT.
How does this differ from an osek patur invoice?
An osek murshe issues a tax invoice with a separate VAT line and needs an allocation number above the threshold. An osek patur issues a transaction invoice showing one amount, with no VAT and no allocation number at any amount.
Does each document type need its own numbering sequence?
Yes. Tax invoices in one series, receipts in a second, tax invoice receipts in a third, credit notes in a fourth. A number that skips or repeats is an audit finding.
What is a transaction invoice?
A document recording a sale or a payment request before payment arrives. It gives the customer no input-VAT deduction, so it is not a substitute for a tax invoice.
Does a transaction invoice trigger VAT?
Not by itself. For a business reporting on a cash basis, VAT arises on receipt of payment, so a transaction invoice lets you send a payment request without bringing the VAT forward.
Does a transaction invoice need an allocation number?
No, at any amount. The requirement applies to tax invoices only, because the allocation number exists to verify a document that enables an input-VAT deduction.
How does it differ from a quote?
A quote is an offer you can walk back; a transaction invoice is a payment request on a sale already agreed. Neither is a fiscal document for VAT purposes.
Can a transaction invoice be cancelled?
Yes, with no credit note. It creates no VAT liability and grants no deduction, so cancelling it is far simpler than cancelling a tax invoice.
When do you convert it into a tax invoice?
When payment arrives, or when the reporting obligation arises under your reporting basis. Convert from the existing document so the link between the two is preserved.
What is a tax invoice receipt?
A combined document recording both the sale and the receipt of payment at the same moment. It replaces two separate documents, and it is available to a licensed dealer or a company only.
When is it better to split invoice and receipt?
Whenever payment does not arrive at the same moment: net terms, a post-dated cheque, or payment in instalments. Then you issue a tax invoice at the sale and a receipt when payment lands.
Does a post-dated cheque count as payment received?
Not on the day it is handed over. The combined document suits payment that has cleared, so with a post-dated cheque the usual practice is a tax invoice now and a receipt when the cheque clears.
Does a tax invoice receipt need an allocation number?
Yes, once it crosses the threshold. It is a tax invoice in every respect, so the requirement applies exactly as it does to a regular tax invoice.
Does the combined document have its own numbering?
Yes. A tax invoice receipt runs its own sequence, separate from tax invoices and receipts. Two documents of different types can carry the same number without conflict.
How is a tax invoice receipt cancelled?
Like any fiscal document: not by deleting, but by issuing a credit note that references it. If the money is refunded too, the refund is recorded separately.
What is the difference between a tax invoice and a receipt?
A tax invoice records the sale and the VAT on it, and entitles the customer to deduct input VAT. A receipt records only that a payment came in. A sale carrying VAT needs a tax invoice, and a receipt alone is no substitute.
What is the difference between a transaction invoice and a tax invoice?
A transaction invoice is a payment request that gives the customer no input-VAT deduction, and it can be cancelled without a credit note. A tax invoice is a fiscal document that does give a deduction, and it cannot be deleted once issued.
Can an osek patur issue a tax invoice?
No. An exempt dealer may not issue a tax invoice. They issue a transaction invoice, and a receipt when payment arrives.
When do you issue a tax invoice receipt?
When the sale and the payment happen at the same moment, such as a card payment at the end of a meeting. The combined document records both, and it is available to a licensed dealer only.
What do you do if the wrong document type was issued?
You do not delete it. Issue a credit note cancelling the wrong document, then issue the right one. Both documents and the credit note between them are kept in full.
Does a quote have to be reported?
No. A quote and a delivery note are commercial documents, not fiscal ones: no VAT to report, no place in the sequential numbering, and they can be edited or deleted.
Business status
What is the main difference between an osek patur and an osek murshe?
An osek patur charges no VAT to customers and deducts no input VAT on expenses, issuing a transaction invoice and a receipt. An osek murshe charges VAT, deducts input VAT, issues tax invoices and files a periodic VAT report.
What is the osek patur turnover ceiling?
For 2026 it is ILS 122,833 in annual turnover. It is updated yearly, and it is measured on turnover, meaning total income before expenses, not on profit.
What happens if I cross the ceiling mid-year?
Switching to osek murshe is mandatory from the moment of the crossing, not from the start of the next year. VAT applies to the part above the ceiling, and reporting it late exposes you to retroactive VAT and fines.
Is an osek patur exempt from income tax as well?
No. The exemption is from VAT only. An osek patur files an annual income tax return, pays National Insurance, and has to keep books and records for seven years.
Can I register as an osek murshe voluntarily?
Yes. You can register above the exemption even while under the ceiling, which makes sense when your customers are businesses that deduct the VAT anyway, or when a large equipment purchase is coming that is worth deducting input VAT on.
Can any profession be an osek patur?
No. Regulations require certain professions to register as an osek murshe regardless of turnover, among them doctors, lawyers, accountants, architects and engineers. Worth checking before opening the file.
Do I need to open a business file if I already have a salary?
Yes. Business income requires files with VAT, the Tax Authority and National Insurance, regardless of a salary running alongside. The salary does not cover the business side.
What is tax coordination and when is it needed?
A request to the assessing officer so that each payer withholds tax against the full income picture rather than as if it were the only one. Without it, an employer withholds too little or too much, and the gap only surfaces in the annual return.
Do you pay National Insurance twice, on the salary and on the business?
Not twice over, but through two collection tracks. The employer withholds from the salary, and you pay advances as a self-employed person on the business income. There is a monthly income ceiling above which no contributions are due, which is why a contributions coordination is worth filing too.
One annual return or two?
One. The individual annual return covers every source: the salary per Form 106, the business income, and anything else. Tax is computed on the total, and whatever was already withheld is credited to you.
Are my credit points used twice?
No. Credit points are granted once. If more than one payer applies them, tax is under-withheld and the shortfall appears in the annual return. That is exactly what tax coordination prevents.
What if the business income is very small?
The obligations do not disappear. A small business still files an annual return, reports to VAT on its assigned cycle, and pays National Insurance on its income, subject to the set minimum.
What is an osek patur?
Osek patur ("exempt dealer") is a registration status with the Israel Tax Authority for a self-employed person whose annual turnover stays under a ceiling set in law. They charge no VAT to customers and remit none to the state, and in exchange they cannot deduct input VAT on their expenses.
What exactly is an osek patur exempt from?
VAT only, and even there only partly: exempt from charging it, from remitting it, and from filing a periodic VAT report. Not exempt from income tax, National Insurance, bookkeeping, or the seven-year document retention rule.
What is the osek patur ceiling for 2026?
ILS 122,833 in annual turnover. It is updated every year against the consumer price index, and it is measured on total income before expenses, not on profit.
Which documents does an osek patur issue?
A transaction invoice for the sale, and a separate receipt for the payment received. An osek patur may not issue a tax invoice, because a tax invoice is the document that lets a customer deduct input VAT.
Does an osek patur need an allocation number?
No. The allocation number requirement applies to tax invoices and tax invoice receipts only, and an osek patur issues neither, regardless of the transaction amount.
What happens when you cross the ceiling?
Switching to osek murshe is mandatory from the moment of the crossing, not from the start of the next year. VAT applies to the portion above the ceiling, and reporting it late exposes you to retroactive VAT and fines.
Is it better to stay an osek patur if you can?
It depends on your customers. If you sell to private customers, the exemption is a real price advantage. Selling to businesses that deduct VAT anyway, it mostly just stops you from deducting input VAT on your own expenses.
What is the osek zair track?
A simplified income tax track where, instead of deducting actual expenses, you get a flat normative deduction from turnover and file a short annual return.
Who qualifies for the osek zair track?
A business with turnover under the ceiling set for the track, and not in one of the excluded occupations. Eligibility is decided with the Tax Authority, separately from VAT status.
Does the track save money?
Only where actual expenses are lower than the normative deduction. A business with high expenses, office rent or costly equipment, pays more tax on this track.
Does an osek zair still file VAT reports?
That depends on VAT status, not on the track. An exempt dealer on the track files no periodic report; a licensed dealer on the track keeps filing as usual.
Do receipts still have to be kept on the track?
Yes. The duty to keep books and records remains, even though the calculation rests on a normative deduction rather than actual expenses.
What happens when the track's ceiling is crossed?
You leave the track and return to normal reporting with actual expenses. Track turnover during the year rather than discovering the crossing afterwards.
What is the difference between osek zair and osek patur?
Osek patur is a VAT status; osek zair is a simplified income tax track with a normative deduction instead of actual expenses. They are separate axes, and you can be both, either, or neither.
Can you be both an osek patur and an osek zair?
Yes. That is one of four combinations. A licensed dealer can also choose the osek zair track for income tax, provided they meet that track's turnover conditions.
Does the osek zair track change the VAT report?
No. VAT reporting follows VAT status alone. A licensed dealer who chose the osek zair track still files the periodic VAT report as usual.
Who benefits from the osek zair track?
Anyone whose actual expenses are lower than the normative deduction the track grants. A business with high expenses, office rent for example, is worse off on it.
What happens to deductible expenses on the track?
You get a flat normative deduction instead of deducting actual expenses. Keeping records is still worthwhile, but the calculation does not rest on them.
How do you leave the track?
The choice is made with the Tax Authority and is not permanent, but switching mid-year is not trivial. Check the timing with your accountant.
Templates and tools
Which fields must appear on a tax invoice?
The words tax invoice, the business name and number, the customer's details, the document number and date, a description of the sale, the amount before VAT, the VAT rate and amount, and the total. Above the threshold, an allocation number too.
Can invoices be issued from a Word template?
It is not prohibited, but a Word template provides no digital signature, no locked sequential numbering and no Open Format export, so it creates problems with your accountant and in an audit.
What is the difference between a manual book and a computerized document?
A pre-numbered printed book still exists and is permitted under conditions, but it requires managing the sequence by hand and storing paper. A computerized document has to be digitally signed and produced by a system.
Are the logo and design part of the requirements?
No. Design is a commercial matter. What is required is the fields themselves and their legibility, and design must never hide or crowd out a mandatory detail.
What must appear on a receipt?
The amount received, the date, and the payment instrument in detail: cheque number and bank, the last four digits of a card, or bank transfer details.
Do documents need to say original or copy?
Yes, whenever more than one copy is issued. Distinguishing the original from a copy is part of a proper document and prevents double counting on the customer's side.
Is issuing an invoice in English allowed?
Yes. A document can be issued in English and in foreign currency, provided every required detail appears and the reporting to the Tax Authority is in shekels at the determining rate.
How is foreign currency translated to shekels?
At the determining rate on the chargeable date. The shekel amount is what enters the periodic report and the books, even where the invoice itself is in dollars or euros.
Is every client abroad exempt from VAT?
No. The zero rate is conditional, and it falls away where the service is in fact also supplied to an Israeli resident or relates to property in Israel. The detail is in the zero-rated VAT guide.
Does an export invoice need an allocation number?
The requirement was built around an invoice that enables an Israeli input-VAT deduction. In a zero-rated sale to a foreign resident there is no Israeli party deducting, so the question does not arise in the same way.
Can an osek patur issue documents in English?
Yes. They issue a transaction invoice and a receipt, and both can be in English. Their VAT exemption is unrelated to zero rating and does not make them an exporter.
What else belongs on a document going abroad?
International payment details including IBAN and SWIFT, the currency stated explicitly, the payment terms, and a service description a non-Hebrew speaker can understand.
Is it legal to issue invoices from Excel?
The law doesn't mandate any particular software, but it does require a document that satisfies the bookkeeping regulations: running sequential numbering, all mandatory fields, a document that can't be altered after issue, and seven-year retention. A plain Excel file doesn't deliver the last three on its own.
What's the main problem with invoicing in Excel?
Numbering. A file that gets opened, saved under a new name or copied breaks the sequence without anyone noticing, and a missing or duplicated number is exactly what an audit looks for.
Can you digitally sign an invoice made in Excel?
Not from within Excel. A digital signature proving the document hasn't changed since issue is produced by the issuing system, and neither the spreadsheet nor a PDF exported from it carries one.
Can you produce an Open Format file from Excel?
Not directly. Open Format is a fixed export the Tax Authority asks for during an audit, produced from a system that holds the data in a structured way. Reconstructing it by hand from a spreadsheet is days of work.
Can an osek patur manage with Excel?
At very low volume it works, because there's no VAT, no periodic report and no allocation number. Problems start with a steady issuing rhythm, with retention over seven years, and with an audit request.
When does Excel definitely stop working?
When an allocation number is required on a tax invoice above the threshold. The number has to come from the Tax Authority before the invoice is handed to the customer, and a spreadsheet doesn't do that.
How is history moved between invoicing systems?
Through the Open Format file, the only common denominator across Israeli systems. Export from the old system, import into the new one, and check that totals and numbers match.
What happens to document numbering in a move?
Historical documents keep their original numbers, and the new system continues numbering from the agreed point. The import has to happen before the first document is issued in the new system.
When is the best time to switch?
At the start of a tax year or a reporting period. Switching mid-period means merging data from two systems into one report, which is exactly where mistakes happen.
What does not come across in an import?
Usually drafts, template design, user permissions and settings outside the standard. What does come across is documents, customers and transactions.
Should I keep access to the old system?
Better to export everything before disconnecting rather than rely on future access. An unpaid account can be closed, and the seven-year retention duty stays with you.
What should be checked after the import?
That document counts and totals match the old system, that numbering is unbroken, that customers were not duplicated, and that the first periodic report in the new system reconciles with the previous one.
Deductible expenses
Should a courier register as an osek patur or osek murshe?
Most couriers start as an osek patur while annual turnover stays under the ceiling. Anyone working mainly for companies that reclaim VAT anyway, or expecting to cross the ceiling, is better off registering as an osek murshe from the start.
Which expenses are deductible for a courier?
Fuel or charging, insurance, the annual vehicle test, servicing, riding gear and delivery bags, the business share of phone and internet, and platform commissions. On a private vehicle the recognized share of running costs is 45%.
Is a motorcycle treated differently from a car?
Yes. A two-wheeler in certain licensing groups gets more favorable treatment than a private car, sometimes with a higher recognized share. Check the licensing group of the vehicle.
Do National Insurance contributions apply to small courier income?
Yes. Business income triggers advances based on taxable income, even modest income, subject to the minimum. It is also what determines work-injury cover, which matters especially for riders.
Working through an app, who issues the invoice?
The courier issues an invoice to the company or platform, depending on the engagement. A commission the platform takes does not reduce the income you report; it is recorded separately as an expense.
What if I am also employed?
You need both a tax coordination and a National Insurance contributions coordination, otherwise the employer withholds at brackets that are too low and the gap arrives with the annual return.
What counts as a deductible expense?
An expense incurred in producing the business's income, and only the business share of it. A mixed expense serving both home and business is recognized at the percentage set for that category or by actual use.
How much of vehicle costs is deductible?
For a private car in mixed use, 45% of running costs are deductible for income tax, and a quarter of the input VAT can be reclaimed. A genuinely operational vehicle that never leaves the business is a rare case with different rules.
How much of phone and internet is recognized?
Up to 80% where the line serves both the business and the home. A line used solely for the business is fully recognized, but it has to be genuinely dedicated.
Does a deductible expense refund the whole amount?
No. It reduces taxable income, so the real saving is the expense times your marginal tax rate. In the 20% bracket, an ILS 1,000 expense saves about ILS 200.
Can an osek patur deduct expenses?
Yes, for income tax. They cannot reclaim input VAT, but expenses still reduce taxable income, so recording them and keeping receipts matters.
What if there is no receipt for the expense?
Without supporting documentation the expense is not recognized. A bank statement is not enough, because it shows a payment and not what was bought. You can ask the supplier for a copy, though after a year that gets hard.
How are home office expenses calculated?
By the ratio between the work room's area and the apartment's area. That ratio is applied to electricity, municipal tax, building fees, water and rent, and it decides how much of each bill is recognized.
Do I need a dedicated room, or is a corner enough?
A dedicated room gives a clear area ratio and a clean claim. A corner of the living room is possible, but you have to explain what share of the space served the business and at what rate, and it is examined less generously.
What about an apartment you own?
There is no rent to deduct, but the other costs still apply pro rata: electricity, municipal tax, building fees and water. Note that claiming depreciation on the business share can affect a future sale, so that is a decision to take with an accountant.
Can VAT on household bills be reclaimed?
A licensed dealer can deduct input VAT on the business share of bills such as electricity and water. Regulation 12c of the VAT Regulations allows that partial deduction even when the invoice is not in the business's name, where the input is shown to have served the business.
What has to be documented?
The apartment's area, the work room's area, original bills for the period, and the ratio calculation. A single page explaining how you reached the percentage is enough, as long as it is kept with the bills.
What happens if I move?
Recalculate the ratio from the date of the move and apply each ratio to its own period. There is no need to pick one ratio for the whole year.
How much of vehicle costs can a freelancer deduct?
For a private car in mixed use, 45% of running costs are recognized for income tax: fuel, insurance, the annual vehicle test, servicing, parking and licensing fees.
How much VAT can be reclaimed on a car?
On a private car, two thirds of the input VAT on running costs where the main use is business, a quarter where it is not. There is no VAT deduction at all on buying a private car, unlike a commercial vehicle that meets the conditions.
What is an operational vehicle?
A vehicle used solely by the business, kept on the business's premises at the end of the working day and unavailable for private use. In practice it is rare, and the Tax Authority examines the claim closely.
Is leasing treated differently from ownership?
Not for the recognized percentage. An operating lease follows the same rules on the deductible share; the difference is accounting and cash flow, not tax.
Does the car have to be registered to the business?
No. The recognized share can be deducted on a private car registered to the owner, as long as the costs are documented and the business use is real.
What about a motorcycle or scooter?
A two-wheeler in certain licensing groups gets more favorable treatment than a private car, sometimes with a higher recognized share. Check the licensing group of the specific vehicle.
Tax Authority and digital rules
Does a PDF invoice count as digitally signed?
No. A PDF produced from Word or Excel can be edited without leaving a trace, so it does not meet the signing requirement. A digital signature binds the exact content to a cryptographic signature at the moment of issue.
When does the document get signed?
At issue, not at the draft stage and not at printing. From that moment the document is locked, and a correction goes through a credit note.
Can a signed invoice be corrected?
No. A signed document cannot be edited or deleted. The only route is to issue a credit note cancelling it, then issue a new, correct document.
How does a customer verify a document is genuine?
A signed document usually carries a QR code or verification link. The customer scans it, the system recomputes the document's fingerprint and compares, and the answer comes back in seconds.
What happens if you issue without a digital signature?
The documents can be disqualified in an audit even where the amounts are right. For the issuer that risks a best-judgment assessment, and for the customer it can cancel their input-VAT deduction.
Do I need a smart card or a personal signing device?
Not for invoices. A fiscal document is signed by the issuing system with its own key, unlike a certified personal electronic signature required in other contexts.
How many years do invoices have to be kept in Israel?
Seven years from the end of the tax year the document belongs to. An invoice from February 2026 counts from 31 December 2026 and is kept until the end of 2033, which is nearly eight years in practice.
Can records be kept digitally, or is paper required?
The law does not mandate a medium, but it does require documents to be available, legible and producible on demand. Digital storage meets that when there is a backup that has actually been tested, not one drive in a drawer.
Does the duty continue after the business file is closed?
Yes. Closing the file ends ongoing reporting but not retention. Documents from the trading years are kept until their own seven years are up.
A customer asked me to delete their details. Can I?
Non-fiscal information can be deleted, a fiscal document cannot. The statutory retention duty overrides a deletion request, and an issued invoice stays even if the customer asked otherwise.
What happens to documents when moving to another system?
The responsibility stays with you. Export everything before disconnecting from the old system, including Open Format files, rather than relying on future access to an account you no longer pay for.
What counts as a missing document in an audit?
Not only a lost invoice. Being unable to show the numbering is unbroken, or being unable to produce a file, are both defects in the books and can lead to a best-judgment assessment.
What is a green invoice?
Everyday Hebrew for an invoice issued from software and emailed instead of printed and handed over. It isn't a document type and it isn't a legal term. The document is still a tax invoice, a transaction invoice or a receipt, whichever it actually is.
What does the law call a digital invoice?
A computerized document. That's the term used in the bookkeeping regulations, and it brings four requirements with it: a digital signature, running numbering, seven-year retention, and the ability to export an Open Format file.
Is emailing an invoice allowed?
Yes, subject to two things done in advance. You notify your assessing officer by registered mail before sending your first computerized document, and you obtain the customer's consent, written or computerized, before they receive their first computerized document from you.
Can a customer withdraw consent to receive documents by email?
Yes. Consent stands until withdrawn, and the consent or its withdrawal has to be kept as an integral part of the accounting system.
Is an emailed invoice worth less than a printed one?
No. The delivery channel doesn't change the document's standing. What counts is the required fields, the digital signature and the numbering sequence, plus an allocation number on a tax invoice above the threshold.
Do I also have to send a printed copy?
No, once the computerized document conditions are met. A customer who asks for paper gets a printout marked as a copy, so it can't be counted twice in their books.
What is the allocation number threshold?
Since June 2026 the threshold is 5,000 shekels before VAT. It applies from 5,000 and up, so an invoice for exactly 5,000 already needs a number. The threshold is lowered in stages by legislation.
Does a transaction invoice need an allocation number?
No. The requirement applies to tax invoices only, because the number exists to enable an input VAT deduction and a transaction invoice enables none. You can send a transaction invoice for any amount without contacting the Tax Authority.
Does a credit note need an allocation number?
No. A credit note needs no allocation number of its own, because it reverses a deduction rather than creating one. It does reference the original invoice number, so the link is preserved when the original carried a number.
Does a tax invoice receipt need an allocation number?
Yes. A tax invoice receipt is a tax invoice in every respect, so the requirement applies to it exactly as it does to a regular tax invoice.
Does an osek patur need an allocation number?
No. An osek patur does not issue tax invoices and does not charge VAT, so the requirement does not touch them at all.
What happens if the allocation request is rejected?
The invoice is still issued. The Tax Authority offers three alternatives: continue without an input VAT deduction, file an objection, or cancel the invoice with a credit note. The choice is recorded and reported, and a fresh request can be sent with the same invoice ID.
Can the customer deduct VAT without an allocation number?
Not when the invoice requires one. A tax invoice at or above the threshold without a valid allocation number does not entitle the customer to an input VAT deduction, which is why business customers check for it before paying.
How many digits does an allocation number have?
The number printed on the invoice and reported in the PCN874 file is the nine rightmost digits of the confirmation number returned by the Tax Authority, not the full string.
What do you do when the Tax Authority system is unavailable?
The invoice is issued and marked as pending, and the request is retried later. Issuing a document is never blocked by an outage in an external system.
What is an Open Format file?
A standard file format set by the Israel Tax Authority for transferring accounting data. It consists of an INI file describing the structure and a BKMVDATA file holding the data, both inside a single ZIP.
Who can demand an Open Format file from me?
Your accountant, for the annual financial statements, and the Tax Authority in an audit, directly from the business. It is also what carries history across when moving between bookkeeping systems.
Why does the file open as gibberish?
Because it is encoded in ISO-8859-8-I, a pre-UTF-8 Hebrew encoding kept in the standard for backward compatibility. The file is fine, the editor is simply guessing a different encoding.
What if my system cannot export Open Format?
The documents have to be re-entered into a system that can, which is expensive and error-prone. In an audit, failing to produce the file can lead to the books being disqualified and a best-judgment assessment.
What fails validation?
Usually a wrong date range, documents issued in another system and left out, a mismatch between document totals and journal entries, or missing business details in the header. Most problems are in the books, not the file.
Do I keep a copy after sending it?
Yes. Keep the file exactly as sent, alongside the rest of your fiscal documents, for seven years from the end of the tax year.
VAT
Who can deduct input VAT?
A licensed dealer and a company only. An exempt dealer charges no VAT and deducts no input VAT, even on a purely business expense.
How long do I have to claim input VAT on an invoice?
A six-month window from the invoice date. An invoice forgotten in a drawer past that window is not deductible without a special application to the Tax Authority.
Can VAT be reclaimed on an invoice not in the business's name?
No. The invoice has to carry the business name and number. An invoice in a personal name gives no deduction, even where the expense clearly served the business.
What is mixed input VAT?
An expense that served both business and private use. Only the business share is deducted, by actual use, and in certain categories at a fixed rate.
Does a missing allocation number cancel the deduction?
Yes, on a tax invoice above the threshold. Without a valid allocation number the customer may not deduct the input VAT, which is why it is checked before payment is approved.
Can input VAT be claimed on pre-registration expenses?
Sometimes, where the expense was incurred to set the business up and close to its opening. It depends on the type of expense and the documentation, so check with your accountant before claiming.
Does an osek patur file an annual VAT report?
No. There is no such report. An osek patur files a declaration of the past year's turnover by 31 January. It is not a VAT report and carries no tax calculation.
What exactly is declared?
One number: total sales for the tax year that ended. That is turnover, what came in, not profit after expenses.
When is it due?
By 31 January of the year following the tax year. The declaration for 2026 is filed by 31 January 2027.
Where is it filed?
In the Tax Authority's online system for the osek patur declaration. Enter the sales figure, confirm, and that is it. No payment and no calculation.
Does it replace the annual income tax return?
No. These are two separate filings to two authorities. The VAT declaration covers turnover only, while the annual return, form 1301, is the full tax calculation. An osek patur files both.
What if I crossed the ceiling?
The declaration is usually where that surfaces officially. Crossing the ceiling requires registering as an osek murshe from the moment of the crossing, not from the start of the following year.
What happens if it is not filed?
It is an obligation, and not filing is recorded as a deficiency on the file. It also holds up certificates that depend on a clean file, such as the bookkeeping certificate business clients ask for.
Do you file in a year with no income?
Yes, as long as the file is open. You declare zero turnover. Anyone who has stopped trading needs to close the VAT file rather than simply skip the declaration.
When do you get a VAT refund?
When input VAT for the reporting period exceeds output VAT. The difference is paid into the registered business bank account rather than carried forward against the next period.
Can an osek patur get a VAT refund?
No. An osek patur charges no VAT and deducts no input tax, so there is no periodic report and no refund. VAT paid to suppliers is part of their cost.
How long does the money take?
The law sets a deadline from the day the report is filed, and a late payment carries linkage and interest. In practice small refunds are paid within days, while large or unusual ones go into an inspection that stretches the timeline.
Why was my refund inspected?
Above an amount the Tax Authority sets, and in any case where the refund is unusual against the business's own history, the claim is checked before payment. Usually they ask for the input invoices behind the figure.
Can you reclaim VAT on a car?
Not on a private passenger car. The VAT regulations bar input tax on one, except for businesses where the vehicle is stock or a core working tool, such as a driving school or a rental company.
Can a new business with no income claim a refund?
Yes. A setup period with purchases and no sales yet produces excess input tax and a refund. It is also exactly the situation that attracts an inspection, so the invoices are worth having in order first.
How is this different from the tourist VAT refund?
They are unrelated. Input tax refunds belong to a registered business and come through the periodic report. The tourist refund is a separate procedure at airport counters.
When is the VAT report due?
By the 15th of the month following the reporting period, monthly or bimonthly, as the Tax Authority has set for the business. When the 15th falls on a Saturday or a holiday the date moves, and certain online payment methods sometimes buy a couple of extra days.
Does an osek patur file a periodic VAT report?
No. An exempt dealer charges no VAT and files no periodic report. They file an annual turnover declaration instead, by 31 January for the year that ended.
Do I have to file in a month with no income?
Yes. A period with no activity gets a zero report. Not filing carries a fine even where nothing is owed, and a run of missing reports can lead to a best-judgment assessment.
Does an invoice enter the report when issued or when paid?
When issued, on accrual-basis reporting. A tax invoice issued in the period belongs to it even if the customer pays in 90 days. Only a business entitled to report on a cash basis reports on receipt.
What do I do about a mistake in a report already filed?
File an amended report for that period. A small correction in the Tax Authority's favor can sometimes be rolled into the next period, but a material one, and any correction that lowers the liability, goes through an amended report rather than a quiet offset.
When does a VAT refund arrive?
When input VAT exceeds output VAT, the difference is refunded to the bank account on file. Large or unusual refunds may be reviewed before payment, so the invoices behind the input VAT are worth having to hand.
Is every service to a client abroad exempt from Israeli VAT?
No. The zero rate applies to a service supplied to a foreign resident on the conditions set out in section 30 of the VAT Law. If the service is in fact also supplied to an Israeli resident, or relates to property in Israel, the benefit falls away and the sale carries full VAT.
What is the difference between zero-rated and exempt?
A zero-rated sale is a taxable sale where the rate happens to be zero, so input VAT on the expenses behind it is still deductible. An exempt sale carries no input-VAT deduction at all. That difference is worth real money.
Who counts as a foreign resident for VAT?
An individual permanently resident outside Israel, or a body registered or incorporated only outside Israel, while it is outside Israel and has no business or activity in Israel. A foreign company with an active presence in Israel does not meet the definition.
My client is abroad but the person using the service is in Israel. What then?
Where the subject of the agreement is a service in fact supplied to an Israeli resident as well, the zero rate falls away. An Israeli beneficiary is enough to cancel it, even when the contract and the payment run through the foreign entity.
What do I need to keep as proof?
The agreement or order, evidence of who the client is and where they are resident, the invoice itself, and a record of the payment received. The burden of proving the conditions is on the business, and that is what an audit looks at.
How is a zero-rated sale reported in the periodic VAT return?
As a taxable sale at a zero rate, in a separate field from full-rate sales. Input VAT on the expenses behind it is claimed as usual.
Opening and closing a business
How quickly do I have to report that the business closed?
VAT has to be notified within 15 days of activity stopping. The Tax Authority and National Insurance have to be notified in parallel, along with others such as your pension fund and study fund.
Can I just stop working without closing the file?
No. An open file keeps generating reporting obligations to VAT and the Tax Authority and keeps charging National Insurance, even with no income. A dormant file nobody closed is a common source of fines and demands.
What happens to equipment and stock left in the business?
Equipment and stock kept by the owner at closure count as a sale to the owner for VAT purposes, and have to be reported with VAT paid on them. That is why each item and its value has to be listed.
Is an annual return still required after closing?
Yes. A final annual return covers the period of activity in that year, even if it ended in February. Closing does not cancel the duty to report what already happened.
What do I do with unused invoice books?
Report any unused invoice books or tax invoices to VAT. They are documents that can be misused, which is why they are part of the closing process.
How long do the records have to be kept after closing?
Seven years from the end of the tax year, exactly as for an active business. The duty covers digital files too, so access to the data has to survive the software going unused.
How long does it take to open an osek patur file?
The opening itself can be done in a working day when the documents are ready: ID, bank account details and a description of the occupation. Registering with National Insurance takes minutes more.
What does opening an osek patur cost?
There is no opening fee for a sole trader. The real costs are National Insurance contributions, an accountant or tax adviser for the annual return, and a system for issuing documents.
Do I need an accountant to open a file?
Not for the opening itself. An accountant or tax adviser matters mainly for the annual return and for checking that the status you picked fits your occupation and expected turnover.
From what point do I have to issue invoices?
From the first sale. Every payment received needs a matching document, and activity before the first income already requires proper books.
Is a business bank account mandatory?
Not for an osek patur, but most banks require a business account for meaningful activity, and separation saves a lot of work at year-end when income and expenses have to be classified.
What happens if the file is opened mid-year?
The ceiling is measured proportionally to the period of activity. Someone opening in October does not get a full annual ceiling for the three months that remain.
Who has to register as an osek murshe?
Anyone whose expected annual turnover passes the osek patur ceiling, and anyone in an occupation that the VAT law does not allow to be registered as exempt, including lawyers, accountants, doctors, architects, engineers, insurance agents and real estate brokers.
Which form opens the VAT file?
Form 821, the application to open an osek murshe file. Unlike the online route available to an osek patur, form 821 is submitted at the regional office or through a representative.
How long does it take?
The VAT registration sets the pace, and it is usually a matter of days when the documents are ready. Income tax and national insurance registration are quicker.
Can you invoice before the file is open?
No. A tax invoice requires a valid dealer number, and a document issued before registration does not entitle the customer to deduct input VAT.
What does it cost to open?
There is no registration fee. The costs are an accountant or tax adviser, a system for issuing documents, and national insurance contributions that start running immediately.
When is the first VAT report due?
By the reporting frequency set for the file, monthly or every two months depending on turnover, by the 15th of the month following the period. A period with no income still needs a report.
Does the certificate have to be displayed?
Yes. The osek murshe certificate issued at the end of registration is displayed at the business premises in a visible place, and this is checked in field inspections.
When is switching from osek patur to osek murshe mandatory?
The moment annual turnover crosses the ceiling set in law for that year, not at the start of the following year. The switch is mandatory, and the ceiling is measured on turnover rather than profit.
What happens if I kept trading as an osek patur after crossing?
The exposure is retroactive VAT on sales already made, and sometimes fines. That VAT comes out of the business's own pocket, because the customer already paid a price with no VAT on it.
Do I have to raise prices after the switch?
For a business customer who deducts VAT, adding it changes nothing in their effective cost. For a private customer it is a real price rise, and absorbing the VAT instead costs roughly 15% of net income on those sales.
Does invoice numbering reset at the switch?
No. Transaction invoices issued as an osek patur keep their sequence, and tax invoices start a separate one. Both sequences live side by side as historical record.
Can I go back to being an osek patur later?
Not automatically and not immediately. Turnover dropping below the ceiling does not restore the status by itself; you have to apply to the Tax Authority, and approval is not guaranteed.
How long does the switch take?
Updating the status with the Tax Authority is quick. What takes time is everything around it: repricing, updating open quotes, configuring the system and learning your reporting frequency. Start before crossing rather than after.
Income tax
Who has to file an annual return?
Anyone with an open income tax file, osek patur and osek murshe alike, including in a year with no income. Salaried employees file only in certain circumstances, such as additional income above a threshold or investment income with no tax withheld.
What is form 1301?
The annual return on the income of an individual and of a business that is not a company. It brings together every income source for the year, the expenses, and the tax and advances already paid.
When is it due?
The statutory date is the end of April, and the end of May for anyone required to keep double-entry books. In practice the Tax Authority publishes an extension most years, and representatives get staggered quotas, so it is worth checking the date on that tax year's own page.
Do you file in a year with no income?
Yes, as long as the file is open. An empty year is filed as a zero return. Anyone who has stopped trading needs to close the file rather than simply stop filing.
What goes with the return?
A profit and loss statement from the books, withholding certificates from clients, pension and hishtalmut deposit certificates, confirmation of national insurance paid, receipts for donations to a recognized institution, and form 106 from an employer for anyone also salaried.
What happens after filing?
The tax calculated in the return is set against the advances and against tax withheld at source. Overpayment is refunded, underpayment becomes a balance due carrying linkage and interest.
What does filing cost?
It follows the complexity of the file and how orderly the books are. A business kept in order through the year pays less than one arriving with a box of receipts in February, and that difference is within your control.
Does a self-employed person need double-entry bookkeeping?
Usually not. Most small businesses keep single-entry books, a receipts and payments ledger alongside the documents themselves. Double-entry duty depends on the field, the turnover and the number of employees, and is set in the schedules to the bookkeeping regulations.
What has to be kept, and for how long?
Every document going out and coming in, including invoices, receipts, expense records and filed reports, for seven years. A computerized system also has to be able to export an Open Format file.
Can I do all of it myself without an accountant?
There is no legal duty to appoint a representative. In practice the annual return, the reconciliations and dealing with the authorities are what most self-employed people hand over, leaving document issuing and day-to-day recording with them.
Which costs more, doing it myself or handing it over?
A representative's fee follows mostly from the number of documents and the state they arrive in. Clean books with a valid export are what lowers the bill, not negotiating the rate.
Do I need a separate business bank account?
There is no legal requirement for a sole trader, but mixing personal and business accounts is what turns a month's reconciliation into a day's work. A separate account is the cheapest thing you can do for the books.
What happens when an expense has no record behind it?
The expense isn't recognized, and for an osek murshe the VAT on it can't be deducted either. There is no way to fix that after the fact other than obtaining the document from the supplier.
What are income tax advances?
Ongoing payments on account of the annual tax, calculated as a percentage of turnover rather than profit. The rate is set per business by the assessing officer, usually from the most recent assessment.
When are advances reported and paid?
By the 15th of the month following the reporting period, monthly or bi-monthly as set for the business. A period with no income still gets a nil report.
Can the advance rate be reduced?
Yes. You file a request to reduce or cancel with the assessing officer, on the dedicated form, with reasoning and supporting evidence. Approval is not automatic, and it is better filed before a large overpayment builds up.
How do advances differ from the VAT report?
Advances are a percentage of turnover paid to the Tax Authority's income tax side. The VAT report is output VAT minus input VAT paid to VAT. The same business reports two different numbers to two places.
What if I overpaid on advances?
The excess comes back with the annual return, usually with linkage and interest. Until then the money sits with the Tax Authority, so an inflated rate hurts cash flow even though it returns in the end.
Who is exempt from advances?
A business the assessing officer set at a zero rate, and sometimes a business in its first year before an assessment exists. The exemption is neither automatic nor permanent, and it is revisited once an assessment is filed.
How do you calculate a freelance hourly rate?
Start from the annual net you want, add the income tax and National Insurance that will be charged on it, add your business expenses for the year, and divide the total by your billable hours. Billable hours are only the hours a client pays for, not every hour you work.
How many billable hours are there in a year?
Someone working 47 weeks a year and billing 30 hours a week reaches 1,410 hours. A full week is around 42 hours, but a large share goes to quoting, chasing payment, marketing, bookkeeping and learning, none of which is billed.
Is VAT included in the hourly rate?
No. An osek murshe quotes a rate before VAT and adds 18% on the invoice. An osek patur charges no VAT at all, and in exchange cannot reclaim input VAT on expenses.
Why is my tax percentage higher than expected?
Income tax is charged in brackets, so each extra shekel is taxed at the marginal rate rather than the average one. On top of that come National Insurance and health tax, together 18% on the part above 60% of the average wage. Credit points and the 52% deduction of National Insurance contributions offset part of it.
How often should the rate be updated?
At least once a year. Brackets and ceilings change, expenses rise, and the share of hours that reach an invoice moves with your client mix. A rate set once and left alone erodes on its own.
What is withholding tax at source?
The payer holds back part of your invoice and sends it straight to the Tax Authority against your future tax bill, instead of paying you the full amount. The money is not lost, it is credited to you in the annual return.
How much is withheld without a certificate?
For payments for services or assets the rate set in the regulations is 30 percent, and it applies by default to anyone without a valid certificate. A certificate lowers the rate, and for most businesses it sets it to zero.
Does an osek patur need one?
Yes. The certificate belongs to income tax rather than VAT, so every open file needs one, including an osek patur who charges no VAT at all.
Where do you get the certificate?
From the Tax Authority's certificates system, by file number. You can print it without logging into your personal area, which also means your client can check you before paying.
Is it issued automatically?
For a business that files on time with no outstanding debts, next year's certificate is issued automatically. An individual request is needed when it was not issued, or when the rate set is too high, using form 2542.
How is it different from a bookkeeping certificate?
A bookkeeping certificate confirms your books are properly kept and have not been disqualified. A withholding certificate sets how much is deducted from you. Both come from the same system in the same document, which is why they are usually asked for together.
When do you get the withheld money back?
At the annual reconciliation. The tax withheld is set against the liability calculated in your return, and anything over-withheld is refunded. Until then it sits with the Tax Authority rather than in your cash flow.
When is the annual tax return due for the self-employed in Israel?
The law sets 30 April, and the Tax Authority extends it almost every year. For tax year 2025 the deadline was 29 May for a paper return and 30 June for an online one. A business represented by an accountant files later, under the representatives' extension arrangement.
What documents does an accountant ask a freelancer for at year-end?
The Open Format file from your invoicing software, an expense summary with the receipts behind it, business bank and credit card statements, annual certificates from the pension fund and study fund, life and disability insurance certificates, a Form 106 if you also have salaried income, confirmation of advances paid to the Tax Authority and National Insurance, and a stock count as of 31 December if the business holds inventory.
What is a stock count and who has to do one?
A business holding goods or raw materials counts them physically on 31 December and records quantity and cost. Closing stock feeds straight into taxable profit. A service business with no inventory skips it.
Can you file the annual return without an accountant?
Yes, the return is filed online through the Tax Authority personal area and you can complete it yourself. A business with inventory, a mixed-use vehicle, foreign income or losses carried forward usually comes out ahead with representation.
What happens if receipts for expenses are missing?
An expense with no supporting document is not recognized. You can ask the supplier for a copy, though a year later that gets hard. This is why photographing a receipt at the moment of payment beats collecting them in March.
Do the documents have to be kept after the return is filed?
Yes. The retention period is seven years from the end of the tax year, and it covers the digital files, not only paper.
National insurance and pension
What are self-employed National Insurance contributions calculated on?
On taxable business income, meaning after deducting allowable expenses, not on turnover. A reduced rate applies to the lower band of income and the full rate above it, up to a monthly ceiling.
What does meeting the self-employed definition mean?
A National Insurance test based on working hours and income. Meeting it buys work-injury cover and the full set of benefits; failing it classifies the person as having income not from work.
How are the advances set?
On estimated income at the start, and later on the most recent assessment. The estimate can be updated during the year, which beats discovering a large gap at the annual reconciliation.
Is part of the contribution deductible?
Yes. 52% of the National Insurance contributions a self-employed person paid are deductible against income tax. Health tax is not.
What happens at the annual reconciliation?
National Insurance compares the advances paid against actual income per the assessment, and issues a charge or a credit. That is the letter that arrives about a year after the year ends.
What happens if contributions go unpaid?
Fines and linkage accrue, and benefit entitlement can be affected. An open debt also touches maternity pay, injury benefit and other benefits derived from the insurance period.
Is pension contribution mandatory for the self-employed?
Yes. Since 2017 a self-employed person aged 21 to retirement age, whose file has been open more than six months, must contribute. The rate is 4.45% on income up to half the average wage and 12.55% on the part above it up to the average wage.
How much of a pension deposit is recognized for tax?
Up to 16.5% of qualifying income: 11% as a deduction that lowers taxable income, plus 5.5% as a credit worth 35% of the amount deposited. Both are capped by a qualifying income ceiling of ILS 232,800 a year.
What is the deductible study-fund ceiling for the self-employed?
The deductible expense is up to 4.5% of income, within an income ceiling of ILS 293,397, meaning up to ILS 13,202 a year. You may deposit beyond that, up to roughly 7% of the same ceiling, and still get tax-free growth, though the extra is not deductible.
When can a study fund be withdrawn tax free?
Six years after the first deposit, or three years for someone at retirement age or for professional training. An early withdrawal forfeits the exemption.
Who is exempt from the pension requirement?
Anyone at retirement age, anyone under 21, and anyone whose file has been open less than six months. Someone already covered by an employer's contributions is measured on the income that is not covered.
What happens if I did not contribute?
The law provides for a fine, collected through the fines collection centre. Beyond the fine, the bigger loss is the tax benefit for that year, since it counts by the date the deposit actually landed.