The osek zair track, a flat deduction
The micro-business track is the newest thing in Israeli tax for small self-employed people, and the least understood. It was added to the Income Tax Ordinance by Amendment 265 and applies from tax year 2024, and the idea is to drop expense accounting and replace it with a fixed number.
What the track does
A self-employed person on the regular track keeps an expense ledger, collects invoices, classifies each expense by its recognition rate, and files a full annual return. Taxable profit is income minus recognized expenses.
A micro-business owner does none of that. They report annual turnover, and the Tax Authority deducts 30% of it automatically as a normative expense. Turnover of 100,000 shekels becomes taxable income of 70,000, regardless of what was actually spent.
That deduction replaces expenses rather than adding to them. You cannot take the 30% and then claim actual expenses as well.
What it is not
This is where most of the confusion sits, so it comes before everything else: osek zair is not a VAT status.
Osek patur and osek murshe are VAT statuses, and they determine whether you charge VAT and which documents you issue. Osek zair is an income tax track, and it determines how taxable profit is calculated. Two entirely separate axes.
It follows that there is no such thing as "a micro-business VAT report". If you are an osek patur, you file what an osek patur files. If you are an osek murshe, you keep filing a periodic VAT report exactly as before. The full comparison is in the micro-business versus osek patur guide.
National insurance does not change either. Contributions are calculated on taxable income after the deduction, at the same rates that apply to any self-employed person.
Who qualifies
The conditions are cumulative, and all of them have to hold.
Annual turnover does not exceed the ceiling, which stands at 122,833 shekels in 2026 and is index-linked. That is the same ceiling as osek patur, which is another source of the confusion.
The business rests on the owner's personal work. Employing staff takes you out of the track.
The income comes from personal exertion in the business, not from passive sources.
The track is open to an individual, not to a company, and not to a controlling shareholder in one.
The law excludes further situations, among them income originating from a former employer, income from a relative above a set share of turnover, and a list of occupations defined in the law itself. The precise list is in Amendment 265, and it is worth going through it with an accountant before choosing.
How you elect into it
There is no advance registration and no separate opening form. The choice is made in the annual return: instead of the full return you file a short one, Form 137, by 31 March of the following year.
The choice is annual. You can be on the track one year and off it the next, with no special procedure. That is a real advantage: you can work out at year end which option is better and choose then, instead of committing in advance.
What it saves in practice
Beyond the deduction itself, the track saves administrative work. There are no monthly income tax advances, no capital declaration in most cases, and the annual return is one form declaring turnover.
Anyone who started a small business alongside employment, or who sells a service with no meaningful expenses, finds that the overhead of bookkeeping on the regular track costs more than the tax it saves.
When the track loses money
Exactly when real expenses run above 30% of turnover.
A business that buys stock, rents an office, runs a vehicle or pays subcontractors will easily reach 45% or 60% expenses. On the regular track all of that comes off taxable income. On the micro-business track 30% comes off and that is it, with full tax on the rest.
- Actual expenses ₪15,000, meaning 12.5%
- The normative deduction gives ₪36,000
- You gain ₪21,000 of lower taxable income
- Actual expenses ₪55,000, meaning 46%
- The normative deduction gives ₪36,000
- You give up ₪19,000 of recognized expense
The check is simple: take last year's total recognized expenses and divide by turnover. Under 30%, the track pays. Above it, probably not. The recognition rates by category are in the deductible expenses guide, and the effect on net tax can be checked in the annual net calculator.
A full worked example
A self-employed graphic designer, annual turnover of 110,000 shekels. Her actual expenses: software subscriptions 4,800 shekels, the recognized share of internet and phone 2,300, equipment and a computer 6,000, advertising 3,000. Total 16,100, which is 14.6% of turnover.
On the regular track: taxable income is 110,000 minus 16,100, meaning 93,900 shekels. She keeps an expense ledger, retains invoices, and files a full annual return.
On the micro-business track: the normative deduction is 33,000 shekels, and taxable income drops to 77,000. A difference of 16,900 shekels of taxable income in her favor, without counting a single expense.
Now the same designer, in a year when she rented an office at 3,000 shekels a month. Expenses rise to 52,100, which is 47% of turnover. On the regular track taxable income is 57,900; on the micro-business track it is 77,000. Identical turnover, and the normative track costs her almost 20,000 shekels of extra taxable income.
That is exactly why the election is annual rather than once and for all. The same business, two years, two different answers.
What happens when there is also a salary
Being self-employed alongside employment is a common situation, and the track stays open as long as the business income meets the conditions.
Two points worth knowing. First, the ceiling is measured on turnover from the business, not on total income. A 200,000 shekel salary alongside a business turning over 90,000 does not take you out of the track.
Second, tax is computed on all income together. Business income, after the normative deduction, joins the salary and sets the marginal bracket. Anyone already in a high bracket thanks to their salary pays on the business income at that same bracket, not from the bottom one.
There is one exclusion worth checking: income originating from a current or former employer is outside the track. Anyone who left a job and started serving that same place as a freelancer should clarify this in advance.
What you still have to do
The track shortens the return, it does not remove the day-to-day obligations.
Invoices and receipts still go out to customers exactly as before, according to your VAT status. An osek patur issues a receipt and a transaction invoice, while an osek murshe issues a tax invoice.
The retention obligation stays in force, seven years, as described in the document retention guide. A normative deduction is not an exemption from documenting income, and reported turnover has to be provable.
What happens if you cross the ceiling
Turnover above the ceiling takes you out of the track for that year. The return filed is the full one, and expenses are claimed as actually incurred.
That is a good reason to keep expense invoices even when you plan to be on the track. A business that binned its invoices because "there is an automatic 30%" and then crossed the ceiling is left without documents exactly when it needs them.
Crossing the osek patur VAT ceiling as well starts an entirely separate process, described in the transition to osek murshe guide.
Anyone still mixing this track up with exempt-dealer status will find the two pulled apart in the osek zair versus osek patur guide.
How Slate tracks the ceiling
Even on the micro-business track you have to issue valid documents and know your turnover at any moment. Slate shows annual turnover against the ceiling, so crossing it is not a year-end surprise, and lets you record expenses in parallel even when you are not claiming them, so the year-end comparison between tracks rests on data rather than a guess.
This is general information, not tax advice. For a specific situation, talk to an accountant or tax adviser.
Common questions
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.