A small business (osek zair) that did not earn a shekel this year still has to do a tax coordination, and if it enters zero the system will not accept it. Elishiv Maman, who coordinates the small-business project at the Israel Tax Authority, said this and several other things that are not in the written instructions, in a webinar the Tax Advisors Association held in December 2025.
The basics: a small business that wants an exemption from filing an annual return, from a capital declaration and from advance payments has to move to file type 44. That file type has three stages: a request to change the file type, a tax coordination during the year, and a short report of the turnover at the start of the following year. Maman stressed that the tax coordination is mandatory, even when this is the only income. A type 44 file with no tax coordination is returned at the start of the following year to type 42, the regular type, and the whole move achieved nothing.
The exemption from a capital declaration is Authority policy, not a provision of the law. At the Tax Advisors Association conference in Eilat in October 2026 it was said that assessing offices have already sent capital declaration demands to businesses that opened as an osek zair, where the assessing coordinator found a reason to look.
One shekel instead of zero
The tax coordination system cannot take income of zero. A small business with no turnover that wants to keep the filing exemption has to enter one shekel in the coordination. In the short report at year end you can enter zero, and it will create no charge.
Estimating slightly high
Maman explained that the system adds 10% to the turnover entered by itself. Someone who entered 50,000 shekels gets a calculation based on 55,000. Beyond that, turnover above the estimate is taxed at a higher rate. In the example he showed, up to 70,000 shekels the tax came to 1%, and every shekel above that 20%. So in his view it is better to estimate a little above what you expect, including December's turnover, as long as the estimate does not push the business into a higher bracket. For a client whose entire income is from the small business, the coordination rate usually comes out at zero, so a wide margin is possible.
The coordination covers all of a person's income: the small business, and also salary and any other income. Reserve duty pay and maternity pay go on a separate line, and only what was received directly from Bituach Leumi. What came through the salary is not entered.
Faults that keep coming up
A representative asked about businesses that employ no one but have a withholding file because of a clinic rental, and the system will not let them into the model. Maman said they are eligible, and the file was simply classified wrongly. You need to ask the office to change the withholding file type to rent. The offices have been updated.
If the spouse is required to file an annual return for any reason, there is no filing exemption and no type 44 file. The 30% expenses can still be claimed in the joint return.
A deposit to a study fund (keren hishtalmut) is not captured in the short report. The business is still entitled to the benefit, but will have to file a tax refund request separately.
Someone who chooses to file a regular annual return and claim the 30% in it enters the whole turnover, 100%, on form 1301, and marks "small business owner" for one of the spouses. Maman said representatives who already enter 70% and don't mark it get a demand for a profit and loss statement from the assessing officer, "and rightly so".
The figures in the webinar apply to tax year 2025. The small-business ceiling is updated every year, and it is worth checking it before next year's tax coordination.