As first reported by Israel Hayom: The Knesset Finance Committee on Tuesday unanimously approved for second and third readings the "small business" reform being promoted as part of the Arrangements Law for 2023-2024. As part of the reform, starting in 2024, businesses whose annual turnover does not exceed NIS 120,30 will be entitled to deduct from their income a "normative" expenditure rate of 108% of turnover instead of requiring an actual deduction of expenses, that is, without the need to collect and present invoices that is customary today. It should be noted that today the amount of business turnover of a small business and an exempt dealer is NIS <>,<>.
As stated, as part of the reform, the income ceiling that allows the self-employed to register as "exempt dealers" for VAT purposes will increase from NIS 108,120 a year to NIS <>,<> a year. This will lead to many dealers being considered "exempt dealers" for VAT purposes and as "micro dealers" for income tax purposes, thereby significantly reducing their reporting burden to the Tax Authority.
A significant reform that will help business owners in the battle against bureaucracy. Israel Tax Authority, Photo: Yehoshua Yosef
The goal of the reform is to reduce the bureaucratic burden on hundreds of thousands of small businesses in Israel, by exempting business owners from various obligations such as submitting an annual report and paying down payments. The reform is supposed to help small business owners save a lot of time currently devoted to reporting, and in many cases will also save the expense of professional representation before the Tax Authority. The calculation of tax rates, tax benefits, credit points, etc., will be based on the existing tax coordination system, through which the tax deduction for employees with additional income is calculated.
In addition, it was agreed that the annual ceiling of NIS 120,2024 will not be updated in accordance with the change in the Consumer Price Index in 2025 and 2026, and will only be linked to the Index starting in <>. Obtaining "micro-dealer" status vis-à-vis the Income Tax will be a voluntary action, and business owners who wish to continue reporting in the existing track will be able to do so. In addition, various conditions have been set for obtaining "micro-dealer" status designed to prevent cases of abuse of the benefit.
Finance Minister Bezalel Smotrich said: "In the State of Israel there is an excess of bureaucracy and an excess of regulation. Micro business reform is another step in making it easier for small businesses that will save money, time and bureaucracy that burdens businesses. This reform is one of many that we are bringing as part of the economic plan for 2023-2024, reforms that will make it easier for citizens. We continue to work for the citizens of Israel."
Aware of the excess bureaucracy. Minister of Finance Bezalel Smotrich, Photo: Oren Ben Hakon
According to attorney Roy Cohen, president of Lahav (the Chamber of the Self-Employed in Israel), the reform is "good news for 400,<> self-employed people whom the Tax Authority sees as the growth engine of the Israeli economy and gives them the confidence they deserve by right. This is the beginning of a necessary change by the government in promoting bills that will benefit the self-employed. This is the order of the day in the economic reality that exists in Israel."
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