What is the purpose of the reform?
The "small business" reform is intended to simplify the process of doing business in Israel by significantly simplifying the tax world for hundreds of thousands of small businesses and exempting them from various obligations, such as submitting an annual report, requiring recognition of various expenses and payment of advances to the income tax. This will save small business owners a lot of time currently devoted to exercising rights and reporting, and in many cases will also save the expense of professional representation before the Tax Authority.
Who will be defined as a "small business"?
A self-employed person whose annual turnover does not exceed the ceiling set by law. As of 2024 and 2025, the turnover of transactions will be about NIS 120,2026. Starting in <>, this ceiling will be linked to the Consumer Price Index.
Gospel for Business (archive), photo: Dudu Greenspan
What does it mean to be a "micro-dealer"?
A "small business" will be entitled to deduct from its income a normative expenditure rate of 30% of turnover, instead of requiring a deduction of actual expenses. In most cases, this recognition will save those businesses from having to file an annual report and demand recognition of expenses. In addition, in most cases, this recognition will obviate the need to pay income tax advances.
How will small businesses report to the IRS?
The calculation of tax rates, tax benefits, credit points, etc. will be based on the current tax coordination system, through which the tax deduction for employees with additional income is calculated. Also, at the end of the year they will be required to report the annual turnover and pay the tax.
Does a "micro-dealer" still need to report to VAT?
"Micro dealer" is the definition of income tax. Insofar as a "micro dealer" is defined as a VAT exempt dealer, he is exempt from these reports. To the extent that a "micro dealer" is defined as an authorized VAT dealer, he is obligated to pay VAT and report monthly or bi-monthly, in accordance with what has been determined by the VAT office.
Alongside the implementation of the "micro-dealer" reform, the income ceiling that allows the self-employed to register as an "exempt dealer" in VAT will increase, and will be compared to the ceiling of a "micro-dealer". However, it should be remembered that a dealer who belongs to one of the groups listed in section 13 of the VAT Regulations will be registered as a licensed dealer regardless of the turnover of his transactions.
Since when will the reform take effect?
Starting January 1, 2024.
Is there an obligation to register as a "micro-dealer"?
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 established for obtaining the status of "micro-dealer", which are intended to prevent cases of abuse of the benefit.
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