Annual Report for Authorized Business Owner — Step-by-Step Guide

If you are an authorized business owner, you already know that your tax reporting differs from that of an exempt business owner. The annual report is the central document through which you report to the tax authority all your business activities during the calendar year. It is not merely a form — it is your opportunity to present the true financial condition of your business and settle your tax obligations.

Most of the clients we see who do not prepare the report on time regret it when they discover they owe interest and penalties for late payment. In short, this is something best not left to the last moment.

In this guide, we will cover everything you need to know: what exactly an annual report is, who must submit it, how to build it step by step, which documents you need, and what common mistakes to avoid. In the end, you can decide whether you want to handle this yourself or hand it over to professionals.

What is an Annual Report for an Authorized Business Owner and Who Does It Apply To?

An annual report is a tax statement in which an authorized business owner reports to the tax authority their income, expenses, and tax payments during a calendar year (January 1 to December 31). Unlike an exempt business owner who reports only VAT (and not even always), an authorized business owner must file a complete annual report detailing all financial activity.

This report is essentially your formal business income declaration — the tax authority uses it to verify that you have paid the correct tax, whether you are entitled to a refund, and whether all documents align with your quarterly reports.

Who Must File an Annual Report? Primarily authorized business owners — those who have elected to be authorized for expense deduction and real-time reporting. If you are an authorized business owner, it is mandatory. If you are an exempt business owner, you are not required to file a full annual report, but if you have accumulated VAT, you still need to report it.

Limited liability companies and other corporations are also required to file an annual report, but their process is different and more complex — they must submit complete financial statements and a corporate tax report.

How to Build an Annual Report — Step by Step

The reporting process includes several clear steps. Each step depends on the previous step being completed properly, so it's worth going through this in order.

1. Gather all required documents — this is the foundation. You need: income receipts (if applicable), invoices sent to customers, supplier invoices received, payroll slips (if you have employees), bank receipts, complete bank statements for the year, expense receipts (fuel, equipment, rent, insurance, etc.), and documentation of assets purchased or sold. If you use accounting software, you can already generate a working report from the software.
2. Review your accounting records — before reporting, ensure all income and expenses are recorded correctly. If there are errors in the software, correct them now. This includes checking bank balances, ensuring there are no duplicates, and verifying that dates are correct.
3. Calculate your net income — total income minus authorized expenses equals net income. This is the amount on which you pay income tax. A licensed business owner can deduct considerably more expenses than a exempt business owner, so this is an important part of the process.
4. Calculate the advance payments you owe — review the notices you received from the tax authority in quarterly filings. You need to ensure that the advance payments you made match the annual report. If you overpaid, you are entitled to a refund. If you underpaid, you must make up the difference.
5. Complete the report itself — an annual report of a licensed business owner includes several sections: business owner details, total income, authorized expenses, net income, income tax calculation, advance payments made, and calculation of the amount to be refunded or paid. Most reports are filed through the tax authority website using a user account.
6. Submit the report to the tax authority — this should be done through the tax authority website, usually by a certain date in the new year (check the exact deadline each year). If you use the assistance of a CPA, they typically handle this part.
7. Keep a copy of the submitted report — save the report approved by the tax authority, payment notices, and all relevant documents. This may be useful if there is an audit or questions in the future.

What You Need to Know About Taxes and Reporting

When we talk about an annual report of a licensed business owner, there are several taxation principles you need to understand. It's not just about numbers — it's about understanding how the tax authority views your business.

Net Income and Income Tax — Your net income is the basis for calculating income tax. A licensed business owner pays income tax at a progressive rate (meaning the higher your income, the higher the rate). This differs from an exempt business owner who pays VAT only. Depending on the business owner's profitability and type of activity, there may be adjustments to the tax rate.

Authorized Expenses — A licensed business owner can deduct significantly more expenses than an exempt business owner. This includes office expenses, fuel, telephone, insurance, bank fees, and professional development expenses. However, only expenses directly related to the licensed business are permitted. Personal expenses are not allowed. Consult with a certified accountant if you're unsure whether a specific expense is deductible.

Tax Advance Payments — During the year, you pay tax advance payments according to the tax authority's estimate of your income. If your income increases or decreases, you can request an adjustment to these advance payments. At the end of the year, in the annual report, you settle the account — if you overpaid, you receive a refund. If you underpaid, you pay the difference.

VAT Reporting — If you are a licensed business owner liable for VAT, you must also report VAT in quarterly reports. The annual report summarizes all your VAT reports throughout the year. If you have a VAT balance (meaning you paid more VAT to suppliers than you collected from customers), this may affect your tax refund.

One point that is not always clear: if you are a licensed business owner required to pay tax advance payments and received an assessment from the tax authority that seems too high to you, you can submit a request to adjust the advance payments. This is not automatic — you need to take action.

Common Mistakes and How to Avoid Them

In years of working with licensed businesses, we have seen the same mistakes repeated over and over again. Here are the most common mistakes:

• Late filing of reports — this is the biggest mistake. When you file late, you are liable for interest and penalties. Check the deadline every year and mark it in your calendar. If you are unsure, it is best to consult a certified accountant early in the year.
• Non-deductible expenses reported as deductible — for example, a personal expense (meals at home, personal clothing, fuel for a private car) recorded in the software as a business expense. The Tax Authority checks this, and it may result in an audit or penalties.
• Discrepancies between annual reports and quarterly filings — if you reported something in a quarterly report differently in the annual report, it raises a red flag. Ensure that the numbers align.
• Lack of documentation for expenses — if you claim an expense, you need a receipt or invoice. If you do not keep receipts, you cannot deduct the expense. It does not matter how genuine the expense is — without documentation, it does not exist from the Tax Authority's perspective.
• Failure to report income from freelance work or one-time projects — if you are a licensed business owner, all income from the business must be reported. If you received payment for a specific project, it must be included in the report.
• Failure to update the Tax Authority about changes in business status — if you closed your business mid-year, opened a new business, or added an employee, you must notify the Tax Authority. If you do not update, the annual report will be problematic.
• Inaccuracy in calculating housing and maintenance expenses — if you work from home, you can deduct a portion of housing expenses. However, it must be only a proportional share (such as the office area relative to the entire apartment). Many calculate this incorrectly.

When Should You Consult with an Accountant?

That's a good question. Some business owners are able to prepare the report themselves, especially if they use good accounting software and maintain organized records. However, there are cases where it is truly worthwhile to use professional assistance.

You should consult with an accountant if:

• Your business is complex — you have income from multiple sources, significant expenses, or you use equipment and assets that require depreciation.
• This is your first year as a licensed business owner — you are unsure about the procedure, permitted expenses, or reporting requirements.
• You have employees — this affects payroll slips, national insurance, and various tax calculations.
• You owe high advance tax payments and believe they are incorrect — an accountant can help you file a correction request.
• Your report is overdue or you have any issue with the tax authority — this is not something you should handle alone.
• You want to ensure everything is correct — it costs money, but it saves you from confusion and worry.

Ben Or Kook offers a free initial consultation. This is the best time to ask questions, understand the process, and decide whether you need help with your annual report.

Table: Comparison of Annual Report for Authorized Business Owner vs. Exempt Business Owner