Annual Report for Self-Employed — The Complete Guide for 2026

Who is this guide for?

If you are a self-employed individual, a exempt business operator, a authorized business operator, or a private limited company owner — this guide is for you. An annual report is an accounting obligation, and failure to comply can result in penalties and issues with the Tax Authority. We frequently see self-employed individuals who think the annual report is "something an accountant does" — and it is, but understanding the process helps you be prepared, not miss important details, and keep your records organized.

On this page you will find a practical explanation of what an annual report actually is, who is obligated to file one, how the process works step by step, what your tax obligations are, common mistakes we see every year, and of course — answers to frequently asked questions.

The goal is simple: to ensure you know exactly what to expect, what to prepare, and when it's time to seek professional help.

What is an Annual Report and Who is Required to File It?

An annual report is a detailed report to the tax authority regarding all your income, expenses, and profit and loss for the tax year. In short, it is a complete picture of your economic activity.

Who is required to file? Generally, a licensed business owner — a self-employed individual whose income exceeds a certain threshold (typically around 100,000 shekels per year) or who has voluntarily chosen to register as a licensed business owner. Exempt business owners (whose income is below the threshold) may also file an annual report, although it is not mandatory. Private limited companies (Ltd.) are required to file an annual report in all cases.

One point that is not always clear: even if you are an exempt business owner, if you are registered for VAT (Value Added Tax) — you are required to report VAT in periodic reports. The annual report is a summary of all of these.

How the Process Works — Step by Step

Filing an annual report works in clear stages. Let's go through each one:

1. Gathering Documents and Data — Start with your expense folder: purchase invoices, receipts, supplier contracts, payments to National Insurance, pension, and training fund contributions. Also income: invoices you issued, payments received, customer agreements. If you worked with accounting management software (such as Zoho, Wave, or any other digital tool), the data should already be organized there.
2. Checking for Missing Documents — If you have expenses you didn't record at the time (for example, a cash purchase), try to retrieve a receipt or at least a note in your folder. The tax authority will not accept "I remember buying something."
3. Calculating Profit and Loss — Sum all income, subtract all allowable expenses (salary, rent, fuel, telephone, office, etc.), and obtain your annual profit or loss. This is the figure on which you will pay income tax.
4. Calculating Income Tax and Reporting — According to the tax rate applicable to self-employed persons (which varies by income level), calculate your tax liability. If you paid tax installments during the year, they will be deducted from the final amount. If there is excess — that is your refund.
5. VAT Reporting (if applicable) — If you are registered for VAT, you will need to report total sales and purchases, and calculate the VAT you need to remit or claim back. This is done in periodic reports (monthly or bi-monthly), but the annual report summarizes everything.
6. Filing with the Tax Authority — Today, most reports are filed digitally through the tax authority portal (the placeholder website). You will need a username and password there (or a digital ID certificate). The report is submitted in a specific file format (usually XML or a report completed in an online form).
7. Receiving Confirmation — After filing, you receive confirmation from the tax authority. Keep it. If there is a problem with the report (missing information, discrepancy), the tax authority will send you a notice.

Filing Deadlines and Reporting Obligations — What You Need to Know

The filing deadline for an annual report is typically by the end of March of the year following the tax year. In other words, for the 2025 report, the deadline is March 31, 2026. This is a significant deadline — if you miss it, you may be subject to penalties. If you have a good reason (for example, your accountant was ill), you can request an extension, but this is not automatic.

In addition to the annual report itself, there are several other reporting obligations you should be aware of:

• Advance Tax Payment Report — If you are a licensed business owner, you pay advance tax payments during the year (usually in certain months). A report on these advance payments is submitted in the annual report.
• Capital Declaration — If you have funds abroad, significant assets, or changes in your capital, you must declare this. This is not an obligation only for self-employed persons — employees must also declare significant capital.
• VAT Report — If you are registered for VAT, there is a separate VAT report (in periodic reports). This is sometimes combined with the annual report.
• National Insurance Report — If you have employees or are paying national insurance as a self-employed person, you need a report on this as well.

What is important to remember: each of these reports can affect your final tax calculation. If information is missing from one report, it could lead to errors in other reports. This is why accuracy is important.

Taxation Principles Every Self-Employed Individual Should Understand

Income tax for self-employed individuals is calculated based on your profit (income minus allowable expenses). The tax rate varies according to your profit level — generally, the higher your profit, the higher the rate. This is called "progressive taxation."

Allowable expenses are costs incurred for the purpose of your business activity. For example: salaries, fuel, telephone, office, insurance, suppliers, etc. Expenses unrelated to the business (such as purchasing personal clothing or vacation expenses) are not allowed. This does not mean you cannot make such purchases — you can, but they will not be deducted from your profit for tax purposes.

A point that causes confusion: different expenses receive different treatment. For example, if you purchased a computer for your business, you cannot deduct the full price in the first year — you deduct it gradually (this is called "depreciation"). However, expenses for fuel or telephone? Those are deducted immediately.

National Insurance and severance funds are mandatory for the self-employed. You pay a percentage of your profit to each of them. These are also allowable expenses, but they are calculated in a special manner.

Subject to eligibility verification in each case, there are tax benefits for self-employed individuals in certain fields (for example, technology or research). If you are in such a field, it is worth checking whether you are eligible.

Common Mistakes and How to Avoid Them

In decades of working with self-employed professionals, we see patterns of recurring mistakes. Here are the most common ones:

• Failing to document expenses in real time — the biggest mistake. A self-employed professional receives a receipt, puts it in their pocket, and at the end of the year "doesn't remember" what it was. If you plan to deduct an expense, document it immediately in a spreadsheet or software. If there's no receipt, write a note with the date and amount.
• Mixing personal expenses with business expenses — purchased groceries that are partly personal and partly for business? Separate them. Purchased a gift for a client? That's a business expense. Purchased a gift for a friend? That's personal.
• Forgetting small expenses — "It's only 50 shekels, it doesn't matter". It does matter. If you have 100 such expenses a year, that's 5,000 shekels you didn't deduct. On 5,000 shekels, you pay tax.
• Misunderstanding depreciation — bought expensive equipment (computer, furniture, tools)? You can't deduct it all in the first year. You need to calculate depreciation based on the estimated useful life of the item.
• Forgetting tax advances — if you are a licensed self-employed professional, you pay tax advances in certain months. If you forgot to pay, it will accumulate and cause problems in your annual report.
• Inaccurate reporting of income — if you receive payments from abroad, in Bitcoin, or through unconventional methods, report all of it. The tax authority monitors bank transactions and cash flows.
• Failure to disclose foreign assets — if you have a bank account abroad, assets, or investments, you need to disclose it. This doesn't mean you pay more tax, but failure to disclose can result in high penalties.
• Late filing — missed the deadline? File immediately, even if late. The sooner you file, the smaller the penalty (if any).

When Should You Consult an Accountant?

There are situations where it's really advisable not to go through this process alone. Here are the criteria:

If your business activity is complex — for example, if you have employees, if you pay fees to external suppliers, or if your income comes from various sources (self-employment + salary + investments). In all these cases, there are details that are not always clear, and a small mistake can be costly.

If you are new to business — a self-employed person who opened a business for the first time in January 2025, for example. You still don't know all the documentation, all the obligations, all the details. A meeting with an accountant will confirm that you are on the right track.

If there is a significant change in your situation — for example, your income increases significantly in a given year, or you move to a new city, or you discover that self-employed professionals in your field receive tax benefits you are not aware of.

If you missed a deadline or have an incorrect report — if you filed a report last year and it turned out to contain an error, or if you missed the deadline, it's advisable to address this now. An accountant will be able to correct an incorrect report or explain the consequences of the delay.

If you are unsure of yourself — and that is completely fine. annual report is an important document, and errors in it can be costly. If you have any doubts, it is better to ask.