How to Open an Authorized Business Operator — Complete Guide 2026

What is a Licensed Business Owner and Why Choose It?

A licensed business owner (עוסק מורשה) is a tax status granted to a self-employed person or small business owner by the Israeli Tax Authority. Unlike an exempt business owner (who must meet exemption conditions and is exempt from VAT reporting), a licensed business owner is required to submit periodic VAT returns and maintain detailed accounting records. This status is suitable for business owners whose income exceeds the exemption threshold or who wish to benefit from VAT deduction rights on purchases.

Advantages of Being a Licensed Business Owner

• VAT Deduction on Purchases: If you purchase materials, services, or equipment for your business, you can deduct the VAT you paid from the VAT collected from customers. This significantly reduces operational costs in certain sectors.
• Growth Potential: There is no income ceiling as with exempt business owners. You can expand your business without tax-related limitations.
• Business Credibility: Corporate clients and large contractors often require a licensed business owner status to verify proper tax arrangements.
• Cost Reduction through Tax Planning: With proper accounting guidance, you can structure your business more efficiently.

Who Should Be a Licensed Business Owner?

If your annual income is expected to exceed the exemption threshold (approximately NIS 326,000 in 2026, subject to changes), or if you purchase significant materials and equipment for your business, becoming a licensed business owner is a wise choice. Additionally, if you serve corporate clients (companies, non-profit organizations, government entities), they will typically require you to be a licensed business owner.

Licensed Business Owner vs. Exempt Business Owner

An exempt business owner is not required to file periodic VAT returns and does not need to maintain detailed records. This is suitable for business owners with relatively low income. A licensed business owner, on the other hand, must file VAT returns at least twice per year (or at other intervals as required by law) and requires ongoing accounting support. However, the advantage of VAT deduction on purchases makes it more profitable for high-income businesses.

Steps for Opening an Authorized Business — Practical Guide

Step 1: Checking Requirements and Preconditions

Before contacting the tax authority, verify that you meet the basic requirements: 18 years of age or older, no substantial tax debt with the tax authority, and a valid ID number or corporate number. If you are a new immigrant or foreign resident, you will need an identity document or corporate number in Israel. At this stage, it is advisable to consult with an accountant who will examine your specific case and confirm there are no legal or tax barriers.

Step 2: Preparing a Document File

Collect the following documents:

• Identity card or passport (valid)
• Proof of residence address (electricity, water, telephone, or bank letter)
• If you have an existing business: income report from the previous year or estimate of expected income
• Bank details (Israeli account number)
• Details of business partner or associate (if applicable)

An accountant can help you verify that your documents are complete and valid before submission.

Step 3: Submitting an Application to the Tax Authority

An application for registration as an authorized business is submitted to the Israel Tax Authority, typically through the "Self-Employment Taxation" portal or through a branch office. You may submit it yourself or through your accountant. The application includes details about the type of business, expected income scope, business address, and bank details. Typically, the tax authority returns approval within 2–4 weeks.

Step 4: Receiving an Authorized Business Number

Following tax authority approval, you will receive an authorized business number (taxpayer number). This is your identifier for all reports and transactions. You can use it immediately on invoices, quotations, and correspondence with clients.

Step 5: Establishing an Accounting System

An authorized business is required to maintain accurate records. This includes:

• Sales register: Recording all invoices issued, with customer details, amount, and transaction type (VAT or exempt).
• Purchase register: Recording all your purchases, with supplier details, amount, and VAT.
• Payroll slips: If you pay wages to employees, you will need to maintain accurate slips with tax and national insurance deductions.
• Profit and Loss Statement: An annual report summarizing income, expenses, and net profit.

An accountant will help you establish this system, whether digitally (accounting software) or manually.

Step 6: Periodic VAT Reporting

An authorized business is required to report VAT to the tax authority on a regular basis (typically every six months, though changes may occur). In the report, you will present VAT collected from clients minus VAT deducted on purchases. If there is a positive balance, you will pay tax. If a negative balance, you may receive a refund (subject to conditions).

Step 7: Filing an Annual Report

At the end of each tax year (typically by the end of April of the following year), an authorized business is required to file an annual report with the tax authority. The report includes a summary of income and expenses, calculation of taxable profit, and payment of income tax if there is a debt. An accountant prepares this report in accordance with records collected throughout the year.

Comparison: Exempt Business vs. Licensed Business — When to Choose Each?

When to Transition from Exempt Business to Licensed Business?

If your income is approaching the exemption ceiling, or if you purchase significant materials and equipment (where VAT deduction would be substantial), it is advisable to transition to a licensed business. Additionally, if most of your clients are corporations, they will typically require you to be a licensed business. Consult with a certified accountant to determine the specific financial advantage of transitioning in your case.

Payslips and Tax Reports for an Authorized Business Owner

When are you required to issue payslips?

If you pay wages to employees (partners, part-time workers, or full-time employees), you are required to issue a payslip to each employee for every pay period (typically monthly). The payslip must include the gross salary, all deductions (income tax, national insurance, study fund), and the amount the employee actually receives (net salary).

Mandatory Deductions on Payslips

• Income Tax: Significant according to the employee's salary and entitlements (marital status, children, etc.).
• National Insurance: Deducted from the employee's salary (approximately 3.45% in 2026, subject to changes).
• Study Fund: Usually 7.5% (or another percentage per agreement), saved for the employee.
• Additional Deductions: According to the employment agreement, there may be deductions for private health insurance or loans.

Salary Reports to the Tax Authority

An authorized business owner is required to submit a payroll report (Form 101) to the tax authority on a regular basis (typically monthly or quarterly). The report summarizes all payslips issued, deductions made, and payments transferred to national insurance and income tax. If there is a shortfall or surplus, it is adjusted in the next report.

Payroll Management Costs

Managing payslips involves additional costs. Payroll management software (such as Mamma, Zoho, or others) typically costs between 50–300 shekels per employee per month. Alternatively, an accountant can manage this for you at a cost of approximately 100–400 shekels per employee per month, depending on the scope of work.

Full Accounting Support for Authorized Businesses — Ben Or Kook

Ben Or Kook specializes in supporting authorized business owners from initial registration through ongoing operations. We understand the unique challenges faced by authorized businesses: managing periodic VAT reports, accurate recording of every transaction, and managing payroll slips if you have employees. Our service includes:

• Preparation and Filing of Tax Authority Applications: We review all your documents, verify their validity, and submit the application on your behalf. This saves you time and reduces the risk of rejection.
• Establishing an Accounting System: We help you select appropriate accounting software and set up accurate ledgers for every transaction.
• Ongoing Management: Each month, we update your ledgers, verify their accuracy, and save you time on manual work.
• VAT Reports: Before each VAT report, we review your data, calculate the VAT owed, and submit the report on time to the tax authorities.
• Annual Report: At the end of each year, we prepare a comprehensive annual report with a summary of income and expenses, calculation of taxable profit, and income tax payment.
• Payroll Management: If you have employees, we manage all payroll slips, deductions, and transfers to the tax authorities.
• Tax Planning: We help you plan your business efficiently from a tax perspective to reduce your tax liabilities in accordance with the law.

Why Choose Ben Or Kook?

We offer personalized and responsive service. Each authorized business owner is handled by a dedicated member of our team who knows the details of your business and can answer your questions at any time. We use modern technology to make the reporting process simple and easy. And all of this in the heart of the country — Ramat Gan and Petah Tikva — so you can meet with us in person if needed.

Free Initial Consultation

If you are considering opening an authorized business or if you are already an authorized business owner seeking better accounting services, let's talk. In the first meeting, we will listen to you, review your situation, and offer a solution tailored to your needs. No commitment, no cost. Just honest advice from the heart.