Opening an Authorized Business in Israel

What is an Authorized Business and When Should You Open One?

An authorized business is a tax status intended for self-employed individuals and business owners whose annual income exceeds a certain threshold. Unlike an exempt business, which is not required to pay VAT, an authorized business pays VAT on its income and can recover VAT on business expenses. This is a legal status established by the Israeli Tax Authority and requires filing a formal application and meeting specific conditions.

Generally, an authorized business is anyone whose annual business income exceeds the statutory threshold (this amount changes annually). You can also become an authorized business by choice, even if your income is below the threshold — in this case it is called a "voluntary authorized business."

Opening an authorized business requires registration in the tax authority's business register, submission of required documents, and establishment of an organized accounting management system. Ben Or Kok Accountants accompanies businesses through all stages of the process — from initial planning through registration and completion of annual reports.

Who Can Be an Authorized Business?

Any person conducting business or self-employed activity in Israel can be an authorized business, subject to the following conditions: (1) Annual income exceeding the threshold set by the Tax Authority, or choice to be an authorized business even if you are below the threshold; (2) Ability to maintain proper books and records — ledgers, receipts, invoices and supporting documents; (3) Compliance with periodic VAT reporting (if applicable); (4) Filing an annual report with the Tax Authority at the end of each tax year.

Businesses in various fields — engineers, consultants, translators, designers, retail business owners, manufacturers and others — can be authorized businesses. Additionally, new immigrants to Israel who establish a business can be authorized businesses, but must ensure proper reporting in the business register.

Basic Requirements for Registration

• ID number or company number: A sole proprietor must have a valid ID number; a company must have a registration certificate from the Companies Registrar.
• Business address: A fixed address in Israel from which the business owner manages the business.
• Description of activity: Clear definition of the type of business, expected income and fields in which it operates.
• Bookkeeping: Ability to maintain proper books and records, typically with the help of an accountant or accounting software.
• Compliance with tax obligations: Periodic VAT payments (in most cases), income tax, national insurance and additional reporting obligations.

Step-by-Step Process for Registering an Authorized Business

Registration as an authorized business in Israel is a process that begins with submitting an application to the Tax Authority and ends with receiving official approval. The process may take several weeks, depending on the completeness of the documents and the workload at the Tax Authority.

Step 1: Preparing Required Documents

Before submitting a registration application, several essential documents must be prepared: (1) Application form for business registration (can be submitted through the Israeli Tax Authority website or directly); (2) Identity document or registration certificate of the company; (3) Confirmation of registration as an exempt business (if you were previously an exempt business); (4) Declaration of type of activity, business location, and expected income; (5) Signed by an accountant or tax advisor, in certain cases.

Ben Or Kok Accountants assists in preparing all documents and ensures they meet the requirements of the Israeli Tax Authority.

Step 2: Submitting the Application to the Tax Authority

The application can be submitted through the Tax Authority website (in the "Online Services" system or through login to the digital system), or directly at the Tax Authority branch in the city where the business is located. Ben Or Kok handles the submission and ensures all documents are properly filed.

Step 3: Review and Approval by the Tax Authority

After submitting the application, the Israeli Tax Authority will review the documents and verify that you meet the conditions. Typically, if all documents are complete, approval will be granted within several weeks. In cases where there are questions or missing information, the Tax Authority will contact you to request additional information.

Step 4: Receiving an Authorized Business Number and Opening a VAT Account

Once you are approved, you will receive an official authorized business number. This number is your accounting identity with the Tax Authority. If you are required to pay VAT, you will open a VAT account and begin reporting VAT according to reporting periods (monthly, bi-monthly or quarterly, depending on your sales).

Step 5: Starting Bookkeeping and Report Management

After registration, a proper bookkeeping system must be established. This includes: (1) Managing invoices and receipts; (2) Recording business expenses; (3) Periodic VAT reporting (if applicable); (4) Preparing an annual report and profit and loss statement. Ben Or Kok accompanies all these stages and ensures reports are filed on time and in proper form.

Exempt Business vs. Licensed Business — Comparison

The choice between an exempt business and a licensed business is a crucial decision that requires careful consideration. Each tax status has different advantages and disadvantages, depending on the specific business data.

Generally, a business whose income exceeds the threshold or which has high profit margins should be licensed to take advantage of VAT reclaims and tax planning opportunities. Conversely, an exempt business with low income may find this status advantageous for simplicity and savings in administrative costs.

Ben Or Kook Accountants evaluates each case individually and recommends the most appropriate status based on your business data, expected income, and expenses.

Obligations and Reporting Requirements for an Authorized Business Owner

Once you are an authorized business owner, you have several tax obligations and reporting requirements that must be met precisely. These obligations include periodic reports, annual statements, and proper account management.

Periodic VAT Reporting

An authorized business owner must report VAT according to the reporting periods established (monthly, bi-monthly, or quarterly, depending on the size of the business and its income). In this report, you must indicate the VAT you collected from customers (output VAT) and the VAT you paid to suppliers (input VAT). The difference between these two is the amount of VAT you must pay to the Israeli Tax Authority.

VAT reports must be accurate and submitted on time. Late reporting or errors can result in penalties and interest from the Tax Authority.

Annual Report and Profit and Loss Statement

At the end of each tax year (usually December 31), an authorized business owner must submit an annual report to the Tax Authority. The report includes: (1) a summary of business income; (2) a record of recognized expenses; (3) calculation of profit or loss; (4) calculation of mandatory income tax; (5) details of assets and liabilities (in certain cases).

The annual report must be submitted within a timeframe set by the Tax Authority (usually by the end of April of the year following the tax year, but an extension can be requested).

Account Management and Record Keeping

An authorized business owner must maintain proper and complete books. This includes: (1) recording all income and expenses; (2) retaining original invoices and receipts; (3) maintaining a separate business bank account (highly recommended); (4) keeping all relevant documentation for several years.

Proper account management not only reduces the risk of tax audits but also gives you a clear picture of your business's profitability and enables informed business decisions.

Income Tax Payment and Advance Tax Payments

In accordance with the annual report, you must pay income tax on your profit. Typically, the Israeli Tax Authority requires advance tax payments during the year (usually in certain months). The amount of advance payments is calculated based on your estimated profit.

National Insurance and Severance Fund

An authorized business owner must pay national insurance contributions, usually at a certain rate of their income. Additionally, you can (and in certain cases must) contribute to an employee severance fund (if you have employees) and personal pension insurance.

Guidance for Authorized Business Operators at Ben Or Kok Accountants

Ben Or Kok Accountants specializes in guiding authorized business operators through every stage of the journey — from preliminary planning and opening, through daily bookkeeping management, to the submission of annual reports. We provide personalized, digital, and accessible service to business operators in Petach Tikva, Ramat Gan, and the central region.

Our services include: (1) accounting consultation prior to opening — assessment of the appropriate status (exempt business operator or authorized operator); (2) assistance with submitting an application for authorized business operator registration; (3) establishment of an appropriate accounting management system; (4) management of periodic VAT reports; (5) preparation of annual reports and profit and loss statements; (6) tax planning for optimization of tax obligations; (7) consultation on issues related to social insurance, study funds, and pension.

We believe in complete transparency and open communication with our clients. Each of our authorized business operators receives access to real-time updated reports and can contact us with any question or concern.

Why Choose Ben Or Kok?

• Extensive Experience: Years of experience guiding authorized business operators across various sectors.
• Personalized Service: Each client receives a dedicated manager who understands your business in depth.
• Digital and Accessible: Accounting management through digital platforms, with easy access to documentation and work papers.
• Tax Planning: We assist with legal tax planning to optimize your tax obligations.
• Complimentary Initial Consultation: A free initial meeting to assess your needs and propose an appropriate solution.