Opening a Freelancer (Exempt Practitioner) — Complete Guide with an Accountant

What is a Freelancer (Exempt Practitioner) and Who Is It Right For?

A freelancer (exempt practitioner) is a form of business management in which, as a self-employed individual, you are not required to maintain detailed records and are not obligated to report VAT to the Tax Authority. It sounds simple, and it truly is simpler than being a licensed practitioner, but there are strict conditions you must meet.

Generally, a freelancer (exempt practitioner) status is right for you if you are a self-employed individual whose annual revenue does not exceed a certain amount (in 2026 — subject to Tax Authority updates), and you are not engaged in specific activities that are required by law to be licensed. Classic examples include programmers, designers, consultants, translators, private tutors, websites, and content creators. But there are gray areas here too.

If you're considering opening as a freelancer (exempt practitioner), the first question you should ask yourself is: "Do my earnings meet the legal threshold?" and "Does my field require special registration?" If the answer to both is no, you're on the right track. If you have any doubt — this is exactly where an accountant like us should be in the picture.

Steps to Opening a Exempt Business — What You Need to Do?

Opening an exempt business involves several defined steps. Each one is important, and even if you are an exempt business owner (meaning you are exempt from certain obligations), you still need to be properly registered with the relevant authorities.

1. Registration with Ramat Gan Municipality and Obtaining a Business License

The first step is to contact the Ramat Gan Municipality (or the municipality where you reside) and obtain a business license. This is not complicated, but you need to know which category to select. For example, if you are a programmer, it is usually "professional services" or "professional activity." The Ramat Gan Municipality has a website where you can submit an application or contact the licensing department directly.

2. Registration with the Tax Authority

This is the most important step regarding income tax. You must register as an exempt business owner with the Tax Authority of Israel. This registration determines your reporting type, your rights (such as deduction of expenses), and your obligations (annual reporting). Without this registration, you are not registered as self-employed at all.

3. Registration with the National Insurance

Every self-employed person must be registered with the National Insurance as a self-employed person. This provides you with rights under the National Insurance (pension, unemployment benefits if you close your business someday, etc.). Your National Insurance payments depend on your income, but there is a minimum you must pay in any case.

4. Opening a Business Bank Account (Highly Recommended)

Not a legal requirement, but essential from a practical standpoint. A separate business bank account for your business helps you distinguish between personal and business funds and greatly simplifies reporting. Banks in Israel offer business accounts with reasonable fees.

5. Basic Bookkeeping and Annual Reporting

As an exempt business owner, you are not required to maintain detailed records like a licensed business owner, but you must keep records of income and expenses and submit an annual report to the Tax Authority. This report is essentially an income declaration in which you report your net profit.

What You Need to Know About Rights and Obligations of an Exempt Business Owner?

As an exempt business owner, you have specific rights and obligations that are important to understand from the outset. This is not the same as being a licensed business owner or an employee.

Rights:

You can deduct business expenses from your profit. This means if your income is 100,000 shekels per year, and your expenses are 30,000 shekels (home office, software, materials, etc.), you pay tax on only 70,000 shekels. This is very significant.

You are also exempt from reporting VAT. This means you do not need to pay VAT on products and services you purchase, and you also do not need to collect VAT from your customers (unless they request it). This is simply more straightforward.

Obligations:

You must file an annual report with the tax authority. This is not as complicated as a licensed business owner's report, but it must be done on time and in the correct manner. If you are late or forget, there are penalties.

You must also pay tax prepayments when required. If your profit is substantial, the tax authority may require you to pay prepayments each period so that a large debt does not accumulate by the end of the year.

And like any self-employed person, you must pay national insurance contributions. This is not a tax, but it is an annual obligation that is important not to forget.

Common Mistakes We See in New Freelancers

Over the past decade, we've seen many freelancers who opened a tax-exempt business and made mistakes that cost them real money. Here are the most common mistakes:

1. Opening a Business Without Checking the Revenue Ceiling

A freelancer starts their business, doesn't check the ceiling, and a year later discovers they've exceeded it. Now they need to be a registered business or a company, creating retroactive issues. An early check of the ceiling and planning for growth helps you be prepared.

2. Failing to Keep Evidence of Expenses

An expense without a receipt = an expense you cannot deduct. Many freelancers keep invoices in a random folder and later can't find them. Keep every receipt, every invoice, every bank transfer document. This is your proof.

3. Mixing Personal and Business Money

If you use a personal bank account for your business too, it creates confusion. The Tax Authority won't be happy, and an audit can become complicated. A separate bank account is the best investment you can make.

4. Forgetting to Pay Advance Payments or National Insurance

When you're self-employed, there's no employer deducting immediately. This means you need to remember to pay yourself. Many freelancers forget, and after two years they have a large debt with interest and penalties.

5. Assuming Everything Related to Business is Deductible

Not everything is deductible. For example, a meal you eat alone at home is not deductible. But a meal with a client at a business meeting — yes. You need to know the distinction.

6. Failing to Update the Tax Authority About Changes

If you add a partner, change your business address, or stop operating, you need to report to the Tax Authority. Many freelancers don't do this, and it creates problems in future reports.

Comparison: Exempt Business Owner vs. Licensed Business Owner vs. Private Limited Company

To understand if an exempt business owner is the right choice for you, it is worthwhile to compare alternatives. Each business structure has its advantages and disadvantages.

As you can see, an exempt business owner is the simplest option, but only if your income remains below the ceiling. If you anticipate significant growth, it is advisable to plan the transition to a licensed business owner or a company in advance.

When Should You Consult an Accountant in This Field?

Not every self-employed person needs an accountant, but at certain stages, it is essential. Here are the cases where we find that consultation is valuable:

When opening your business. If you are unsure whether an exempt business owner is the right structure, or if you need to register with certain authorities, an initial consultation meeting can save you costly mistakes. We at Ben Or Kook offer a free initial consultation for exactly this reason.

When your income approaches the threshold. If you see that your business is growing, it's time to plan the next transition. This is not something that should be done in an emergency.

When there are significant changes in your business. For example, if you are adding a partner, renting an office, or starting to export abroad. All of these have tax implications that need to be understood.

When you are uncertain about your reporting. If you are unsure which expenses are deductible, or how to file your annual return, it is better to ask from the start than to pay a fine retroactively.