Your Taxes: Are you an exempt dealer?

It is important to keep all receipts and documentation relevant to the business activities for a period of seven years.

By LEON HARRIS
July 5, 2011 22:02
The Jerusalem Post

Money 311. (photo credit: Bloomberg)

Are you at the stage in life when you want to accept a few odd jobs for friends and neighbors to pass the time and make a few shekels? Before you get started there is some important Israeli tax information you should be aware of.

Very briefly:

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• VAT: You generally don’t owe VAT if your annual turnover (sales revenue) is no more than NIS 74,972 in 2011. But you are supposed to register as an exempt dealer (osek patur) at your local VAT office – see below.

• Income Tax: You generally don’t owe income tax if your annual income is below a certain level: o Men: NIS 56,000 per year, approximately. o Women: NIS 60,000 per year, approximately, or more if you have children o New immigrant men – NIS 110,000 per year, approximately, in your first 18 months in Israel, then declines o New immigrant women – NIS 120,000 per year, approximately, in your first 18 months in Israel, then declines

• National Insurance: You should pay national insurance (social security) even if you don’t work – the minimum is NIS 154 per month. This helps establish your entitlement to medical care, among other things. See below for more details.


VAT - Exempt Dealers

An exempt dealer with annual turnover below NIS 74,972 (in 2011) does not charge its customers VAT.

Consequently, an exempt dealer cannot issue tax invoices to its customers but it can issue ordinary invoices (not tax invoices) and receipts. An exempt dealer also cannot recover VAT on expenses.

As an exception to the above rule, there are a number of professionals that cannot register as exempt dealers, they must register as regular approved dealers (osek morsheh), issue tax invoices and report monthly or bi-monthly to the VAT authority. The regular rate of VAT in Israel is currently 16 percent.

These professions include accountants, lawyers, psychologists, bookkeepers, architects, real estate agents etc.

Procedures:

 • Before you begin operating as a business you are required to register in your local VAT office. Upon opening a file there, you will receive an exempt dealer number.

• As an exempt dealer, you must report your turnover to the Tax Authority after the end of each year. You will usually receive a request via mail at the beginning of the year. This is, of course, to check your turnover is still within the above limit for an exempt dealer.


Income Tax

• If you are starting a business, you should register with the local Income Tax office (Mas Hacnasa) as a self-employed individual. You may well be asked to make monthly advance tax payments in as a percentage of your monthly turnover.

• After the end of the year you should file an annual tax return and settle up, based on income tax rates on your profit (not turnover). The filing deadline is May 31 for online filers and for businesses required to keep double-entry books and April 30 for other individuals. Time extensions for filing can be requested from the Tax Authority if you have a good reason.

• However, if you owe tax beyond the prescribed monthly installments, interest and indexation accrue from the end of the tax year concerned.


National insurance

• You are required to open a file at the local National Insurance office (Bituach Leumi) and you will be required to fill out a “multi-year” declaration of income sources.

• You will be asked to pay monthly social security even if you don’t work – the minimum is NIS 154 per month in 2011.


Bookkeeping

An exempt dealer must issue receipts and invoices.

A receipt book can be purchased at any stationary store or ordered according to specifications at a printing house.

In addition, the business must keep a receipts/payments journal (a monthly record of all income and expenses, including relevant invoice numbers). This record can be kept by hand, by computer program (such as excel or specialized bookkeeping software), or with the help of a paid bookkeeper.

It is important to keep all receipts and documentation relevant to the business activities for a period of seven years.

The annual Israeli income tax rates for 2011, before credit points, are as follows: • NIS 0 – 60,840: 10% • NIS 60,840- 103,920: 14% • NIS 103,920 – 168,840: 23% • NIS 168,840-NIS 254,880: 30% • NIS 254,880 – NIS 482,760: 33% • Over NIS 482,760: 45% And the annual national insurance rates for the self employed in 2011 are shown below. Note that 52% of the national insurance amount paid is deductible for income tax purposes, which helps reduce the overall tax burden a bit.

• NIS 0 – 59,808: 9.82% • NIS 59,808 – 881,064: 16.23% • Over NIS 881,064: 0%


Foreign Country Taxation

Check out the taxation in your old country.

If you are a US citizen, green card holder or resident, you must report all your income to the IRS but you might qualify for the “911 exclusion” from US tax if you live in Israel and meet certain conditions.

If you moved to Israel from the UK, check you made a “clean break” from the UK, otherwise you may owe UK tax on all your income.

If you moved to Israel from South Africa, check you hold a Teudat Oleh and/or established your departure from SA with SARS and SARB.

Always consult experienced tax advisors in each country at an early stage in specific cases.

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.

leon@hcat.co


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