Setting Up a Business in Israel as an Oleh: Osek Patur vs Osek Murshe

Why this matters

The structure you pick for your Israeli business affects how much tax you pay, how much paperwork you do, and how flexible the business is for future growth. Olim starting freelance or consulting work face this choice in the first month. Picking wrong wastes hours per month and can cost thousands in unnecessary tax.

The 4 Israeli business structures

1. Osek Patur (exempt dealer)

The simplest. Sole proprietor under a revenue cap.

- Revenue cap: about NIS 120,000 per year (2026)

- No VAT on invoices

- No VAT reclaim on expenses

- Simple annual income tax return

- No monthly or bi-monthly VAT filing

2. Osek Murshe (registered dealer)

The next step up. Still a sole proprietor.

- No revenue cap

- Charges 18 percent VAT on every invoice (rate after 2026 change)

- Reclaims VAT on business expenses

- Bi-monthly VAT filing (every 2 months)

- More detailed bookkeeping required

3. Chevra Ba'am (limited company)

A separate legal entity.

- Owners pay corporate tax (23 percent on profits in 2026)

- Dividends from company to owner taxed separately (25 to 30 percent)

- Limited liability for company debts

- More complex bookkeeping and annual financial statements

- Owners can pay themselves a salary, dividend, or both

4. Shutapot (partnership)

For multiple owners sharing a business. Tax-transparent: each partner reports their share on personal returns.

When to use each

Osek Patur

Use when:

- Revenue projected to stay below NIS 120,000

- Mostly individual clients (who do not need VAT invoices)

- Low business expenses

- Year 1 of aliyah while you settle in

Examples: freelance writer, designer, language tutor, small consultancy.

Osek Murshe

Use when:

- Revenue above NIS 120,000 or projected to exceed it

- Business clients who can reclaim VAT (so the 18 percent is neutral to them)

- Significant business expenses (you want to reclaim VAT on equipment, software, travel, rent)

- More established consulting or service work

Examples: software developer with multiple US clients, consultant billing NIS 200K+, freelance translator with corporate clients.

Chevra Ba'am

Use when:

- Revenue above NIS 1.5M to NIS 2M

- Multiple owners or planning to bring on partners

- Operational liability that needs corporate shielding

- Planning to raise investment

- Selling a product or service that scales beyond what a sole proprietor can deliver

The tax math: Osek Patur vs Osek Murshe

Osek Patur earning NIS 100,000 per year

- Revenue: NIS 100,000

- No VAT charged

- Business expenses: NIS 15,000 (NIS 2,300 VAT included, not reclaimable)

- Net taxable income: NIS 85,000

- Income tax (after Oleh credits, year 1): NIS 1,000 to NIS 3,500

- Bituach Leumi: NIS 3,500 to NIS 5,000

- Mandatory pension: NIS 4,500

- Net to pocket: NIS 71,000 to NIS 75,000

Osek Murshe earning NIS 100,000 (pre-VAT)

- Revenue to clients: NIS 100,000 + NIS 18,000 VAT = NIS 118,000 collected

- VAT remitted to tax authority: NIS 18,000 (less reclaims)

- Business expenses (gross): NIS 17,700 (NIS 2,700 VAT included)

- VAT reclaim: NIS 2,700

- Net VAT remitted: NIS 15,300

- Net business expenses: NIS 15,000

- Net taxable income: NIS 85,000 (same)

- Same income tax, Bituach Leumi, pension

- Net to pocket: same NIS 71,000 to NIS 75,000

For business-to-business work where the client can reclaim VAT, Osek Murshe is neutral on revenue. The advantage comes from reclaiming VAT on expenses. For business-to-consumer work, the client cannot reclaim, so Osek Murshe makes you 18 percent more expensive than competitors. Stay Osek Patur if possible.

Setup process

Osek Patur or Osek Murshe (sole proprietor)

1. Open Tik Niyut at Mas Hachnasa. Visit the local Israeli Tax Authority office or file online. NIS 0 cost. Bring Teudat Zehut.

2. Pick Osek Patur or Osek Murshe. Declare expected revenue.

3. Open Tik with Bituach Leumi. Tofes 6101 within 60 days.

4. Open business bank account. Not legally required for Osek Patur but strongly recommended.

5. Set up bookkeeping. Hire a bookkeeper (NIS 350 to NIS 800 per month for Osek Patur, NIS 600 to NIS 1,500 for Osek Murshe).

6. Start invoicing. Osek Patur invoices say "Osek Patur" and the Teudat Ezor number. Osek Murshe invoices include the VAT number and VAT line.

Chevra Ba'am (company)

1. Reserve a company name. Online at Rasham HaChevarot.

2. File incorporation documents. Memorandum of Association (Takanon HaChevra), Articles of Association, shareholder details.

3. Pay registration fee. About NIS 1,000 in 2026.

4. Receive company number (Mispar HaChevra).

5. Open business bank account in company name.

6. Register with Mas Hachnasa for corporate tax.

7. Register with VAT (if revenue qualifies).

8. Register with Bituach Leumi for owner's contributions.

9. Hire a CPA for annual statements. NIS 5,000 to NIS 25,000 per year depending on complexity.

Setup time: 2 to 6 weeks for a company, vs 1 to 2 days for a sole proprietor.

What the bookkeeper / CPA does

For Osek Patur

- Monthly bookkeeping of invoices and expenses

- Annual income tax return (Doch Shnati)

- Quarterly Bituach Leumi reconciliation

- Estimated cost: NIS 4,000 to NIS 12,000 per year

For Osek Murshe

- All of the above

- Plus bi-monthly VAT filings

- Estimated cost: NIS 8,000 to NIS 20,000 per year

For a company

- Monthly bookkeeping

- Bi-monthly VAT

- Annual audited financial statements (Doch Mevukar)

- Annual corporate tax return

- Estimated cost: NIS 15,000 to NIS 50,000+ per year

Invoicing rules

Osek Patur

- Receipts (Kabalah) for amounts under NIS 5,000 are sufficient

- For amounts over NIS 5,000, issue Heshbonit Mas

- Cannot charge VAT

- Must state "Osek Patur" on invoices

Osek Murshe

- Must issue Heshbonit Mas (tax invoice) for every sale

- Must list VAT separately

- Numbered sequentially

The Israeli Tax Authority moves to mandatory electronic invoicing (Heshbonit Digitalit) for amounts above certain thresholds in 2026. Use software like Greeninvoice, Hashbon Online, or iCount.

Bituach Leumi for business owners

Owners of all 3 structures (Osek Patur, Osek Murshe, Chevra Ba'am) pay Bituach Leumi based on their share of business income.

- Osek Patur and Murshe: self-employed Bituach Leumi rates (see the freelancer article)

- Company owner: must pay yourself a salary or declare income for Bituach Leumi purposes. Cannot avoid by leaving all profit in the company.

The Olim 10-year exemption and business income

Business income earned from foreign clients is exempt from Israeli income tax for 10 years under the Olim rules. Both Osek Patur, Osek Murshe, and company owners get this benefit.

Israeli-source business income (clients located in Israel) is taxed normally from day 1.

For mixed-source revenue (some foreign, some Israeli clients), you must allocate revenue between exempt foreign and taxable Israeli, with documentation.

Common mistakes Olim make

Registering as Osek Murshe when projected revenue is below NIS 120,000. Doubles your compliance work and makes you 18 percent more expensive to consumer clients.

Mixing personal and business expenses. Keep separate bank accounts.

Letting bookkeeping slip. Year-end catch-ups cost 3 to 5 times more than monthly bookkeeping.

Incorporating too early. A company at NIS 200K revenue costs more in compliance than it saves in tax. Stay sole proprietor below NIS 1M.

Not documenting foreign vs Israeli revenue split. Tax Authority audits will require it 3+ years later.

What to do in the first 30 days

1. Decide: Osek Patur, Osek Murshe, or company?

2. Open Tik Niyut at Mas Hachnasa.

3. Open Bituach Leumi file with Tofes 6101.

4. Open business bank account.

5. Hire a bookkeeper familiar with Olim and foreign clients.

6. Set up invoicing software.

7. Start tracking foreign-source vs Israeli-source revenue from day 1.