Category: Business in Israel

When running a small business in Israel, it’s important to understand the various payment terms that exist to avoid unpleasant surprises. Although, in theory, you can set out the terms by which you want to be paid, large organizations and institutions will likely have a policy for payment to all suppliers. Here are the terms you need to be familiar with:

Mezuman – This means that the customer pays for the product or service before or right after receiving it. Although mezuman usually means cash, in this case it refers to any payment made immediately, whether in cash or by credit card, Bit, Paybox, bank transfer etc. 

Shotef – Payment is received after the end of the month in which the service or product was supplied. So if you provided your client with a new logo on July 12 and sent the invoice in that month, payment will be made at the beginning of August.

Shotef +30 – In this case, payment is made thirty days after the end of the month in which the service was provided. So that July 12 logo will be paid for on August 30.

Shotef + 45 – According to Israeli law, private businesses, government offices and municipalities and institutions which receive government funding are required to pay within 45 days of the end of the month in which the invoice was issued. They would pay for the logo by September 15.

Shotef + 60 – Payment is made 60 days after the end of the month in which the product or service was received. In our example, payment will be received on September 30.

Generous payment terms are, of course, in the best interests of the clients, giving them more time to come up with the money to pay for services or products they have already consumed. They can be difficult for you as a business owner, since you rely on these payments to sustain and grow your business as well as to pay yourself a salary. You can protect yourself by:

1. Refusing to work with anyone whose payment terms don’t align with your best interests
2. Confirming the payment terms before you begin your business relationship
3. Building delayed payment into your pricing
4. Negotiating payment terms with clients, especially after you have developed a relationship with them
5. Vetting clients in advance to weed out those who don’t pay according to the terms they agreed to

If you made aliyah from a country in which payment terms are different, it may take some adjusting to get used to the way Israeli businesses pay and get paid. But if you plan your spending according to your cash flow, your business can succeed and flourish.

As soon as people hear what you do, there’s a chance that they will ask you for free advice. It might be a question you can answer in five minutes and it might be a long conversation. They might want to know something general or they might want really specific information with step-by-step instructions. 

Should you give out free advice? There are two schools of thought about this and you’ll have to decide what works for you.

Reasons not to give free advice

• This is your profession and you’ve worked hard to learn everything you need to know. If someone wants advice they should pay for a professional like you to provide it. You’re in the business of providing paid advice and giving it away for free means fewer paying customers.
• Questions rarely take a short time to answer. As soon as you give one piece of free advice, there will be a follow-up question. You will soon find yourself in an hour-long conversation, when your time would be better spent doing actual work.
• People often pick your brain because they want to compete with you and this is a shortcut to learning what they want to know about your profession or business. Your free advice might be just the ticket they need to start vying for your job or filching your clients. In a small market like Israel, this can have a big impact on your success.

Reasons to give free advice

• You’ve acquired a lot of knowledge about your profession or business. When you share it with others, they understand how much you know. When someone asks them to recommend a professional, they will tout you as the expert in the field. And if they’re trying so hard to get free advice, they aren’t your ideal customer anyway.
• Giving free advice can be a time drain, but you can control how much time you spend talking to someone. You can always end the conversation by politely saying that you have another meeting and go back to your regularly scheduled work.
• Competition is only an issue when someone is doing exactly the same thing you are. But chances are that they will choose a slightly different niche, and if you are good at what you do, more people in the profession or business is not a bad thing. Karma, on the other hand, is a great thing. When you put helpful energy into the world, you’re likely to get that positive energy back, whether directly or indirectly. In a small ecosystem like Israel, you want to be known as helpful and nice.

Setting boundaries

You don’t necessarily have to make a hard and fast rule about whether you give free advice. Experiment with one policy and see how it works for you or just decide on a case-by-case basis. When someone asks you for free advice you can use these questions to weigh whether to provide it:

• Is this person polite and respectful of your time?
• Are you able to cut them off when you feel the conversation has gone on long enough?
• Are you on a tight deadline or need to work more hours, or can you devote some unpaid time to answering questions?
• Is this person someone who can refer work to you or recommend your expertise?
• Do you enjoy giving this person advice? 
• Is your advice being taken or are they milking you for your opinion and then doing the opposite?

At the end of the day, your instinct can generally tell you whether to give free advice or not. You can feel when you are being taken advantage of and you will automatically feel resentful. When that happens, it’s time to set firm boundaries and refer them to your client relations department or to a list of your rates.

Building a website isn’t enough – in order to bring in business, you need to create a site that will actually get noticed. In an ecosystem of millions of websites, this can seem a daunting prospect. But remember that you don’t need to compete against every website in the world, only against a smaller number of sites that are in your niche. Here are some basic guidelines for getting your website noticed.

Graphic design

When designing your website, you need to choose a graphic design that reflects your brand and that you connect with. You should love the look of your website and not be convinced by a designer, developer or business consultant that you should like what they recommend. The site should be easy to use and intuitive for the customer, in addition to being aesthetically pleasing. There is no particular design that will appeal specifically to an Israeli audience, so just go with what looks right to you.

Keyword research

Spend some time using a keyword research tool such as Google Ads Keyword Planner to find the phrases that are being used to search for information about your niche in Israel. For businesses that serve both Israelis and English speakers, don’t forget to search for keywords in both English and Hebrew. Also look for Hebrew words spelled in English, since anglos in Israel often use Hebrew terms but type more quickly in English. They may also search for phrases in a mixture of languages, such as “how to collect avtala.”

Once you have a comprehensive list of keywords, see how you can integrate them into your website text in a natural way. Don’t overstuff your content with keywords though. You don’t even have to use all the keywords on your main website pages. You can keep this list handy as you add blog posts to your site over time and use keywords gradually.

Search engine optimization

In addition to using keywords in the body of your text, insert them into image file names, titles and alt texts. Write page titles and meta descriptions that grab readers’ interest and keep them to the required length – 50-60 characters for titles and 120-155 characters for meta descriptions. Small businesses don’t need to invest in professional SEO, but sticking to the basic guidelines of best practices will go a long way in getting your site noticed.

Social media marketing

Once your site is live, you are far from done with getting it noticed. Post about your business on social media and link back to the website where relevant. Publish blog posts and put links to them on your social media channels. When someone on social media asks a question that you have answered on your website or blog, include a link in your answer. The Israeli social media scene, and especially the Anglo-Israeli social media scene, is pretty small, so consistently posting and interacting in a positive way can make your brand famous in the right circles. 

Pay per click advertising (PPC)

If you’re not getting enough organic traffic to your website, you can experiment with pay per click advertising on social media or through Google Ads. You control the budget so it can be affordable even for a small business. One disadvantage is that targeting is not very precise and there are so many niche communities in Israel that you are generally not able to control who sees your ads. Even when you choose a city, your ads are likely to be shown to people living not far from that city who are totally not relevant leads. Experiment with a small budget and see if the ads bring you ROI (return on investment) before investing significant sums.

Tweak as you go

The difference between print and web is that you don’t ever have to finalize your website. You can make changes as you discover what works and what doesn’t or as you expand or shift your business. You can start with a website in English and add Hebrew later on, or you can focus your marketing on clients in Israeli and add a section for clients overseas when you decide to serve them as well. Tweak your website as you better understand your target market and continue to tweak as you refine your business and fill new needs.

In an ideal world, collecting payment from clients would be as easy as pie, but unfortunately almost every business owner in Israel has experienced a situation in which payment was delayed or never came. Here’s what you can do to avoid these issues and deal with them when they crop up.

Be clear about payment terms

As a service provider, you will often encounter businesses and institutions with payment policies which favor the client and not the business owner. In these cases, you will hear the terms Shotef + 30 and Shotef + 60. Shotef refers to the end of the month, so you will be paid 30 or 60 days after the end of the month in which they receive the invoice. In practical terms, you might collect payment almost 3 months after completing the work.

You can, of course, refuse to work with clients who hold these policies. However, that might not be practical in certain industries or a project might be attractive enough that you are willing to forgo immediate payment. If this is the case, make sure that you understand clearly what the terms are and that you send your invoice as soon as possible. Ask if you can send it before beginning the work or split the payment into installments so you are paid sooner.

When working with clients who don’t have clear payment policies themselves, delineate your payment policy in writing. Let them know when you expect payment and if there is a penalty for paying late or a discount for paying early.

Clients who pay late

There are always going to be clients who take their sweet time paying for the services you have provided. Reminders about outstanding bills may be helpful, as well as offering to accept payment in installments, if it seems that the problem is financial. Another option is to stop further work or refuse to hand over what has been done until payment is received.

For ongoing clients, if they are often late, consider switching to a system in which they pay (in full or partially) in advance before you begin the work or end your agreement with them.

Clients who refuse to pay

A much worse problem than clients paying late is those who just don’t pay at all. Sometimes they say they will pay but never do. Sometimes they denigrate your work and say it wasn’t up to their standards, for the sole purpose of avoiding payment. As aggravating as it is, if the sum is small, it may not be worth pursuing. However, if the amount is significant, you can submit a request for collection to Hotzaa Lapoal (the execution office). If the client doesn’t respond to the claim, the office can take measures like freezing his bank account to pressure him into paying. In a case where the client denies the claim, you may have to escalate and take him to court.

Vet clients in advance

Because payment issues can be devastating to a business, it’s a good idea to find out in advance if a client is reliable and trustworthy. If you know someone who has worked with them in the past, they can tell you whether payment was received in a timely fashion. Well-known businesses are less likely to renege on deals, but more likely to have unfavorable policies in place. Individuals and other small businesses are a wild card, unless you’ve ascertained from others that they had good experiences working with them. Also, trust your instincts. If a client seems slippery or overly critical, chances are that payment issues will pop up later on. If you have a bad feeling about a client, don’t take them on.

New business owners often struggle more than experienced ones with payment issues. That’s because experience has taught those who’ve been in business for a while who to trust and how to safeguard against non-paying clients. Nonetheless, it’s hard to eradicate the problem entirely, so a certain amount of time must be devoted to chasing after clients who owe you money.

When you close a business in Israel, you must report this to Mas Hachanasa (the income tax office), Bituach Leumi (National Insurance), Maam (VAT office) and your pension company. Failure to do so will result in your continuing to be liable for reporting and taxes. 

Reporting the closure of your Osek Patur or Murshe should be done as soon as possible. These are the forms that you or your accountant must fill out:

• Declaration to Maam (up to 15 days from closure)
• Form 2550 to Mas Hachnasa (up to 90 days from the date you closed down)
• Form 2552 if you have employees
• Form 6101 to Bituach Leumi (with attached proof from Maam or Mas Hachnasa)

Other things you may need to take care of include:

• Severance and other payments that might be due to employees
• Letting your municipality know about the business closure if you were paying Arnona as a business owner
• Canceling any insurances
• Canceling relevant phone and internet services
• Announcing on social media and directly to your customers that your services or products are no longer available 

After the business closes

You will have to report your business profits for the calendar year in which you closed down, even if you only operated for a few months.

All paperwork related to the business should be saved for seven years in case of an audit.

If you’ve closed your business in order to become an employee (including of an Employer of Record service), you can ask your new employer to contribute to the same pension fund you were using as a business owner. You will have to be in touch with your pension company (either directly or through an agent) to set this up.

Closing your business might feel like the end of an era, but hopefully it’s the beginning of many wonderful things to come in your professional life.

A website is an important tool for a website, since Googling to find a service or product is usually the first action that a potential customer takes. Even when the customer has heard about your brand from another source, chances are they will search for your website in order to find out more. So you need a website that accurately represents your business and serves as the hub of all your online activity.

Hire a professional or DIY?

There are a number of factors that determine whether you should build your own website or do it yourself. The first is, of course, budget. There is a vast range of prices for building a website, even the simplest five-pager. Get a number of quotes and check samples of work that the developer or designer has done. If all the quotes are out of your budget and/or you are technically minded, there are many platforms that can be used to make beautiful websites with little to no knowledge of coding. Of course, you need to consider whether this is the best use of your time, or if you should concentrate on other aspects of getting your business off the ground.

Domain and hosting

You need a URL and a server to host your website. These can be purchased from various companies in and outside of Israel. One question to ask yourself is whether you should have a URL that ends in co.il or .com. The answer to this question is dependent on how crucial it is to define yourself as an Israeli business. If you sell products that ship all over the world you may not want to choose a “limiting” Israeli domain name. But if you are a business that provides services to Israeli clients only, co.il might be a better choice. Certainly if your website is in Hebrew, it makes sense to use an Israeli domain as well.

Language

What language should your website be in? Again, this is dependent on who your clientele is. You might choose a Hebrew-only site, an English-only site or a bilingual site. Creating a bilingual site is a little more complex, but if it’s important to reach both the English and Hebrew speaking market, that’s the way to go. Keep in mind that certain industries in Israel, like hi-tech, function primarily in English, so even if you are targeting Israeli companies, you likely want to stick with English on your website.

Website platform

Whether you are building your website on your own or hiring someone to do it for you, you will need to update the site afterwards, so it’s important to choose a platform which feels user-friendly to you. There are more visual types of platforms like Wix and more text-based platforms like WordPress. Play around with the various choices before deciding, so you can pick the one that’s simplest for you to use.

Compare the pricing of the platforms that you are considering, and remember to include domain and hosting in the calculation. Some platforms come with domain and hosting while others only provide the content management system (CMS).

Look for a contemporary look on the front end as well as an up-to-date backend, including search engine optimization capabilities and easy editing. 

Search engine optimization

Your website should be built according to the basic rules of search engine optimization (SEO). Small businesses generally don’t need a complex SEO strategy, but the basics do still apply. Every page should have a title and a custom meta description. Headers should be used to divide paragraphs, and images should have file titles and alt texts which describe the content of the page. For an overview of what you need to know about SEO, see the Moz Beginners’ Guide to SEO.

Payment methods

Need customers to pay you directly on your website? This is, of course, necessary if you are selling products online, but can be useful for marketing services as well. The most efficient way to do this is by using a payment system that syncs with your invoicing software and creates receipts automatically whenever a payment comes through. In any case, choose a payment method that is accepted in Israel and easily connects to your bank account. You can read more about payment methods in Israel here.

More resources on starting a business in Israel:

• How to Get Your First Client
• How to Market a Business in Israel
• How to Determine Your Hourly Rate
• Freelancing without an Osek Murshe

An important principle in marketing is that the easier it is for a customer to pay, the more likely it is that they will buy from you or pay their bill on time. Whether you run a service-based or product-based business in Israel, you need a way to accept payment that is efficient, cost-effective and user-friendly.

Paybox and Bit

Paybox and Bit are two Israeli platforms for transferring money quickly and easily and are ideal for small sums. One advantage of accepting payment via one of these apps is that customers can send you payment while you are talking to them and it arrives immediately. In Paybox, the money stays in the app and can be downloaded to your bank or used to make your own payments. In Bit, the money goes straight into your bank account.

Another advantage is that you may meet customers when they don’t have any other means of payment on them, but they almost always have their phones. Even someone who left their wallet at home for the sole purpose of not spending any money can often be tempted to make a purchase once they realize they can pay via app.

Regulations, fees and terms of use change periodically in these apps. For instance, there is now a fee in both apps for going over 25,000 NIS of payments annually. You can choose to accept only one or the other, based on what’s most cost-effective and efficient for you. Or you can let customers choose, since getting paid quickly is more important to you than an extra fee or lack of convenience.

Grow by Meshulam

Grow by Meshulam is a solution for accepting credit cards, Google Pay, Apple Pay and Bit from customers, either in person (via the app) or online. If you manage an e-commerce shop or sell products in a brick and mortar store or at fairs, you may find this to be the easiest payment solution. Even if your business is service-based, if enough clients want to pay by credit card, consider offering them this option. Grow charges a fee and takes a percentage of the sale, as all credit card processors do, so take that into account in your pricing.

Grow integrates with invoicing software, so you can send an invoice with a link that allows your customer to pay immediately using their credit card, Google Pay, Apple Pay or Bit. Once payment is processed, they will automatically receive a receipt, saving you time and energy.

PayPal

The advantage of PayPal is that customers trust its security and often prefer it to providing you with their credit card details. It can be used internationally, so it’s easy for overseas clients to pay you. However, their transfer and conversion fees can be high, so take that into consideration before deciding to accept PayPal.

Bank transfer

A bank transfer is easy to accept, since you don’t have to take any action once you’re paid. When transferring large sums, this is often the best method. Some customers are familiar with their bank’s platform/app and prefer to send money via bank transfer, while others might be reluctant. Bank transfers do incur a fee, but if you pay a flat fee for all bank activities, this will not be a concern.

Checks

Checks have largely gone out of fashion in the Israeli business space, and for good reason. It’s time-consuming to write a check, it can be deposited any time in the six months after it’s issued, leading to unpleasant surprises, and it can be transferred to a stranger. Adding to that, “the check is in the mail” is a popular joke because it’s true. However, if a customer insists on paying via check, you can certainly accept it. Remember that if you deposit a check before the date written on it, you will be charged a fee. Checks clear three business days after they are deposited. If the check says “Lamutav Bilvad” on it (beneficiary only), it can only be deposited in an account with the same name as written on the check, so be sure to let your customer know what name to write.

Stripe – not supported in Israel

Stripe is a popular online payment method in many countries but it is not supported in Israel. If you have a US-based Limited Liability Company (LLC), an Employer Identification Number (EIN) or Tax ID, a physical US address, US phone number and US bank account, you can use Stripe while residing in Israel. Otherwise, it is best to use other payment methods.

Choosing the right payment methods for your business

Which payment methods you offer your customers is a decision that must take into account several factors:

• Are you generally getting paid in person or online?
• Are you accepting large payments or small amounts?
• Are your customers mostly in Israel or overseas?
• Are you being paid by young people or by older adults?
• Can you add transfer, conversion and processing fees to your price?
• What technologies do you feel comfortable using?

Once you answer those questions, it should be easier to choose the right payment methods for your business and encourage customers to buy often and pay quickly. 

You’ve opened a business, chosen a niche, found a workspace and decided how much to charge. Now all you need is that first client… But who’s going to work with someone who has no experience? 

Luckily, that first client is out there and there are a number of ways to find them.

Clients with low budgets

There are lots of clients who have low budgets but still want quality work. They may be willing to take a chance on someone with less experience if they trust that the work will be done well. When you exude confidence and speak knowledgeably on relevant subjects, you show the client that they’re getting a great deal, especially if you offer them a special introductory price. Be sure to make it clear that this is a temporary low rate, so you don’t get stuck charging too little for future work with this client or with referrals they send your way. Draw in this type of client with an ad that emphasizes the introductory price.

Former colleagues

People who have worked with you at a previous place of employment are aware that you are educated, hardworking and know what you’re doing. Even if they worked with you in a different capacity (for instance, you were a project manager and now you’re a graphic designer), if you had a good working relationship, they already consider you trustworthy and like you enough to jump at the chance to work with you again. Send a personal message to former colleagues who might be in need of your services and let them know about your new professional direction.

Friends and family 

Conventional wisdom is that it’s not a good idea to do business with friends and family, but sometimes this is the best pool for finding that first client. These are people who want to give you a leg up and think highly of you. They are also likely to spread the word about your services to others and provide those all-important word-of-mouth referrals. Reach out to everyone you know with an announcement about the services that you offer and ask family and friends to share with their acquaintances. 

Clients who are impressed by your posts

Social media is an excellent platform for getting that first client. Consistent posting which showcases your talent and knowledge will bring in clients who are impressed by your posts. A certain business owner in Israel famously posted on Facebook and LinkedIn for months without getting a single client. Once someone finally took the bait, his business grew and expanded almost overnight. Hopefully you won’t have to wait that long, but you get the idea.

Invest in marketing

Every business needs marketing, and new businesses need it the most. Set aside the time and a budget for marketing for the first three months and reevaluate at the end of that period. Get the word out there about who you are, what you know, what you offer and – most importantly – how you help clients reach their goals. For more information on how to do this, read How to Market a Business in Israel.

You probably wish that you could base a business on what you love to do and have work come to you without any effort. While that sounds like a lot of fun, in the real world, you need to market your businesses so that people know what you do and remember it when they need you or their friend does. Understanding how to market a business in Israel will help you succeed and grow.

Pinpoint who you’re targeting

Before you start marketing your business, it’s crucial to figure out who you are marketing to. A major component of this question in Israel is determining whether you are targeting native Hebrew-speaking Israelis or Anglo English-speakers. This decision affects whether your marketing is in Hebrew or in English, its style and your marketing funnel. If your Hebrew is not on a high level, you are likely to find it hard to move a lead through the funnel in a language you struggle to communicate in, so you might want to consider sticking with English speakers. Although it’s a smaller niche, you can corner a larger percentage of the market.

Network

If you run a business in a particular industry in Israel for long enough, you should eventually know a large amount of professionals in that niche. Professional contacts are an excellent source of referrals, since they often have clients they can’t take on, due to time constraints or because the client is more suited to your services than theirs. Other business owners in totally different industries are also likely to refer people your way, if they believe that you are good at what you do.

You make professional connections by networking as much as possible. Obviously, you need to spend most of your time actually running your business, but it’s worth allocating some of your work time to getting to know other business owners. Conferences, workshops and meetups are all excellent ways to network. Networking also takes place on social media, in groups dedicated to an industry or to business in general.

Learn more about networking in Israel in our article, How to Build a Network in Israel.  

Social media

Social media is extremely popular in Israel, particularly Facebook and Instagram. You can find Facebook groups dedicated to specific cities and neighborhoods, as well as topics like personal organization, finances, video editing and tourism. It’s important to advertise only in groups where self-promotion is permitted. Some groups allow self-promotion only at certain times or in certain threads, so be mindful of that as well. 

Since Israel is a small country, you can gain a lot of attention simply by answering questions on posts. If you’re a nutritionist and consistently give good advice in answer to questions about eating healthy, eventually you will become well-known in the industry and people you’ve never worked with will refer business to you. This strategy requires that you monitor relevant groups and answer questions regularly, occasionally mentioning that you are doing so in your capacity as a professional.

Facebook and Instagram ads can be targeted only to Israelis or to specific cities, but be aware that they will reach anyone who lives in that general area and can’t be limited demographically.

SEO and blogging

Search traffic is an important component of marketing a business, especially in the small ecosystem that is Israel. Publishing website pages and blog posts about your niche can boost your visibility, especially if you follow the guidelines of search engine optimization. Research what terms people are using to search for your product or service, and use these terms in the texts you write. Focus on copy that is useful to your readers and more people will find you through search.

Neighborhood circulars

In many neighborhoods in Israel, there is a circular published weekly or monthly that is widely distributed in mailboxes and/or in stores and shuls. These circulars may contain some original writing, but are primarily based on advertisements. Since these magazines are targeted to the specific neighborhood, many people skim through them to see if there’s anything of interest that they should know about. If the neighborhood is one that fits into your target market, this might be a good avenue for getting the word out about your services or products.

Keep at it

The key to succeeding at marketing is to do it consistently. Obviously, that doesn’t mean you should keep beating a dead horse if you’re not getting results, but you have to give any marketing avenue some time before you determine whether or not it’s working. And you have to be consistent and persistent to get it off the ground and to take advantage of the momentum. Israelis are hard-wired to want to help, so once you build a network on and offline, you should start to get word of mouth referrals, which are the very best kind.

Question: I have been living in Israel for many years and work as an office manager. But now I want a better work-life balance and the opportunity to do work that’s more interesting. I was thinking of setting myself up as a freelance translator, but my American friend told me that Americans can’t freelance without losing tons of money. Is this true?

It is true that freelancing as an American expat is more complex than doing it as a native Israeli or dual citizen of another country. This is because US Social Security requires citizens who are self-employed to pay 15% of their income for their retirement. Assuming that you pay Social Security for 40 quarters, you will receive Social Security benefits when you retire. An extra stipend after retirement is not a bad thing, but the question is, can you afford it now?

The Israeli government requires you to pay income tax and Bituach Leumi and deposit into your pension fund monthly. Once you pay all that and 15% Social Security, will you have enough take home pay to support yourself and your family?

Even if the answer is no, you can still have that work-life balance and inspirational work you’re looking for. There are a number of Employer of Record companies in Israel, which employ people in your situation. They are your official employer, paying you a salary and withdrawing all necessary payments. However, you are totally autonomous in your work. You decide which clients to take on, how much to charge, what hours to work etc. Your clients pay the EOR service and they pay your salary from the amount they have collected for you that month.

You will have to pay a fee to the EOR service, either a percentage of your income or a flat fee. If you expect to bring in a high salary, you are probably better off with a flat fee. If you expect to make a lower salary, a percentage-based fee might be a wiser choice. Before going the EOR route, calculate how much you would pay in Social Security vs. how much you would pay in fees to the EOR and see which is more worthwhile. 

Working for an EOR is also a good solution if you work for only one company in the United States. It prevents you from having to open a freelance business in Israel and provides you with a less expensive way to receive your salary, without the added expense of Social Security payments.

Of course, there are additional factors that need to be taken into consideration, such as your income level, the nature of your business and how close you are to being eligible for receiving Social Security benefits. It’s best to consult with a CPA with an understanding of Israeli accounting issues before making a final decision.

Further reading:

• How to Choose an Employer of Record Service
• US Taxes for American Expats in Israel
• Legalities of Full-Time Freelancing in Israel

In order to succeed in business in Israel, you need a valuable product or service, marketing, sufficient manpower and an accountant. You may have heard tales of people who do their own accounting, but these are generally mathematically-minded, detail-oriented people with one-person small businesses. For most of us, an accountant is crucial for staying compliant with reporting and paying the right amount of taxes, Bituach Leumi and pension.

Here’s what to look for when choosing an accountant:

Member of ICPAS

Your accountant should be a member of the Institute of Certified Public Accountants in Israel (ICPAS), known in Hebrew as the Lishkat Roei HaCheshbon B’Yisrael. This organization sets standards and norms in the industry and keeps members abreast of the newest innovations and updates to standards.

Offices nearby

You will occasionally have to visit your accountant’s offices, so it’s a good idea to choose one whose offices are not too far from where you live or run your business. However, most of your interactions will take place virtually, so as long as your accountant has software which is compatible with yours, you can transfer data efficiently.

Languages

If you’re not well-versed in Israeli accounting (and who is, really?), you need to understand your accountant’s explanations. Unless you are fluent in Hebrew, it’s best to work with someone who speaks your native language, so you understand emails and phone conversations and don’t run into trouble because of faulty communication.

Responsiveness

There’s nothing more annoying than reaching out to your accountant, not getting a prompt answer and then finding out you have incurred late fees (or worse) due to not filing something on time or not filing properly. Avoid this by asking friends and family for referrals to accountants who are both responsive and proactive. Once you get a recommendation, ask around some more – social media makes this easy to do – to see if the general consensus is positive.

Size of firm

There’s no one answer for how big your accountant’s firm should be. A large business is likely to want to work with a large and well-known accounting firm, while a small business may prefer a smaller firm. Big firms have lots of experience and satisfied customers, but smaller, or even one-person firms, can provide individualized attention you might not get from a bigger firm. A meeting or phone conversation with the accountant can give you an initial feel for how much time and energy he/she will devote to your success. 

Relationships with employees of government offices

An accountant who has cultivated relationships with employees of the various government offices, such as Mas Hachnasa (income tax), Bituach Leumi (national insurance) and VAT (Value Added Tax) can help you when a problem arises and a personal touch is required. Many accountants will claim to have connections in government offices, but you will want to ask questions that reveal whether these are really good relationships that can be called on when there’s an issue.

Collaborative

If you’re a US citizen, it’s important that your Israeli accountant collaborates smoothly with your American CPA, since your US tax filing is based on your Israeli tax report. Some American citizens choose to work with a firm which takes care of taxes in both countries, while others choose an Israeli accountant who speaks English and understands issues pertaining to US citizen filing.  

Price

The prices for accounting services vary greatly. While you won’t want to choose an accountant based solely on his low prices, you do want to pick one who provides ROI for his services. Go with an accountant whose price is fair for what he is offering. Ask people in businesses of similar size or in similar industries what they are paying for accounting services and what that price includes. Some accountants will charge a smaller monthly fee but will charge extra for one-time projects, like filing your yearly report or Hatzharot Hon (declaration of assets). Others will charge a higher monthly fee that includes all those reports. Also check whether the price includes proactive outreach with reminders to take care of paperwork and updates on new laws.

Good vibes

As with any service-based business, it’s important that you feel comfortable with the accountant who is managing your financial obligations to the Israeli government. Choose someone with a vibe that you connect with, who you can ask questions to without feeling like you are a bother and who explains things clearly and patiently. Ideally, you will have a long-term relationship with your accountant, so choose someone who is pleasant to deal with and will contribute to the success of your business.

When you operate a service-providing small business, one of the first things you need to do is determine your hourly rate. This can be a scary proposition, since charging too little means you’re not making what you’re worth and charging too much may price you out of the market. Luckily, there are guidelines that will help you decide how much to charge per hour.

Compare to a job

The first question to ask yourself when setting your prices is how much you would make in your industry as an employee. Next, consider that when you freelance, you are responsible for paying your own vacation and sick days, Bituach Leumi and pension. Your hourly rate must reflect these extra expenses.

Accepted wisdom in Israel is that you need to charge the hourly rate you would get as an employee multiplied by 1.4.

If you have to rent space, pay another worker or purchase items, add these to the amount you charge as well.

The going rate

The truth is that the going rate is a bit of a misnomer, because there will always be service providers who are more expensive and those that will be less expensive. Sometimes this will be because they are more experienced or operate in a location or industry where the market is different. But often it is just because this is what they have decided to charge. However, it’s still a good idea to find out what others are charging so you can get an idea of how to set your prices.

Start by asking people in the industry how much they charge per hour. Not everyone will want to provide you with this information, but Israelis tend to be fairly forthcoming when discussing money and you only need a few to get an idea of the range. 

You can also ask people in your target market what they would be willing to pay for the service you are providing. If they have already used this particular service, they are likely more knowledgeable on how much it should cost. For instance, someone might tell you that they previously worked with a translator who charged a certain amount, but they would be willing to pay more for someone more experienced. Or you might find out that they felt they were overcharged by the translator they worked with and would pay less the second time around.

Now that you know what the range is, you can determine your price. If you’re just starting out, you may want to position yourself on the lower end, but if you have lots of experience, you should choose a price that’s higher. 

Your rate is less important than your work

It’s important to remember that when you’re the best fit for a client, they will be much less concerned about your pricing. Say a client is looking for a graphic designer with a specific style and you have that exact touch. In your initial phone call, there’s an immediate click, where you each have a deep understanding of the other. You quote your price and it’s slightly more expensive than a different designer they spoke to. But that designer didn’t really get them and their style wasn’t quite what they were looking for. What are the chances that the client will choose to work with the less expensive designer?

Another thing to remember is that if a client quibbles about your price, they are not the right client for you. Even if they are convinced to work with you, they will never be satisfied because they think that they are overpaying. The right client is the one who thinks you are worth what you are charging and appreciates the skills and knowledge you bring to the table. 

Consider a retainer

It might be time to dump the hourly rate entirely! If you have clients who want you to be available to complete tasks and don’t really care how long it takes you, you can charge them a monthly retainer. This means that they pay you the same amount each month and it covers all the work done during that month. There might be months where you get paid for doing very little and other months where you work for every shekel and then some. 

The advantage of this system is that you have a steadier income. Clients like it because it makes paying you easier and they know you are available to them whenever necessary. Of course, this opens you up to situations where you might be taken advantage of and boundaries have to be very clear so that doesn’t happen.

Negotiating

Many Israelis have a “shuk mentality” which they bring to business transactions. They want to feel like they are getting a good deal and will negotiate until they get it. You can deal with this in a number of ways:

• Refuse to negotiate and only work with clients who are prepared to pay the rate you ask for
• Always quote slightly higher than you want and negotiate down to the amount you really want
• Quote a price that includes a built-in discount and let the client know they are getting the lower price because they are a friend of a friend, you have a special promotion this month, you really like them etc.

Rates are not static

The rate you charge when you start out should not be the same rate you charge 10 years down the line. Raise your prices periodically, as you gain more experience and provide a higher quality service. Prices in the industry also tend to rise, so keep your finger on the pulse and update your own prices accordingly.

You can either raise your prices for all your clients, or raise it for new clients and allow pre-existing clients to continue paying the old rate, at least for a while. When raising prices for existing clients, unapologetically announce that your rates have gone up. If they are loyal, satisfied customers, they will likely accept the new rates without issue.

You can also increase your income by becoming more efficient. If it used to take you an hour to write a 500 word article, you can reduce that to half an hour. You can do that by improving your own skills, using AI to help you or by more effective task management. Cutting down on time for admin tasks, keeping organized records and figuring out the best times of day to accomplish certain jobs can speed up your processes and bring in more income.

There are only 24 hours in a day

One of the issues with an hourly rate is that you’re limited in how much you can work. There are, after all, only 24 hours in a day and you have to sleep sometime. Of course, you can outsource work, but your outsourcers are also only able to work a certain amount of hours. The most efficient ways to increase your income are to increase your rates or switch to a retainer model.

For more information on running a small business in Israel, see Business Culture in Israel.

A young mother told us that she was considering full-time freelancing as a way to make her own schedule and have enough time to spend with her children, but she wasn’t sure she understood the paperwork involved. A new oleh reported that he chose freelancing in order to work with clients abroad using expertise that doesn’t translate well in the Israeli job market and wanted to know his obligations to the Israeli government. A translator chose freelancing because full-time translation jobs are a rarity, but was confused about her rights as a small business owner. 

What all these professionals have in common is that they were all concerned about the legalities of full-time freelancing. They were worried that freelancing in Israel might be complicated and expensive. They had heard that they would pay high taxes and be bogged down in paperwork. 

So we set out to put together a list of legal issues which must be taken into consideration before deciding to go freelance.

Freelancers don’t enjoy the same rights as employees

Employees have rights under Israeli law, such as vacation days, sick days, compensation for getting fired and Bituach Leumi partially paid for by the employer. Freelancers do not enjoy these rights – they are paid only according to the agreement made with the client, the agreement can end at any time and they must pay their own Bituach Leumi.

In exchange for their lack of rights, freelancers retain control over their work schedules and the clients they choose to work with. The labor courts have been known to consider a freelancer a de facto employee, if the client behaves more like an employer than a client. One example would be a freelancer who works exclusively for one client for a long period of time and is integral to the function of the department in which he works. The possibility that this worker will be considered an employee retroactively is meant to prevent companies from taking advantage of workers by forcing them to accept freelance conditions while not allowing them the freedom that comes with the status.

Freelancers are responsible for reporting income and paying tax

Employees have their income tax automatically withheld from their paychecks, but freelancers are responsible for reporting their income and paying income tax. Reporting for an Osek Murshe is done bi-monthly and can often be a complicated process. Many freelancers choose to hire an accountant or tax advisor to file their reports in order to avoid fines and other sanctions from the government.

Freelancers may have to collect and pay VAT

A freelancer who is categorized as Osek Murshe (either because his annual salary is over 120,000 NIS as of 2024, or because his business must always be categorized as Murshe) must collect VAT from clients and pay it forward to the Israeli government. 

According to the Israel Tax Authority website, Value Added Tax (VAT) is “imposed on any transaction executed in Israel, on import of goods by every person and on provision of services, in a single rate from the sum of the transaction or the price of the goods.” In 2024, VAT is 17% of the total sale.

This tax is collected by the business and then transferred to the government. Physical products are priced with the VAT included, but when services are provided, the freelancer may quote a price including VAT or let clients know that the price quote does not include VAT. 

VAT which is collected from customers is paid to the government every two months. Certain business expenses can be deducted from the total VAT owed.

Transactions must be recorded with receipts

Any transaction associated with the business must be recorded. The customer must receive a receipt for payments made. Receipts can be on paper or online and must be compliant with Israeli law. An Osek Murshe providing services will also issue a tax invoice, although this can often be combined with the receipt in a document called Cheshbonit Mas Kabbalah (tax invoice receipt).

Some examples of approved invoicing and receipt software are:

• EasyCount
• morning (by Green Invoice)
• iCount
• Invoice4U
• SmartBee

Freelancers are required to contribute to a pension fund

Until 2017, freelancers could choose whether to deposit funds independently into a pension fund, but this led to a situation in which too many freelancers were in a financial bind when they reached retirement age. According to current law, freelancers must contribute to a pension fund according to how much they earn.

For the first 75,216 NIS earned, a minimum of 4.45% must be deposited. For the next 150,432 NIS earned, 12.55% must be deposited. Any income above that amount is exempt from the pension fund, but freelancers who want to increase their retirement fund can choose to deposit more. There are tax incentives for pension funds but they are not limitless.

Legally, pension funds can be deposited all at once, as long as they are deposited by the end of the tax year in December. Of course, for many freelancers it is financially easier to deposit a smaller sum each month. This can be set up automatically through the bank.

Freelancers must fill out a Hatzharat Hon

The Israeli government requires freelancers to declare their assets to the government periodically (when the file is first opened and about every five years thereafter). The purpose of this report, called a Hatzharat Hon (declaration of assets), is to ensure that freelancers aren’t under-reporting their income. 

The first Hatzharat Hon serves as a basis for future reports, so that assets reported are constantly checked against the first one. This makes it doubly important that the first one is done properly. It is highly recommended to hire a professional accountant or tax advisor to assist in the preparation of this report. Because the declaration requires a lot of personal information, it is not a job which can be handed over entirely to an expert, and the freelancer will have to be involved with the paperwork. But the accountant will know what needs to be included and ensure that the freelancer is in compliance.

Is it worth it?

We are often asked whether it’s worth it to freelance with all the extra obligations and paperwork that come along with it. There’s no right answer, of course. So much depends on industry, income, lifestyle and personality. Some people find that the inconveniences are far outweighed by the flexibility that freelancing affords them. Others are able to establish more lucrative careers by working for themselves or just can’t fit full-time work into their schedules and prefer to make their own hours. 

Freelancing can be made much simpler by outsourcing the reporting and paperwork. The extent to which this is done must, of course, be balanced with the cost of hiring others to do this work. Many freelancers start out doing a lot of the admin work for their business themselves and hire others as their income grows. If they can earn more by doing the work of the core business, it pays to outsource the admin work. 

Employer of Record services like Route 38 are another solution for outsourcing paperwork. In this scenario, the person is considered an employee of the EOR service. Income tax, Bituach Leumi and pension will be automatically withheld. Invoices and receipts will be issued by the EOR per the employee’s instructions and there is no need for a Hatzharat Hon. Some EOR services are geared towards freelancers with multiple clients, while others (like Route 38) are more focused on those who have one client abroad.

Not sure whether freelancing is for you? Read more about the differences between employees and freelancers in our free e-book, Your Route to Career Success in Israel.

Starting a business in Israel? In addition to figuring out product, marketing and revenue streams, you have to decide how you will pay yourself a salary.

There are a number of ways that you can structure your business and get paid. 

Chevra B’Am

One option is to create a Chevra B’Am (registered company). This option allows you to hire as many people as you like, including you. You will be an employee of the company and draw a salary with a pay stub just like any other employee. This structure allows your business to scale easily, but it does raise the price of your accounting fees, so it’s generally recommended only if you plan to expand and bring in a large revenue. 

When you open a Chevra B’Am you enjoy full autonomy and some flexibility with expenses. The main advantage, though, is the potential for long term gains if you don’t pay yourself all of the company’s earnings as a salary. Funds that remain in the company account are taxed at a lower corporate rate and can be used for investment purposes.

However, these advantages may be offset by the difficulty of dealing with Israeli agencies. You may be familiar with the process of opening a company in the US, which can be done inexpensively online. But Israeli companies are more complex to open and maintain. You need to understand all the rules and take responsibility for the company, in order to ensure you are getting the full value. It’s crucial that you have a trustworthy accountant who is proactive and ensures that all your forms and reports are filed in a timely manner.

Opening a Chevra B’Am is sometimes mentioned as a way to avoid paying US Social Security (if you’re an American citizen), but again, it only makes sense if the company is successful enough to offset the higher accounting fees.

Please note that although we have covered some basic information here, you need to consult with an accountant before making a decision about opening a Chevra B’Am.

Osek Patur or Murshe

You can register as a freelance business, which is called Patur (VAT-exempt) for up to 120,000 (as of 2024) NIS annual revenue and Murshe (not exempt from VAT) for a higher profit. In this scenario, you’re not paying yourself a salary in the classic sense. You collect money from each client and whatever is left over after you pay income tax, Bituach Leumi, VAT, health tax etc. is your income.

This method generally incurs accounting fees (unless you’re really really savvy), but they are much lower than that of a Chevra B’Am. You are responsible for invoicing, collecting and reporting your income to the government. If you are a US citizen, the American government requires you to pay 15% of your income to Social Security.

EOR employee

A method that has become popular in recent years is signing up as an employee of an Employer of Record service. You are a regular Israeli employee with a Tlush Maskoret (pay stub) and all necessary payments withheld before you receive your salary. This method is the best solution if you have one client abroad and need to pay yourself a salary in Israel. If you have multiple clients/customers, it might be expensive to work through an EOR, so you need to check whether this is worthwhile for you.

An EOR service takes care of invoicing and collecting payment and there is no need to report your income to the Israeli government, since your Tlush Maskoret takes care of that. There’s also no need to pay US Social Security.

Choosing the right method

It will probably not surprise you to hear that there’s no right answer for everyone and that you should get professional expert advice before deciding how to structure your business. Your current income, projected income and personality can all play a part in determining which of these methods you should choose for maximum profit and minimum headache.
At Route 38, we offer one-time consultations in which we help you weigh your options and advise you on the best way to proceed. Although we are an EOR service, we promise not to push you into choosing that method or into working with us if that’s not what’s best for you. Our mission is to assist you in making a living in Israel, so you and your family can enjoy a successful aliyah. Email us at info@route38.co.il to book a consultation and take the next step in setting up your business.

Making more money in your business this year and need to transition from Osek Patur to Osek Murshe? Mazel tov! 

Here’s what you need to know about making the switch.

What’s the difference between Osek Patur and Osek Murshe?

The maximum annual revenue for an Osek Patur is 120,000 NIS (as of 2024). If you’re making less than that, you are defined as an exempt business – meaning that you are exempt from charging VAT (Ma’am) and transferring it to the government. Once you become an Osek Murshe, you will need to collect VAT from each customer/client and pay it to the VAT office. 

Another difference between Osek Patur and Osek Murshe is that an Osek Patur reports revenue to the VAT office once at the end of the year, while an Osek Murshe reports every two months. Reporting and paying income tax and Bituach Leumi are the same for both types of businesses.

Note that certain professions are always defined as Osek Murshe, no matter the revenue. Architects, engineers, private detectives, lawyers, chartered accountants, doctors, management consultants, interpreters, insurance agents, psychologists, dentists and medical clinics cannot be registered as an Osek Patur. 

I’m almost at the Osek Patur limit; should I stay under it?

While it’s tempting to stay under the Osek Patur limit to make life simpler, this may not be the best financial choice. It’s true that as you transition you may find that you are briefly in a situation where you aren’t actually taking home more money or maybe even losing a bit, since accounting expenses and the need to charge VAT negatively impact your take-home pay. But you just need to get over that hump and increase your income enough that being an Osek Murshe starts to pay off. At the end of the day, limiting your income artificially doesn’t give you the freedom to expand and succeed.

Another reason to become an Osek Murshe is that your business will now be seen as more established. This will garner you more respect and ultimately generate more sales.

I’ve reached the Osek Patur limit and the year isn’t over – now what?

If you started off as Osek Patur but find that you have reached the 120,000 NIS limit before the end of the year, you will need to update your status at the VAT office and show them proof that your bank account belongs to you (either with a form from the bank or a canceled check). 

You will need to start collecting VAT from your customers and transfering that money over to the VAT office on a bi-monthly basis. It’s a good idea to put VAT payments aside when you receive them from clients so that you don’t accidentally spend that money and find yourself scrambling to pay VAT at the end of the two month period. Reported business expenses are deducted from the amount of VAT you owe, so you can save by keeping meticulous records of your expenses and reporting them accurately.

You may find that the transition from Osek Patur to Osek Murshe makes the accounting complex enough that it is worth hiring an accountant or tax advisor to help you with the bi-monthly reporting.

Should I raise my prices?

This is a question which seems to cause a lot of angst to small business owners. You may be afraid that if you raise your prices, your customers will go elsewhere. On the other hand, if you don’t raise your rates, you will be paying the VAT out of pocket, which is unlikely to be sustainable for very long.

If you can swing an across the board price hike without losing customers, let them know that you are now an Osek Murshe and are therefore adding VAT to all prices. If you don’t think this will fly, consider sending a notice that prices will be rising on a certain date, so that clients can enjoy your old rates if they book your services or buy from you sooner. You can get a boost of business from those wanting to save and you’re giving enough notice to everyone so they can adjust to the new prices.

Another method is to raise prices for all new clients while keeping the old prices for existing clients. If you’re selling products, you can do this by setting higher prices and then offering return customers discount coupons. This method works best if the repeat business isn’t too frequent. If you have customers paying you every month for the foreseeable future, at some point you are likely going to want to raise their rates as well.

How else can I make up the difference?

Maybe you can’t raise your prices right now. Or maybe your new prices cover the VAT payment but not your extra accounting costs. If that’s the case, you want to look for other ways to increase your income and your take-home pay. 

Selling more is the most obvious way to increase revenue. Marketing, networking and offering your services to new audiences are all effective ways of boosting sales and making more money. You can also consider cutting costs, so that a larger percentage of the sale is actually revenue. Look into decreasing your payments on internet, phone, workspace, production costs, shipping etc.

Review the value of the product or service you are providing. Cut out any elements that don’t add much value to the customer but cost you time or resources. Instead, add elements that aren’t a big effort and don’t cost a lot of money but significantly increase value for your customers.

Consider whether outsourcing is financially beneficial to you. If it increases productivity and sales, it is worth outsourcing some of the work. But if you are paying someone to do work you could just as easily do yourself without detracting from your business, it may be time to rethink that arrangement.

I’m still not sure what to do…

The transition to Osek Murshe can be overwhelming. If you find yourself unsure about what steps to take and how to run your business with this new status, a business consultant can help you get a handle on things and make decisions about how to move forward. Many consultants offer a one or two session package, in which you can get individualized advice that can be implemented easily. Think about investing a small amount to help you smooth the transition and set yourself up for continued success.

We wish you plentiful and joyful parnassah!

The age-old saying, “You have to spend money to make money” is absolutely true. You can’t run a business without incurring some expenses, whether you are freelancing or selling a physical product. The good news is that it’s possible to deduct many business expenses from your taxable income and reduce the amount you pay to the Israel Tax Authority. 

What is considered a business expense

Business expenses are defined as expenses that are necessary to running your business, for which you get no additional benefit and that you can provide a receipt for. (No, the Tax Authority won’t take your word for it…)

• Products – If you sell a product, the cost of purchasing the product as well as additional expenses such as shipping, storage and packaging can be deducted. Rent, price of buying and maintaining a storefront or office are also considered business expenses.

• Office – If you work from home, you can deduct your internet, and part of the water, electricity, cell phone and property taxes (arnona). Office equipment, such as computers, software, office furniture and ink for your printer can also be deducted. These apply whether your office is a rented/purchased space or a room in your house. 

• Personnel – Salaries and other employee expenses like training are deductible. So are payments made to consultants, including your accountant and lawyer. Your own contributions to a pension plan, Keren Hishtalmut or Kupat Gemel grant significant tax reductions. 
   
• Food and accommodations – Coffee, drinks and snacks can be deducted at a rate of 80%. Business trips outside of Israel only are recognized as long as they are really business trips and not a trip for pleasure onto which you tacked a conference or meeting. 
   
• Education – Tuition for academic degrees are not deductible, but professional courses related to your business are. 

• Cars – If you are an Osek Patur or Murshe and use your car to generate business, you can claim 45% of your expenses, including gas, insurance, maintenance, parking, tolls, registration fees and depreciation. If the business is registered as a corporation, a car attached to a specific person is considered an employee benefit. 

• Restaurants – You cannot generally deduct the expense of taking a client or employee out to a restaurant or otherwise entertaining them. The exception is if you take a foreign client out for a meal. 
  
  
• Clothes – Clothing is also not deductible, unless you need special clothing for safety or a uniform that you need to wear. 

Deduct expenses carefully

When you deduct expenses, you need to be extremely careful that you are claiming only what the Tax Authority allows you to claim and that you are being honest about what you spent on your business as opposed to your personal life. Since deductions are often partial, it can be complicated to keep track of everything yourself. It is recommended to keep all receipts and hand them over to an accountant or tax advisor who will file your taxes and claim only what should be deducted.

As an immigrant to Israel, you have the advantages of speaking another language and connections in the country you came from. These advantages can be translated into a lucrative freelance career working with clients abroad who require your expertise. Here’s what you need to know about freelancing in Israel for clients abroad.

How do I price my services?

Price your services by investigating how much these services cost in the country where your clients are located. You may want to charge slightly less than that price, as an incentive for clients to use your services instead of someone more local. If the salaries in that country tend to be higher than they are here in Israel, you won’t feel slighted by taking less and you will get more business, ultimately leading to you making more money. 

Alternatively, charge the market price your clients are used to and give them other reasons to hire you – such as your unique expertise or your quick turnaround.

How do I create invoices and receipts for clients abroad?

You need to provide the tax offices with receipts for payments for all clients, regardless of where they are located. These receipts must be in Hebrew but you can send the client a version in another language. Many of the invoicing programs which are approved by the Israeli government will provide you with an English version of your invoices and receipts to send to the client, while simultaneously creating a Hebrew version for your reporting and accounting.

Do I need to charge VAT?

If you’re an Osek Murshe, you generally charge your clients VAT. However, the general rule is that clients abroad, with no presence in Israel at all, do not pay VAT. Sometimes individuals living in Israel have a corporation or nonprofit registered abroad and mistakenly think that they can pay you through that entity without having to pay VAT. If you are in any doubt about whether to charge a specific client VAT, consult with a knowledgeable accountant. You don’t want to get in trouble with the VAT office retroactively, so it’s best to get the correct information upfront.

How can clients abroad pay me?

There are a few ways that you can collect payment from clients abroad.

1. Ask them to send funds via international bank transfer. There is a fee on both ends, so the client will pay to send the transfer and you pay to receive it. The funds can be transferred into shekels at the rate that the bank provides, which is not always the highest rate. The transfer can take up to 7 business days, although it often arrives sooner. Due to money laundering laws, you may be required to show the bank where this money came from before they allow you to access it. Alternatively, you can have funds transferred through Wise, which is the easiest, fastest and least expensive way to move money from abroad to Israel.
   
2. If you have a bank account in the country your clients are located in, they can pay into that account. This is easy for your clients, but then you have to get the money here in order to pay your bills and buy groceries. If you have a credit card for that account with no fees or low fees, using it to pay for things in Israel can be a good solution. But be aware that not every company will accept every foreign credit card, so you need a shekel alternative as well. Also note that even if the money is in a foreign account, it needs to be accounted for and reported in Israel.
   
3. Payment can be transferred through Paypal. There are fees here too (although they tend to be lower than the bank) and the conversion rate isn’t always in your favor. If you transfer small amounts into your bank account, you will be charged a fee, but if your client pays you a larger amount or you let a few payments build up, you can then deposit the funds in your bank account in shekels for free.
   
4. Your client can mail you a check here in Israel, which you can take to a change place and exchange for cash or a check in shekels. Not all change places are willing to accept checks and those that do will give you a lower rate than they give for cash. This method is time consuming and dependent on an unreliable postal system, so we don’t recommend it as a first choice.
   
5. You can register with an Employer of Record (EOR) service. You officially become an employee of the EOR company and they take care of fees and exchanging currency. There is a fee involved here too (a flat fee or a percentage of your income), but you also save on accounting fees and time spent on admin work for your business, so it may very well be worthwhile.

Is it better to freelance for Israeli clients?

The answer to this question is dependent on a number of factors. These include market prices in Israel vs. abroad, your level of Hebrew, where clients in your industry tend to be located and whether you need to work during the hours that your clients are in their office. 

Of course, you don’t necessarily have to choose one or the other – if your expertise is required internationally, there’s no reason why you can’t work both for clients in Israel and abroad. The important thing is to find a mix that works for you and to stay compliant with government regulations and proper reporting.

Are you dreaming of being your own boss, making your own schedule and choosing your own clients? Are you thinking of switching from employee to freelancer but are scared of making the leap? We’re here to help with a list of pros and cons so you can make an informed decision.

Advantages of freelancing in Israel

Being your own boss is a very attractive proposition. You don’t have to answer to an employer and can decide when you want to work and who you want to work for. It’s easy to take time off for a doctor’s appointment or for an errand you can’t do in the evening. You can work the hours that you’re most productive, whether you do your best work in the morning or are a total night owl. And you can create a schedule that works around your family life with maximum flexibility.

You get to choose your clients and if you’re not happy with a business arrangement, you are free to end it, whether the client is difficult or the project is not to your liking. This will lead to greater job satisfaction and more pleasant business interactions. 

Some professions lend themselves particularly well to freelancing, since companies or individuals tend to need these services sporadically or as a minor part of their budget and don’t need to hire someone in-house. Translation, marketing, website development, financial services and law are just some examples of service-based businesses that succeed in Israel. 

Disadvantages of freelancing in Israel

Lack of stability is a big disadvantage of freelancing. Your salary will probably be different every month and wars, economic downturns and pandemics can greatly affect a freelance business. If you want to get the same exact salary every single month, freelancing is probably not for you.

Billing is another challenge of freelancing. You need to send invoices to clients, check that they have paid, run after them if they haven’t and issue receipts once payment is received. You also have to figure out how to price your services, negotiate with clients and justify your pricing.

Being your own boss often means that you lose the division between work and home and end up working many more hours than you did as an employee. Demanding clients and work that builds up may have you working into the wee hours of the night, when you’d much rather be spending time with your family or just chilling.

Freelancing also means that you have no intermediary between you and the client, who would have your back and smooth things over. Yes, you can stop working with a difficult client, but you might have to finish the current project and end things on a positive note to preserve your reputation in the industry. That’s not always an easy thing to do!

As an employee in Israel, taxes and additional payments are deducted automatically from your salary and there is no need to report your income to the government independently. As a freelancer, you are obligated to report your income and pay taxes, Bituach Leumi and VAT (if applicable) directly to the government. This means that you need to keep meticulous records of your bills and your expenses. It is recommended to use the services of an accountant or tax advisor for reporting, so this is an extra expense that you need to take into consideration. If you are an Osek Murshe this will be more expensive than if you are an Osek Patur.

If you are an American citizen, you will also be charged 15% of your income to US Social Security as a self-employed person.

So, is it worth it?

There’s really no right answer. You have to consider whether the freelance lifestyle is right for you and whether you can handle the financial risks of running your own business. Some people prefer to start small, by freelancing on the side while still employed. This can be challenging, especially if you’re working full-time, but it’s a good way to test the waters and see if the clients are out there and whether you enjoy working for yourself. You can also take advantage of an unplanned period of unemployment to experiment with self-employment. 

It can take from three months up to a year or even longer to build up a steady stream of clientele, acquire a reputation and bring in substantial income, so don’t give up before you’ve really given it a try.

Want to know how to set yourself up as a freelancer in Israel? Osek Patur – Guidance for Your New Business has all the details.

Question: I’ve been working for a few years as an employee here in Israel but I want to switch to freelancing for the added flexibility and the ability to choose my own clients. But I’m concerned because I’m an American citizen and I understand that it’s very expensive to be an Osek Murshe and I will end up owing taxes in both Israel and the US. Is there another solution I haven’t thought of?

Answer: Thank you for your question! Owning your own freelance business as an Osek Patur or Osek Murshe does in fact open you up to owing money to the US government. This is because when you file your US taxes, the government will charge you 15% Social Security as a self-employed person.

As a US citizen, you are required to file a US tax report if you have an income, regardless of whether you are employed or self-employed. As an Israeli, you generally will not owe taxes on earned income to the US government, due to the tax treaty between the two countries, according to which you are taxed first in your country of residence. However, Social Security is not included in this treaty. If you’re self-employed, you will be charged 15% Social Security, just like any other self-employed person in the US.

Paying into Social Security

This is not necessarily a bad thing. If you earn 40  Social Security credits you will be eligible to receive a monthly payout from the US government after you retire. Under current laws, you can receive this money even if you are living in Israel. Many retirees find this amount a welcome addition to their retirement funds.

On the other hand, you need to make a living right now. If the payments to Social Security, Israeli income tax and Bituach Leumi are too high to leave you much in your bank account at the end of the month, freelancing might not be the best idea.

Employer of Record service

But that doesn’t mean you should give up your dream of a flexible lifestyle and career. If freelancing is what you want, you can sign up with an Israeli Employer of Record service. Some of these companies specialize in employing freelancers who maintain creative control over their business, while getting an Israeli pay stub from the EOR service. You can still choose your clients and decide how much and when you want to work, but at the end of each month, the company will invoice your clients and pay you a salary according to the amount received from them. 

Legality of EOR services

EOR services which comply with Israeli government requirements are perfectly legal and a good solution for many people. If you go this route, check that the company is compliant and that it has good customer service, so that you receive your salary in a timely fashion and get a quick response when you have a question or issue. 

Are you a temporary resident of Israel looking to freelance? It can be done! Here’s what you need to do to set yourself up legally:

Obtain an A-1 visa

In order to obtain an A-1 visa, which gives you permission to work in Israel, you need to go in person to Misrad Hapnim (Interior Ministry). You will need your passport, marriage certificate, birth certificate, proof of your parents’ birthdates, a letter from your school if you are a student, proof of Jewishness (if relevant), criminal background check from your country of origin and an application for visa extension. Be sure to ask specifically for a visa that allows you to work, since it is not offered to you automatically.

Open a file at the VAT office

Before you open your business, you must open a file at the VAT office. You need to do this even if your projected income is that of an Osek Patur (sole trader who is exempt from collecting VAT for the government). As a temporary resident, you can only open a file at the VAT office if you have an Israeli representative who takes responsibility for your business dealings. This representative can be an Israeli spouse, a friend or a relative. The Israeli representative will fill out VAT Form 22, which may need to be notarized by an Israeli notary. 

This representative is not involved in business decisions or management, but is fully responsible for timely and correct payment of all taxes. The purpose of having an Israeli representative is to prevent a situation where a foreign national leaves the country with debts, unpaid taxes, wages owed to workers etc.

If you don’t have anyone you can ask to take on this responsibility, you can open your business through a trust company. This company will act as your Israeli representative for a fee. Some of these companies offer additional services, like registering the business for you, preparing and submitting tax reports and opening a corporate business account at the bank.

In order to open a VAT file, you need proof that your bank account belongs to you. You can use a checkbook or ask the bank for an ishur nihul cheshbon (letter stating that you manage this account). If your bank account is shared, both account holders need to be present with proof of identity (Teudat Zehut or passport).

Print receipt books or sign up for an online receipt service

There is a legal requirement in Israel to provide receipts for any business transaction. You can print receipt books with your business name and information at a printing house, or you can sign up for one of the multiple online services that provide you with electronic receipts. Not all receipt services are accepted by the Israeli government, so it is crucial to choose one that has the government’s stamp of approval.

Open an income tax file

Take your documents from the VAT office to the income tax office (Mas Hachnasa) and open a file there as well. You are now obligated to file an annual tax return, reporting your income and expenses to the government. Avoid problems by keeping meticulous records and backing up any documents that aren’t already in the cloud.

Your business is now open! Now’s the time to get the word out, invest in marketing and get your first clients. We wish you great success in your new endeavor!

For more information on opening a business in Israel, see: Osek Patur – Guidance for Your New Business.

All freelance work performed in Israel must be reported to the Israeli government and is subject to tax. If you own a business, there’s a system in place for generating receipts and reporting your income to the tax authorities. But what if you are an employee that wants to take on a short-term consulting gig? Or a student helping a professor with a research project? What if you’re currently unemployed and have been offered a few weeks of work on a timely project?

One option is to report to the government that you have made a business arrangement called “Iskat Akrai” – a temporary business agreement. This is done directly on the Tax Authority website or by filling out Form 8356 and bringing it in person to the offices of the Tax Authority. You will then receive an official tax receipt which you send to the entity which hired you as a consultant. The payment you receive is liable for Bituach Leumi (Israeli Social Security), income tax and VAT. This option is only available for a one-time payment, so if you provide a service for a few months, you can’t use multiple Iskaot Akrai to be paid each month, and will have to accept payment in one lump sum.

Another option is to ask the entity that hires you to put you on their books as an employee and pay you with a Tlush Maskoret (pay stub), in which taxes and Bituach Leumi are withheld automatically. If you have another job, you will need to notify the Tax Authority, by performing a Teum Mas (tax adjustment) online. In the absence of a Teum Mas, each employer will withhold the highest tax rate. When you report both incomes, the Tax Authority instructs each employer how much tax to withhold. 

Not all employers will agree to put you on the books for a short time, due to the extra paperwork involved, so this is not always a possibility. 

The third option is to register as an employee of an Employer of Record service. That company will then issue an invoice to the entity hiring you and send them a receipt once payment has been made. This option is easier for the hiring body, but you will still need to fill out a Teum Mas, since you will be considered a person with more than one job. 

How do you know which option is best for you? The deciding factor may very well be the employer’s preference, since it has to be worth their while to hire you. You want to make it easy for them to pay you, otherwise they might choose to hire a different consultant, who already has a registered business. If you are able to choose, consider whether you expect to receive more than one payment and whether you prefer the bureaucracy involved with an Iskat Akrai or with a Teum Mas.

Remember that a one-time consulting gig may very well turn into something more long-term or give you a taste for freelancing that you want to pursue. If that happens, you may find yourself opening a business after all.

Maternity leave and maternity pay are a basic right in Israel, whether you are an employee or a business owner. While on paid maternity leave, you are not allowed to work. 

But wait… What will happen to your business if you abandon it entirely for months? The law does allow a woman on maternity leave to maintain her business if she gets special permission from Bituach Leumi. Unfortunately, there is no uniform definition of maintenance as opposed to work and each case is judged on its own merit. 

If you’re worried that your clients and customers will start working with your competition during your maternity leave and choose to stay with them even afterwards, consider hiring a replacement or outsourcing the work so that your clients get what they need from your business without your involvement.

Are you eligible for maternity pay?

If you have paid into Bituach Leumi for 10 out of the 14 months prior to your maternity leave, or 15 out of the previous 22 months, you are entitled to maternity pay for 15 weeks. If you have paid Bituach Leumi for 6 months of the past 14, you are eligible for 8 weeks of maternity pay.

Before you give birth, check whether you owe money to Bituach Leumi. If so, you will want to pay those debts so that your right to maternity pay isn’t curtailed.

How is maternity pay calculated?

Because entrepreneurs tend not to have steady income, maternity pay is calculated in two phases. In phase one, your income is determined based on the assessment from the previous year or your estimated assessment for this year, whichever amount is higher. Remember that your total income is calculated based on what you bring in and what your expenses are. If you have a lot of expenses, maternity pay will be a lot lower than you might be expecting.

At the end of the year, when all income for the year is reported, the amount of maternity pay is adjusted, sometimes to your benefit and sometimes to your detriment. If you think that your income will decrease significantly over the course of the year, it’s recommended to keep some money on the side so you can pay back what you will end up owing the government for overpaying you during maternity leave.

Pension Tips and Investment Risks with Motty Handler

Our second networking event was a huge success! We learned all about saving for retirement from Motty Handler, while enjoying sushi, fresh fruit and candy. Most importantly, we met other professionals, traded advice and dreamed up new collaborations.

Check out these pictures from the event:

Route 38’s office space in Har Chotzvim, Jerusalem is available for rent. Choose a dedicated desk or a private office. Take advantage of the conference room, internet, printing facilities and free hot drinks.

Additionally, members of the Route 38 family may come and enjoy any of our hot desks for free , up to 20 times a year.

Prices for monthly rentals are as follows:

On March 9, 2022, Route 38 celebrated the opening of its new offices in Jerusalem with its first networking event. A light dinner was served in the lobby of the new co-working space in Har Hotzvim, accompanied by lots of schmoozing. This was followed by short presentations by Baruch Swinkin and Yael Frydman and a networking session by Helena Baker, in which she taught everyone how to give an unforgettable elevator pitch. And we will certainly not forget Mike Kashnow’s pitch!

Here are a few pictures from the event:

Mazel tov on setting up your new business! If you’re just starting out, chances are that you will be an “Osek Patur,” a business which is exempt from collecting and paying VAT. The following is a brief overview of what you need to know for your new Osek Patur.

• Mas Hachnasa- Your tik (file) in Mas Hachnasa (Israeli Tax Authority) is registered on both your name and your spouse’s name.
  Every year a Doch Shnati (annual report – tax return) is submitted which should include all income earned both in Israel and abroad for both spouses. If you work with an accountant or tax consultant (and we recommend that you do), send your receipt book, expense invoices and any other documents you have to your accountant in January of the next year for preparation of the Doch Shnati.
  
• Bituach Leumi (National Insurance) – If, according to the definitions of Bituach Leumi you are required to make payments to National Insurance, you have the choice to pay via credit card or a monthly set payment (horaat keva). You should set this up as quickly as possible so you don’t end up with back payments.

• Ma’am (VAT) – Your file at the VAT office is only under your name and doesn’t include your spouse. The updated ceiling for your income in 2021 is 99,893 NIS per year. Please check your income during the year making sure you are not approaching the ceiling, and if you are please update the VAT office as soon as possible.

• Revenue recognition (receiving payment from a client) –  Israeli accounting requirements dictate that an official receipt (kabala) must be issued immediately upon receipt of payment from a client, or as soon as you become aware of a cash receipt (in the case of a bank transfer). It is important that this practice is strictly enforced. Non-issuance or late issuance of invoices may cause accounting complications and headaches, even possibly fines.

Receipts can be issued in two ways:

1. Use of online programs or applications – many of which are easy to use and are readily available, including: Easy Count, Cheshbonit Yeroka, Cheshbonit Online, iCount and more. (Some are free and some come with a low monthly fee.)
2. Manual receipt book – this book can be purchased and printed in a printshop. Ask them for a receipt book for an Osek Patur – Original + two copies per receipt.

The invoice must include the following details on the top:

Full name/Business name, Address, Phone number of the business and osek patur number (which is generally your teudat zehut number).

The receipt should provide information about the service provided and the method of payment (cash, bank transfer, check – including check number). If payment was in another currency, include the rate of exchange to shekels. 

• Important highlights when filling out a receipt:
  • Receipts should be issued at the time of the receipt of payment, even if the service will be provided at a future date.
  • The dates and numbers of each receipt must be consecutive. Do not issue receipts out of order!
  • The original should be given to the client, and copies should remain with you (the business).
  • When a receipt has to be cancelled, or a numbered receipt was skipped, the cancelled/skipped receipt should stay in the book and you should write “cancelled” or “skipped” on it.
  • Receipts in the amount of more than 5,000 NIS should include the client’s teudat zehut or business number in addition to their full name.
  • In cases of receipts over NIS 11,000, per law, cash cannot be exclusively used – payment must be remitted via check or bank transfer.

• Saving expense documents/paperwork:

It is strongly advised to keep as many expense documents as possible. Any expense that you submit will save you from higher income tax and Bituach Leumi payments.

It is also advised to keep donation receipts in order to reduce tax payments (or receive a tax payment refund), if you have any. Please note that receipts must be from Chapter 46 recognized organizations,and their status must be noted on the receipt. This applies even in years that one did not make any tax payments, as donation receipts may be used for 4 years.

The following are considered direct business expenses, and are 100% recognized and deductible:

1. Furniture and equipment for business, office equipment
2. Travel by taxi and public transportation
3. Advertising, marketing, education, advanced training
4. Accounting, professional advice/consulting
5. Subcontractors (external consultants, professional temp positions)
6. Credit card fees

Indirect/mixed expenses, partially recognized:

1. Private car expenses (including insurance, license, fuel, maintenance/repair) – 45%
2. Cell phone – 50%

Home expenses- 25%:

1. Landline, internet
2. Electricity, water
3. Municipal taxes (Arnona) and Homeowner Association Fees (Va’ad Bayit)
4. Renovations

• Inventory

One is obligated to count all inventory in one’s possession on December 31^st of every year, in the event that one has raw materials or equipment or other items for sale that require evaluation. 

• Hatzarat Hon (Financial statement):

Sometime after the opening of your independent contractor tax file, Mas Hachnasa will request and require a Hatzarat Hon (financial statement) as of December 31^st of the year that the tax file was opened. The statement details all the assets and liabilities of the business owner as of the date of the statement. Additional Hatzarat Hon requests are generally made once every 4-5 years.
It is generally recommended to submit this statement with the help of an accountant or tax consultant, since it can be complex. The first one should certainly be submitted with professional assistance, since it serves as the basis for all future statements.

If you’ve owned a business in another country or seen firsthand how a foreign business is managed, you may be surprised at some of the business practices which are common in Israel.

Payment Terms

One of the most surprising (and challenging) aspects of doing business in Israel is the concept of shotef plus – delayed payment. Many organizations and businesses don’t pay immediately upon receipt of an invoice. In 2017, a law was passed in the Knesset requiring most institutions and businesses to pay up to 45 days from receipt of an invoice. If you expect payment sooner, this should be included in your service agreement/contract, but don’t be surprised if you are told that the institution simply can’t pay earlier. These payment terms are usually based on cash flow issues (i.e. they are also being paid late), so you may have to accept these terms if you want to work with certain clients.

Acceptable forms of payment are cash, bank transfer and checks. Checks have become less popular in recent years and they aren’t worth the hassle if you can avoid them. Your clients may want to pay with Paypal, Paybox or Bit. Check fees and ease of use to decide which of these you choose to accept. You can also sign up for a paid credit card processing app and accept payments through it. Keep in mind that the easier you make it for clients to pay you, the sooner you will receive the money.

Becoming a Supplier

If you supply services or goods to another business, they might ask you for your Nikui Mas BaMakor and Ishur Nihul Sefarim. The Ishur Nihul Sefarim states that you keep your books according to the regulations of the Israeli Tax Authority. Nikui Mas BaMakor instructs the paying entity whether they are required to withhold tax and at what percentage. These documents can be obtained from your accountant or via the Israeli Tax Authority website.

Communication

In keeping with the informality prevalent in Israeli culture, business culture can be pretty informal too. Clients often prefer to communicate via WhatsApp or Facebook Messenger and some eschew use of email entirely. If you find that this way of communicating wreaks havoc on your business processes and organization, consider signing up for a task management system. There are lots of free options out there, and you can keep everything organized in one place, regardless of the form of communication utilized by your clients.

Price Haggling

Haggling over price is a time-honored Middle Eastern tradition and Israelis are well-versed in the art. You can choose not to work with clients who bargain or you can quote a higher price and expect to lower it in negotiations. In either case, you don’t want to lower your price below what your work is worth or to an amount that doesn’t leave you enough profit after taxes and expenses. A strategy that reduces the chance that a client will haggle is to let them know what they are getting for this price so that suddenly the amount seems low. 

Meetings

Meetings at coffee shops are totally acceptable in Israeli business culture. It’s understood that you may work from home or have an office space that’s not set up for hosting and your client or colleague may be in a similar situation. Etiquette requires that if you are the one who has asked for the meeting, you pay for the drinks or meals. Location should be closer to the person who was invited to the meeting and the initiator should check about dietary restrictions, including kashrut, before choosing a cafe or restaurant.

Invoices

Most clients will ask you for an invoice before they send payment for a service. An official invoice is called cheshbonit mas, and it obligates the business owner to pay VAT once issued.  Therefore, many business owners will send a “drishat tashlum” or “cheshbon iska” which is not an official document, in order to avoid getting stuck with a VAT expense before receiving payment. However, your client may fear making a payment and then getting stuck tracking the official cheshbonit mas. They are allowed by law to request the official, numbered cheshbonit mas before issuing payment and you must provide it.   

Some clients are prompt in their payments but others may need a little nudging. Sometimes clients will even ask to pay in installments or reduce the payment that was already agreed on. Stand firm when necessary and choose clients wisely to avoid these issues as much as possible.

Receipts

Once payment is made, if you are an Osek Patur, a receipt (kabala) is issued. If you are an Osek Murshe, you will need to issue a cheshbonit mas, which is a legal document and must be numbered. The ORIGINAL is what has value, so when using officially printed books the original document must be given to the payee. A digital copy is not enough for the payee to claim the VAT back on the expense.

In many cases, especially when funds are exchanged at the time services are provided, these documents are issued together in what’s called a cheshbonit mas kabala.

If you are using an electronic invoicing system, it’s easiest to create the payment request in the system and transform it into a receipt once payment has arrived.

Receipts are legal documents and it’s important to use a government-approved electronic system or an official printed booklet. Clients generally prefer to receive receipts electronically, so if you use a printed book, take a picture or scan it to send immediately and then send the paper one in the mail afterwards.

Professionalism and Extenuating Circumstances

In some countries, the lines between work and life are sharply defined, but they are a bit blurrier in Israel. Business owners may tell you why they can’t provide a service as quickly as they usually do – for example, they are taking a vacation, their baby is sick or they are dealing with a family crisis. It is assumed that you will be understanding, and that, if your project isn’t urgent, you will wait a little longer. If you feel comfortable, you can also let clients know how life events affect your productivity. Constant excuses won’t go over well, but an occasional hiccup is understood and accepted.