Israel Tax Authority — How to Register as Osek Patur or Osek Murshe (Sole Proprietorship)
Source: https://www.deel.com/blog/sole-proprietorship-israel · 2026
What is a sole proprietorship in Israel?
In Israel, a sole proprietorship operates under one of two main statuses: Osek Patur (exempt dealer) or Osek Murshe (authorized / VAT-registered dealer). These sole proprietors are not separate legal entities. They are individual entrepreneurs (atzmai) rather than companies.
- Osek Patur is for smaller businesses under a revenue threshold of NIS 120,000, with exemption from VAT and simpler reporting requirements. Some professions like architects, doctors, teachers, and lawyers are not eligible for Osek Patur registration.
- Osek Murshe requires businesses to register for VAT. This status has no revenue threshold. It requires comprehensive reporting and tax obligations.
Key Details
| Category | Description |
|---|---|
| Official name | Osek Patur (Exempt Dealer) / Osek Murshe (Authorized Dealer) |
| Registration body | Israel Tax Authority (Mas Hachnasa), VAT office, and National Insurance Institute (Bituach Leumi) |
| Minimum capital | None required |
| Liability | Unlimited — no separation between business and personal assets |
| Tax structure | Progressive income tax on profits; VAT exemption under NIS 120,000 (Osek Patur); Bituach Leumi contributions apply |
| Naming | Use your legal name on all official documents; may use a descriptive name for marketing |
| Key advantage | Lower compliance if under NIS 120,000 threshold (Osek Patur), fast registration, manageable costs |
| Key disadvantage | If revenues grow, must switch to VAT-registered status; full personal liability |
Osek Patur vs Osek Murshe
| Feature | Osek Patur | Osek Murshe |
|---|---|---|
| VAT obligations | Exempt from charging VAT | Must charge VAT on taxable sales |
| Revenue threshold | Must stay under NIS 120,000 annual turnover | No yearly limit |
| Reporting frequency | Annual income tax; simplified turnover reports | More frequent reporting (VAT, income, etc.) |
| Suitable for | Small freelancers with low turnover | Those with higher revenues, exporting, or scaling |
| Liability | Unlimited, lower compliance cost | Unlimited liability unless forming a company |
Step-by-Step Registration Guide
Step 1: Check Eligibility
You must be:
- At least 18 years old
- Have a valid Israeli ID (or appropriate visa and residency status for foreign nationals)
- Have a valid tax identification number (TIN)
- Be permitted to work in Israel
Note: Some professions have specific licensing requirements. Foreign nationals may need an Israeli representative to act as their guarantor to tax authorities.
Step 2: Choose Your Osek Type
Decide whether to register as Osek Patur (VAT exempt) or Osek Murshe (VAT registered).
- If you expect turnover above NIS 120,000, it may be better to start as Osek Murshe.
- If you expect to remain small, Osek Patur simplifies VAT and bookkeeping.
Step 3: Gather Required Documents
Collect all required personal and business identification documents before visiting the authorities.
Step 4: Register with Authorities
- Register with the Israel Tax Authority for income tax and VAT (if Osek Murshe).
- Register with Bituach Leumi (National Insurance Institute) for social insurance.
- You will open a tax file, a VAT file (if Osek Murshe), and a national insurance file.
Step 5: Pay Fees and Contributions
- There are no registration fees for Osek status.
- Monthly or periodic tax prepayments, Bituach Leumi contributions (national insurance, health, pension), and VAT payments (if applicable) will apply.
Step 6: Post-Registration Obligations
Maintain ongoing compliance with reporting and invoicing rules after registration.
Financial and Tax Obligations for Sole Proprietors in Israel
Income Tax
- Taxed progressively on profits.
- Rates begin around 10% and rise up to approximately 50% for high incomes.
- File income tax returns annually.
VAT
- Standard VAT rate (as of 2025): 18%.
- If annual turnover exceeds NIS 120,000, you must register as Osek Murshe and charge VAT.
- Below that threshold, Osek Patur status allows VAT exemption.
- Voluntary VAT registration is possible for those who want to claim input VAT.
National Insurance / Social Security (Bituach Leumi)
- Self-employed individuals must contribute to Bituach Leumi.
- Contributions cover health insurance, pension, and other welfare benefits.
- Rates vary depending on income and classification.
Recordkeeping
- Maintain detailed records of invoices, receipts, turnover, and expenses for at least several years (verify current requirement with tax authority).
Useful Links
Disclaimer: This information is for general guidance only and is not a substitute for legal or professional advice. Always verify details with official Israeli government sources.