How to Register a Sole Proprietorship (Osek Patur / Osek Murshe) in Israel

Operating as a sole proprietor in Israel through one of the “Osek” statuses is appealing because it offers a quick, low-cost route into business. You retain full control over your work, with less formality than a full company structure. Many freelancers, consultants, and artisans use this model.

The process is relatively simple but still has some bureaucracy. You’ll need to register with multiple government bodies (tax, VAT, social security), choose between Osek Patur vs Osek Murshe, and comply with reporting and invoicing rules. But generally Israel offers clear channels and thresholds to keep things manageable for smaller operators.

The main challenges are estimating revenues correctly, selecting the proper “Osek” type, handling VAT if required, and managing national insurance contributions. The benefits include lower administrative burden, simplified tax filings (if Osek Patur), and relatively accessible business registration.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

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, meaning they are not subject to a maximum turnover limit. This status requires comprehensive reporting and tax obligations.

How does a sole proprietorship (Osek Patur / Osek Murshe) work in Israel?

Osek Patur vs other business structures in Israel

Step-by-step guide: How to register a sole proprietorship in Israel

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 valid tax identification (TIN), and be permitted to work. Some professions may have specific licensing requirements. Additionally, foreign nationals may need an Israeli representative to act as their guarantor to tax authorities in some cases.

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 the threshold (NIS 120,000), it may be better to start as Osek Murshe. If you remain small, Osek Patur simplifies VAT and bookkeeping.

Step 3: Gather required documents

You will need:

• Valid ID / passport
• Proof of address
• Description of business activity (type of services/goods, expected annual revenue, etc.)
• If applicable, license or permit for regulated profession
• Israeli bank account details (required for tax payments and potential refunds)
• Legal and accounting representative (required for foreign nationals in some cases)

Step 4: Register with authorities

Register the business with the Israel Tax Authority for income tax and VAT (if needed). Register social insurance with the National Insurance Institute (Bituach Leumi). You’ll open tax files, VAT file (if Osek Murshe), and national insurance file.

Step 5: Pay fees and contributions

There are no registration fees for Osek status. However, monthly or periodic tax prepayments, social insurance contributions (national insurance, health, pension), and VAT payments (if applicable) will apply.

Step 6: Post-registration obligations

• Invoice properly and include required VAT if Osek Murshe
• File VAT returns on a bi-monthly basis if applicable
• File income tax returns annually for Osek Patur, file bi-monthly tax payments in addition to annual tax return for Osek Murshe
• Maintain records of revenue and expenses for at least seven years
• Pay national insurance contributions via Bituach Leumi
• Renew any permits or licenses if required

Financial and tax obligations for sole proprietors in Israel

Income Tax: You are taxed progressively on your profits. Rates begin around 10% and rise through various brackets up to about 50% for high incomes. File income tax returns annually.

VAT: Standard VAT rate as of 2025 is 18%. If your turnover exceeds NIS 120,000 per year, you must register as Osek Murshe and charge VAT. Below that threshold, Osek Patur status allows VAT exemption. Voluntary VAT registration is possible for some who want to claim input VAT.

National Insurance / Social Security (Bituach Leumi): Self-employed individuals must contribute national insurance through Bituach Leumi. These contributions cover health, pension & other welfare benefits. Rates vary depending on your income and classification.

Recordkeeping: Maintain detailed records of invoices, receipts, turnover, and expenses for at least seven years. VAT-registered businesses (Osek Murshe) must keep VAT-specific documentation. Even under Osek Patur, you have to report turnover and profits accurately.

Launch your contracting career and stay compliant with Deel

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