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Facing Bituach Leumi as a Self-Employed / Freelancer / Sole Proprietor

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When an individual wants to open a business in IL, there are basically 3 tax authorities to open a file with – the Income tax authority, the VAT authority (both under the ITA umbrella) and Bituach Leumi (there is essentially a 4th one that is actually a separate department in the income tax authority called “Nikuim” i.e. “withholding tax” but it is relevant only if you hire employees).

The first 2 authorities – Income Tax and VAT – are the first and primary stop in order to open files for the new business.

The 3rd – Bituach Leumi – is actually optional if you don’t expect earning more than 2,500 NIS per month (roughly). The reason is that under this amount, you won’t be considered as a self employed for BL and hence you’re not liable thru the eyes of this authority (whereas you could definitely be liable by the other 2 mentioned). If you still want to ensure your earnings if its under 2,500 NIS it is possible under a certain work hours scale declaration.

If you actually crossed the 2,500 NIS per month, you would then be taxed by BL on your earnings from the business.

The tricky part is, if you don’t pay advances on a monthly base upon the earnings from the new business, you won’t enjoy the coverage of BL’s insurance (that’s what it is after all – national insurance) but you would still have to pay them retroactively for all those earnings next year after you file your annual return – the data is being transferred from the ITA to BL directly after you file.

If you ensure your business earnings with BL, lets assume 10,000 NIS per month, then you would need to pay ~1000 NIS per month to BL and enjoy its insurance coverage. So, if something happens to you (for example a car accident) or if you give birth and ask for maternity leave, the amount you would be entitled to is based on the 10,000 NIS you ensured (exactly like an insurance premium).

This is why it is always recommended to estimate your business earning for the next year, and decide with your accountant whether you should pay now on a current base or maybe next year retroactively (+interest).