Self-Employment and Starting a Company in Israel

Israel's entrepreneurial culture and "Startup Nation" reputation make it an attractive destination for self-employment and business creation. Whether you're freelancing, consulting, or launching a startup, understanding the legal structures and requirements is essential.

Self-Employment Categories

Israel has two main categories of self-employment:

Osek Patur (פטור עוסק) - Exempt Business:

ï           For annual revenue under ₪105,566 (approximately $29,000 as of 2025)

ï           Exempt from charging VAT (Value Added Tax)

ï           Simplified accounting and reporting requirements

ï           Must issue receipts (not invoices) to clients

ï           File annual tax return through accountant or online

ï           Pay income tax, National Insurance, and health tax

ï           Ideal for: Freelancers, consultants, small service providers starting out

Osek Murshe (מורשה עוסק) - Licensed Business:

ï           For annual revenue exceeding ₪105,566 or by choice

ï           Must charge 17% VAT on services/products

ï           Can deduct VAT on business expenses

ï           More complex bookkeeping requirements

ï           Issue proper tax invoices (מס חשבונית)

ï           File monthly or bi-monthly VAT reports

ï           Subject to potential VAT audits

ï           Ideal for: Higher-earning freelancers, consultants, businesses with significant expenses

How to Register as Self-Employed:

1.              **Visit Tax Authority **(המיסים רשות - Rashut HaMissim):

◦                    Book appointment online at Tax Authority website

◦                    Bring ID (Teudat Zehut), bank account details, business description

◦                    Choose business category code

◦                    Decide on Osek Patur or Osek Murshe status

2.              **Register with National Insurance **(Bituach Leumi):

◦                    Often done simultaneously with tax registration

◦                    Establishes your social security obligations

◦                    Determines pension and health insurance contributions

3.              Open business bank account:

◦                    Not mandatory for Osek Patur but highly recommended

◦                    Required for Osek Murshe

◦                    Separates personal and business finances

◦                    Facilitates accounting and tax reporting

4.              Set up bookkeeping system:

◦                    Simple Excel tracking for Osek Patur

◦                    Accounting software for Osek Murshe (Green Invoice, Hashavshevet, Priority)

◦                    Consider hiring an accountant (recommended for most)

Self-Employment Costs and Taxes:

As self-employed, you're responsible for:

Income tax: Progressive rates (10-50%) based on total annual income

**National Insurance **(Bituach Leumi):

ï           Approximately 17% of income (12% for National Insurance, 5% for health tax)

ï           Minimum monthly payment even with low/no income: ~₪250 ($69)

ï           Maximum annual payment cap: ~₪50,000 ($13,800)

Advance tax payments:

ï           Required to pay estimated taxes quarterly or bi-monthly

ï           Based on previous year's income or projected earnings

ï           Avoid penalties by paying on time

Accounting costs:

ï           DIY for very simple Osek Patur: Free (not recommended)

ï           Accountant for Osek Patur: ₪3,000-6,000 annually ($830-1,650)

ï           Accountant for Osek Murshe: ₪6,000-15,000+ annually ($1,650-4,100+)

ï           Monthly bookkeeping services: ₪500-2,000 monthly ($140-550)

Total effective tax rate: Self-employed individuals typically pay 35-50% of income in combined taxes and social payments, depending on income level.

Company Structures in Israel

For more substantial business ventures, consider formal company structures:

**Sole Proprietorship **(Osek Yachid - יחיד עוסק):

ï           Individual operates under their own name

ï           No legal separation between personal and business assets

ï           Unlimited personal liability

ï           Simple to establish and maintain

ï           All profits taxed as personal income

ï           Best for: Solo consultants, freelancers, small service providers

**Partnership **(Shutafut - שותפות):

ï           Two or more individuals operating together

ï           Partnerships can be general or limited

ï           Partners share profits, losses, and liability

ï           Requires partnership agreement (highly recommended to have lawyer draft)

ï           Each partner reports their share of income individually

ï           Best for: Professional partnerships, small collaborative businesses

**Private Company **(Chevra Ba'am - מ.ב.ח / Ltd.):

ï           Most common business structure for startups and growing businesses

ï           Legal entity separate from owners

ï           Limited liability protection for shareholders

ï           Minimum one shareholder and one director (can be same person)

ï           More complex regulatory requirements

ï           Corporate tax rate: 23% on company profits

ï           Dividend distribution taxed at 25-30% (double taxation)

ï           Requires annual financial statements and audits (if revenue exceeds thresholds)

ï           Best for: Startups, growing businesses, companies seeking investment

**Public Company **(Chevra Tziburit - צ.ח):

ï           Can offer shares to public

ï           Listed on stock exchange (Tel Aviv Stock Exchange for Israeli companies)

ï           Extensive regulatory requirements and reporting obligations

ï           Board of directors required

ï           Expensive to maintain

ï           Best for: Large, established companies seeking public capital

Registering a Private Company (Ltd.)

The most common path for startups and serious businesses:

Step-by-Step Process:

1.              Choose company name:

◦                    Check availability on Companies Registry website

◦                    Reserve name (₪100 / $28, valid for 60 days)

◦                    Name must be unique and not misleading

◦                    Can include English name with Hebrew equivalent

2.              Draft company documents:

◦                    Articles of Association (Takanon - תקנון)

◦                    Memorandum of Association (Teken Hitahdut - התאגדות תקן)

◦                    Shareholder agreements

◦                    Consider hiring lawyer (₪3,000-10,000 / $830-2,750)

◦                    Template documents available but customization recommended

3.              Register with Companies Registrar:

◦                    Submit online at Registrar of Companies website

◦                    Pay registration fee: ₪2,060 ($570)

◦                    Processing time: 2-4 weeks typically

◦                    Receive company registration number

4.              Register with Tax Authority:

◦                    Obtain company tax file number

◦                    Register for VAT if applicable (mandatory above certain revenue)

◦                    Set up corporate tax account

5.              Open corporate bank account:

◦                    Requires company registration certificate

◦                    Board resolution authorizing signatories

◦                    ID documents of directors and significant shareholders

◦                    Comparison shop between banks for business banking fees

6.              Register with National Insurance:

◦                    Register as employer (even with no employees initially)

◦                    Set up director's salary if applicable

7.              Obtain necessary licenses:

◦                    Business licenses vary by industry and location

◦                    Check municipal requirements

◦                    Professional licenses for regulated professions (lawyers, doctors, accountants, etc.)

Ongoing Corporate Obligations:

ï           Annual financial statements

ï           Annual tax returns (corporate and VAT)

ï           Annual report to Companies Registrar (₪751 / $207)

ï           Board meeting documentation

ï           Shareholder meeting minutes (annual minimum)

ï           Proper corporate governance

ï           Social security payments for employees

ï           VAT reporting (monthly or bi-monthly)

Costs of Running a Company:

ï           Annual company report: ₪751 ($207)

ï           Accounting services: ₪10,000-50,000+ annually ($2,750-13,800+) depending on complexity

ï           Legal services: ₪5,000-30,000+ annually ($1,380-8,300+) for contracts, compliance, etc.

ï           Audit requirements: ₪5,000-20,000+ ($1,380-5,500+) if revenue exceeds ₪8.5M or under other conditions

ï           Business insurance: ₪2,000-10,000+ annually ($550-2,750+)

ï           Bank fees: ₪100-500+ monthly ($28-140+)

Total annual overhead: ₪25,000-100,000+ ($6,900-27,600+) depending on company size and complexity.

Startup Ecosystem and Resources

Israel's startup ecosystem offers extensive support:

Incubators and Accelerators:

ï           **The Junction **(Tel Aviv): Co-working and startup community

ï           8200 EISP: For alumni of 8200 intelligence unit

ï           MassChallenge Israel: Zero-equity accelerator

ï           Techstars Tel Aviv: Global accelerator program

ï           Google for Startups Campus: Resources and community (Tel Aviv)

ï           Microsoft for Startups: Programs and Azure credits

ï           Nielsen Innovate: For media and consumer tech

ï           Jerusalem Venture Partners (JVP): Media and enterprise tech focus

ï           NGT Healthcare: Healthtech and medtech incubator

Government Support Programs:

**Israel Innovation Authority **(www.innovationisrael.org.il):

ï           R&D grants for innovative projects

ï           Technological incubator programs

ï           International collaboration grants

ï           Financing tracks for different startup stages

ï           Typical grants: 20-50% of approved R&D budget

ï           Competitive application process

**Tnufa Program **(Startup Incubator):

ï           For early-stage startups

ï           Up to ₪500,000 ($138,000) in grants

ï           2-year program with milestone-based funding

ï           Equity-free government support

BIRD Foundation:

ï           For Israeli-American partnerships

ï           Grants up to $1M for joint projects

ï           Focus on commercialization

SIBAT:

ï           Ministry of Economy's international cooperation program

ï           Bilateral R&D grants with various countries

Co-Working Spaces:

Popular co-working options in major cities:

Tel Aviv:

ï           WeWork (multiple locations): ₪1,500-3,000 monthly ($410-830)

ï           Mindspace (multiple locations): ₪1,400-2,800 monthly ($385-770)

ï           Mixer: ₪900-2,000 monthly ($250-550)

ï           The Junction: ₪800-1,500 monthly ($220-410)

ï           Biz Place: ₪500-1,500 monthly ($140-410)

Jerusalem:

ï           The HUB: ₪600-1,200 monthly ($165-330)

ï           JVP Media Quarter: Premium tech-focused space

ï           Jerusalem Venture Partners Campus

Haifa:

ï           SOSA Impact: ₪700-1,400 monthly ($190-385)

ï           HIVE by WeWork

Benefits beyond desk space: Networking, events, mentorship, investor connections, community.

Funding Options for Startups

Bootstrapping:

ï           Self-funding from personal savings or revenue

ï           Maintain 100% equity and control

ï           Requires careful cash flow management

ï           Viable for service businesses and SaaS with low overhead

Friends and Family:

ï           Raising ₪200,000-2,000,000 ($55,000-550,000) from personal network

ï           Typically convertible notes or equity

ï           Less formal due diligence

ï           Risk personal relationships

Angel Investors:

ï           Individual investors providing ₪500,000-5,000,000 ($138,000-1.38M)

ï           Often successful entrepreneurs themselves

ï           Provide mentorship beyond capital

ï           Israeli angel networks: iAngels, OurCrowd, Jerusalem Angels, Tel Aviv Angels

Venture Capital:

Israel has one of the world's highest VC investment per capita:

Early Stage (Seed/Series A): ₪2M-20M ($550K-5.5M)

ï           Leading VCs: Aleph, Vertex Ventures, Pitango, Target Global, NFX

ï           Focus on tech, SaaS, cybersecurity, AI

ï           Expect 15-25% dilution per round

Growth Stage (Series B+): ₪20M-200M+ ($5.5M-55M+)

ï           Later-stage funds: Insight Partners, Bessemer, Tiger Global (active in Israel)

ï           Revenue traction required

ï           International expansion focus

Corporate VCs:

ï           Intel Capital, Google Ventures, Microsoft Ventures active in Israel

ï           Strategic value beyond funding

ï           Often higher valuations

Government Grants:

ï           Israel Innovation Authority grants (mentioned above)

ï           Non-dilutive funding

ï           Competitive but valuable

ï           Require matching private investment for some programs

Crowdfunding:

ï           Platforms like Kickstarter, Indiegogo for product validation

ï           Equity crowdfunding: OurCrowd (Israel), SeedInvest

ï           Good for consumer products and B2C

Bank Loans:

ï           Difficult for early-stage startups without revenue

ï           Possible for established profitable businesses

ï           Small Business Administration (Rashut HaMeshek HaKatan) guarantees available

ï           Interest rates: 3-8% typically

Legal Considerations for Startups

Intellectual Property:

ï           Patents: Register with Israel Patent Office or internationally (PCT)

ï           Trademarks: Register company name and logos (₪1,600 / $440 per class)

ï           Copyright: Automatic protection, but register important works

ï           Trade secrets: Protect through NDAs and employment agreements

Employment Agreements:

Critical clauses for Israeli employment contracts:

ï           Non-compete clauses (generally 12 months maximum, must be reasonable)

ï           Intellectual property assignment (ensure company owns IP created by employees)

ï           Confidentiality and NDA

ï           Stock option plans (ESOP) - 102 track common for tax benefits

Founders Agreement:

Essential for multi-founder startups:

ï           Equity split and vesting schedules (4-year vesting with 1-year cliff is standard)

ï           Roles and responsibilities

ï           Decision-making process

ï           Buyout provisions if founder leaves

ï           IP assignment to company

ï           Dispute resolution mechanisms

**Have lawyer draft this before incorporating **- costs ₪5,000-15,000 ($1,380-4,100) but prevents expensive disputes later.

Cap Table Management:

ï           Track all equity ownership carefully from day one

ï           Use cap table software: Carta, Shareworks, or local Israeli options

ï           Plan for future funding rounds and dilution

ï           Employee stock option pool (typically 10-20% of company)

Practical Considerations

Health Insurance:

Self-employed individuals must maintain:

ï           Public health insurance (Kupat Holim): Mandatory, paid through health tax

ï           Supplementary insurance recommended: ₪100-300 monthly ($28-83)

ï           Consider disability insurance: Loss of income protection

Pension and Retirement:

Self-employed have options:

ï           Keren Hishtalmut (Advanced Study Fund): Tax-advantaged savings

ï           Personal pension plans (Kupat Gemel)

ï           No mandatory contributions as self-employed, but highly recommended

ï           Tax benefits for pension contributions up to certain limits

Business Insurance:

Consider coverage for:

ï           Professional liability (errors and omissions): ₪2,000-8,000 annually ($550-2,200)

ï           General liability insurance: ₪1,500-5,000 annually ($410-1,380)

ï           Cyber insurance (especially for tech companies): ₪3,000-10,000 annually ($830-2,750)

ï           Directors and officers (D&O) insurance for companies: ₪5,000-20,000 annually ($1,380-5,500)

Work Visa Considerations for Foreign Entrepreneurs:

**B-5 Visa **(Investor/Entrepreneur Visa):

ï           For foreign nationals establishing business in Israel

ï           Requirements: Significant investment (typically $500,000+) or employing Israelis

ï           Valid 1-2 years, renewable

ï           Path to permanent residency after several years

ï           Complex application requiring legal assistance

Startup Visa Program:

ï           For foreign entrepreneurs with innovative startups

ï           Must be accepted to Israeli accelerator or have Israeli venture backing

ï           More accessible than B-5 for tech entrepreneurs

ï           Check Innovation Authority for current requirements

Work from Israel on Foreign Company:

ï           Digital nomads on tourist visa (B-2) technically cannot work

ï           Tourist visa valid 3 months typically

ï           Extended stays require proper work authorization

ï           Residence visa available for those meeting criteria

Common Challenges and Solutions

Challenge: Complex bureaucracy

ï           Solution: Hire experienced Israeli accountant and lawyer from start

ï           Don't try to navigate alone; professional help saves time and money

Challenge: Language barriers

ï           Solution: Most business services available in English in major cities

ï           Government forms increasingly available in English online

ï           Bring Hebrew-speaking friend to important meetings initially

Challenge: Understanding tax obligations

ï           Solution: Engage accountant before earning first shekel

ï           Set aside 40-50% of income for taxes from beginning

ï           File and pay on time to avoid penalties

Challenge: Slow payment from clients

ï           Solution: Israeli payment terms often 30-60 days or longer

ï           Build cash flow buffer for 2-3 months expenses

ï           Consider factoring services for B2B businesses

ï           Use clear contracts specifying payment terms

Challenge: Competition in saturated markets

ï           Solution: Find niche specialization

ï           Leverage unique background or international experience

ï           Network extensively to differentiate through relationships

ï           Consider serving underserved markets or industries

Resources for Entrepreneurs

Organizations and Networks:

ï           Start-Up Nation Central: www.startupnationcentral.org - Comprehensive startup database and resources

ï           Israel Innovation Authority: www.innovationisrael.org.il - Government innovation support

ï           Israel Tech Sector Org: Advocacy and resources for tech industry

ï           **IAEI **(Israel Advanced Technology Industries): Industry association

ï           Scale-Up Velocity: Growth programs for scaling companies

Media and Information:

ï           Geektime: Israeli tech news and job board

ï           Calcalist: Business and tech news (Hebrew)

ï           The Times of Israel - StartUp Israel: English tech coverage

ï           CTech by Calcalist: English tech news

ï           Globes: Business newspaper (English edition available)

Educational Resources:

ï           Google Campus Tel Aviv: Free workshops and events

ï           Meetup groups: Countless tech and entrepreneurship meetups weekly

ï           Startup Grind Tel Aviv: Monthly founder events

ï           F.ounders: Exclusive tech founder community

Accountant Recommendations:

ï           Ask other entrepreneurs for referrals

ï           Find accountant experienced with your business model

ï           English-speaking accountants available in all major cities

ï           Expect initial consultation to be free

ï           Ask about monthly fees upfront

Lawyer Recommendations:

ï           Specialize is key: Corporate, IP, employment lawyers differ

ï           Many firms offer startup packages

ï           Consider Israeli lawyer if raising from international VCs

ï           Fee structures vary: Hourly, fixed packages, or deferred/equity compensation

Is Self-Employment Right for You?

Consider self-employment or entrepreneurship if:

ï           You have specialized skills or expertise in demand

ï           You prefer autonomy and control over your work

ï           You have financial buffer for 6-12 months (essential)

ï           You're comfortable with income uncertainty

ï           You're willing to handle administrative responsibilities

ï           You have network or can build one quickly

ï           You understand or can learn Israeli business culture Proceed carefully if:

ï           You need visa sponsorship (employment is easier path)

ï           You have minimal savings or financial buffer

ï           Your Hebrew is very limited and market requires it

ï           You're unfamiliar with Israeli bureaucracy

ï           You need immediate stable income

ï           You're not comfortable with self-promotion and networking

Many successful Israeli entrepreneurs started as employees, built networks and understanding of the market, then launched businesses. This path reduces risk while establishing foundation for success.

Good luck with your job search, and b'hatzlacha (good luck in Hebrew)!

Updated on: 01/02/2026