“We expect that, following the reform of ‘exempt companies’, people carrying out secondary activities in addition to their daily activities, which generates a lot of self-employed people, who until now have often avoided declaring their income to the tax authorities for fear of the hassle, having to deal with the Authority and having to pay tax professionals, will start to be reported. The ease of reporting will enhance their compliance,” said the Director of the Tax Authority Israeli, Eran Yaacov, to “Globes” after the approval of the reform by the Knesset Finances. Second and Third Reading Committee.
As part of the reform, promoted by Finance Minister Bezalel Smotrich and the Israel Tax Authority as part of the Economic Arrangements Bill accompanying the 2023-2024 budget, starting next year, companies whose annual turnover does not exceed NIS 120,000 will be entitled to deduct from income a standard expense deduction of 30% of turnover, instead of having to claim actual expenses.
“Private teachers or a pastry chef who makes cakes for sale in addition to working in high tech, an employee who delivers parcels on the way to work in the morning, or anyone who until now operated a secondary activity without reporting it will understand that it is now better to report,” says Yaacov.
The “mini-business” reform will reduce the bureaucratic burden of hundreds of thousands of small businesses and free them from various obligations, such as filing an annual report and paying tax advances. They will also be spared from having to hire accountants and tax advisers.
The calculation of tax rates, tax benefits, tax credit points, etc., will be based on the existing system of tax coordination for people with more than one source of income.
In addition, as part of the reform, the income ceiling for self-employed persons to register as “exempt businesses” for VAT purposes will be increased from NIS 108,000 per year to NIS 120,000, so that many businesses will be able to claim both “exempt business” status for VAT and “small business” status for income tax, thereby significantly reducing their tax reporting burden.
Obtaining “small business” status with the tax authorities is voluntary, and business owners who wish to continue filing on the existing route will be able to do so. Various conditions have been set for obtaining “small business” status, intended to prevent abuse of the advantage.