Easy tax reporting on the way for very small businesses

“We expect that, following the ‘exempt business’ reform, people running sidelines in addition to their day jobs, which generates a great deal of self-employment, who up to now often avoided reporting their income to the Tax Authority for fear of the hassle, having to deal with the Authority, and having to pay tax professionals, will start to report. The ease of reporting will boost their compliance,” Israel Tax Authority director Eran Yaacov told “Globes” following approval of the reform by the Knesset Finance Committee for second and third reading.

Under the reform, being promoted by Minister of Finance Bezalel Smotrich and the Israel Tax Authority as part of the Economic Arrangements Bill accompanying the 2023-2024 budget, from next year businesses with an annual turnover not exceeding NIS 120,000 will be entitled to deduct from their revenue a standard expenses deduction of 30% of turnover, instead of having to claim actual expenses.

“Private tutors or a pastrycook who makes cakes for sale in addition to working in high tech, a salaried employee who delivers parcels on teg way to work in the morning, or anyone who up to now operated a sideline without reporting it will understand that it is now preferable to report,” says Yaacov.

The ‘mini business’ reform will reduce the bureaucratic burden for hundreds of thousands of small businesses and release them from various obligations, such as filing an annual report and paying tax advances. They will also be saved having to hire accountants and tax consultants.

The calculation of tax rates, tax benefits, tax credit points, and so on, will be based upon the existing system of tax coordination for people with more than one source of income.

In addition, under the reform, the revenue ceiling allowing self-employed people to register as “exempt businesses” for VAT purposes will be raised from NIS 108,000 a 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, and thus substantially reduce their tax reporting burden.

Obtaining “small business” status at the Tax Authority is voluntary, and business owners who wish to continue reporting on the existing track will be able to do so. Various conditions have been set for obtaining “small business” status, designed to prevent abuse of the benefit.

Published by Globes, Israel business news – en.globes.co.il – on May 11, 2023.

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