Digital Businesses on the Rise
Many entrepreneurs choose to open an online business. An e-commerce store, digital courses, remote consulting services, or a new app. Market entry is relatively easy, costs are low, and usually there's no need for an office. More than once we meet entrepreneurs who mistakenly believe that if business activity is conducted through a computer, the requirements are simpler. However, know this: a digital business is a business in every respect.
Registration Obligations Also Apply to Online Businesses
Like any other business, opening a digital business requires proper registration with the authorities. You must:
1. Open a file with the Income Tax Authority, VAT, and National Insurance according to the type of business structure and scope of activity.
2. Choose between a tax-exempt business, a licensed business, or a private company – the choice affects taxation
3. Carefully examine business reputation and growth opportunities.
Important Tip: Don't choose the status based only on the expected turnover in the first year. A correct structure from the start will save complicated change procedures in the future.
Sales to Customers in Israel and Abroad
When adapting an online store for international markets and operating from Israel, you must examine VAT rules and reporting to the authorities, in accordance with the Israeli Tax Authority guidelines.
For example:
1. Selling digital services or products to customers abroad may be considered a zero VAT transaction,
but only if the conditions set out in the law are met and there is documentation proving that the customer is indeed a foreign resident.
2. Selling digital services or products to an Israeli customer will be charged full VAT, even if payment is made through
an international platform.
It is important to remember that all income, even if sourced from abroad, must be reported to the Income Tax Authority, as long as the business owner is an Israeli resident.
Invoices, Foreign Currency, and Reporting Adjustments
Proper management of an online store requires adherence to clear documentation rules:
1. Invoices must be issued in accordance with the regulations
2. Receipts in foreign currency must be converted to shekels for reporting purposes.
3. There must be complete alignment between settlement reports and reports to the tax authorities.
In some cases, examination of tax treaties may be required to prevent double taxation, especially when there is significant activity with a particular country.
Important Tip: Before entering a new market, it is important to conduct a preliminary check to ensure that the online store is adapted in terms of the nature of taxation. You need to understand who collects the tax, who reports it, and what your responsibility is as a business owner. Professional business guidance at the setup stage helps prevent costly mistakes later.
Payment Processing, Invoicing, and Reporting
A digital business is usually based on credit card processing, PayPal, or other parallel payment systems. Implementing a legal digital invoicing system and ensuring alignment with payment processing is critical for accounting reports.
Common Mistakes of Digital Entrepreneurs
Making sales before opening a properly registered business. Ignoring the obligation to report small income or mistakenly believing that the platform will handle all aspects of taxation.
Summary
Opening an online business is very similar in legal requirements and management to opening a regular business, despite the difference in the structure of activity.
Proper infrastructure, organized registration, and professional business guidance create a stable foundation for real growth.
Frequently Asked Questions
Can you open an online business without an accountant?
Technically yes, but professional guidance saves reporting and taxation errors from the first stage.
Do you need a business bank account?
It is highly recommended for proper financial management.
What is best for a digital business at the beginning?
The answer depends on the scope of activity, target audience, and growth plans. A preliminary check with a professional will provide certainty.