If you are about to open a business or your business is growing (to your delight) beyond expectations, it's time to understand whether and when you need to transition from the status of exempt business operator to the status of authorized business operator and what this transition entails.
This is a significant stage in the life of a business that requires a deep understanding of the requirements and obligations. In the article before you, we explain what an authorized business operator is, who must open an authorized business operator account, and what considerations you should take into account - before making the decision.
What is an authorized business operator?
A self-employed person or business owner who is formally registered for VAT and is required to collect VAT from their customers. Section 1 of the Value Added Tax Law defines: "authorized business operator" - a business operator registered under section 52 or section 58 and is not an exempt business operator, as well as anyone included in a type of business operator for which the Minister of Finance determined that they will be registered as authorized business operators. An authorized business operator collects VAT from their customers at a rate of 18% (as of 2026) on each transaction and transfers the tax to the tax authority. In return, the authorized business operator is entitled to deduct the VAT they paid on business expenses.
The substantial differences between an authorized business operator and an exempt business operator:
Exempt business operator - turnover up to 122,833 ₪ per year, does not collect VAT and does not deduct VAT on their business expenses
Authorized business operator - collects 18% VAT from customers, deducts VAT on business expenses, and reports periodically
When is it mandatory to open an authorized business operator account?
Exceeding the income threshold - when the annual transaction turnover (gross income) exceeds 122,833 ₪ (as of 2026), it is mandatory to transition to the status of authorized business operator.
Holders of liberal professions and companies under VAT regulations - it has been determined that certain professions and occupations must be registered as authorized business operators from the day the business opens, regardless of turnover: holders of liberal professions: architect, engineer, doctor, lawyer, accountant, tax consultant, psychologist, insurance agent, and others, limited companies and registered cooperative associations, real estate and vehicle brokers and dealers, school and laboratory owners.
When is it advisable to voluntarily open an authorized business operator account?
a. Working with business clients: In cases where most of the business's clients are businesses or companies, they will prefer to work with authorized business operators so they can deduct the VAT they paid.
b. High business expenses: In cases where your business expenses are very high and consequently include a significant amount of VAT, such as on various services, equipment, or rent, you can, as an authorized business operator, deduct the VAT you paid. The result will be a considerable saving.
c. Professional image: Not without reason, but for their own reasons, there are businesses that regard an authorized business operator as a more serious professional, especially in areas such as consulting, technology services, and others.
What does being an authorized business operator entail?
Collecting 18% VAT from each client – and transferring the collected VAT to the tax authority
Issuing tax invoices with all required details according to law
Periodic reporting to the tax authority (monthly or bi-monthly)
VAT deduction on expenses. The advantage is that you can deduct the VAT you paid on: purchase of equipment and inventory, office or store rent, professional services of a lawyer, accountant, bookkeeper, technology professionals, and others, purchase of materials for the business, current expenses related to the business
Professional accounting management; an authorized business operator requires orderly bookkeeping, retention of all tax invoices (income and expenses), working with an accountant or bookkeeper, accurate periodic reporting according to law.
The process: How do you transition to an authorized business operator?
VAT reporting
You can download an application form from the Tax Authority website or at the regional VAT office. The registration form will include personal details, business details, and expected transaction turnover. At the end of the process, you will receive an authorized business operator number and can begin collecting VAT
Preparing for the transition to an authorized business operator
Establishing an orderly accounting system
Ordering tax invoices, or alternatively using a digital system
Hiring an accountant to ensure proper management and recording according to law
In case of transition from an exempt business operator to an authorized business operator, you must update prices for customers and add 18 percent VAT to the price
Advantages of an authorized business operator
First of all, VAT deduction on business expenses.
Second, professional image when working with business clients and the ability to engage with large companies
There are also disadvantages to being an authorized business operator
More complex management and periodic reporting, and as a result, higher accounting costs.
Frequent reporting to the tax authority and the obligation to issue tax invoices
And in summary, opening an authorized business operator account is required when income exceeds the exempt business operator threshold or when you are included in the list of professions and occupations required to register. Even when it is not mandatory, you should consider business considerations such as working with business clients or high expenses that might make the transition worthwhile.
It is important to understand the implications, prepare properly, and seek professional advice. We are here to make the process fast, simple, legal, and accurate.
*This article was written for general information purposes only and does not constitute legal or tax advice.