Since the introduction of the micro-business reform in 2025, thousands of small business owners have adopted the new status that made business management simpler, cheaper, and clearer. The reform created a dedicated track for self-employed individuals with limited business activity who do not want the complexity of exempt business owner or licensed business owner status. In 2026, the model is already established and implemented in practice, so it is important to understand how it works and what advantages it offers for those at the beginning of their business journey.
What is a micro-business owner and how does it work today?
A micro-business owner is a tax status intended for small businesses with annual revenue turnover of up to 120,000 NIS. The model was built from the start to simplify dealings with tax authorities, and it grants the business owner automatic recognition of 30 percent of income as recognized expenses, even if there were actually no expenses. This eliminates the need to collect invoices and documents and enables a short and efficient reporting process.
Unlike an exempt business owner, a micro-business owner does not need to file an annual report to the income tax authority and does not pay advance payments during the year. The reported income is calculated directly according to a clear and simple formula, so the status is particularly suited for self-employed individuals operating a small personal business that does not require heavy expenses or ongoing accounting management.
Threshold conditions for classification as a micro-business owner
To be considered a micro-business owner in 2026, you must meet all eligibility conditions defined in the reform. The conditions are not optional, and those who do not meet them are directed to other tracks such as exempt business owner or licensed business owner.
The criteria include: annual turnover not exceeding 120,000 NIS, a business operated by a single Israeli resident, business activity that does not include salaried employees, and income derived from active business only (not from dividends, rental income, or interest). Additionally, you cannot provide services to an employer that existed in the past 3 years, and you cannot own control of a private company in Israel or abroad.
Anti-avoidance provisions: What is their purpose?
Prevention of artificial transition from employment to self-employment
Employees who became self-employed only to provide services to their former employers will not receive this status.
Blocking the track for controlling shareholders
Anyone holding control of a private company is not eligible for the micro-business owner track in any way.
Prevention of activity division among relatives
It is prohibited to register a micro-business owner who provided services to a family member to prevent fictitious income splitting.
Emphasis on genuine business activity
Passive income is not recognized as business activity and therefore is not included in this track.
The prominent advantages of a micro-business owner
One of the substantial improvements in the reform is the elimination of the obligation to file an annual report for micro-business owners. The business owner is also not required to file an automatic capital declaration and is not obligated to pay advance tax payments during the year. The authorities may request documents only in exceptional cases, but on a daily basis, management is much simpler.
Another advantage is automatic recognition of 30 percent expenses. The meaning: even a business operating from home or one with almost no expenses receives a significant tax benefit that reduces the tax it actually pays. For particularly small businesses – this is a substantial economic benefit.
How do you establish a micro-business owner and what does the registration process include today?
Registration as a micro-business owner is done with the tax authority in a short process conducted entirely online. You can complete the process online here at CPA Digital while we take care of submitting all required documents.
The registration includes filling in personal details, declaring the type of business activity, expected turnover, and confirming compliance with eligibility conditions. Once the registration is approved, the business owner enters a simple and clear tax framework that allows him to operate with almost no bureaucracy.
Income tax payments are calculated on a fixed basis of 70 percent of income (after deducting the automatic expense), so there is no need for advance payments or complex calculations. However, those planning to expand or expected to exceed the annual turnover ceiling should keep in mind that micro-business owner status is primarily a solution suited for the initial business stage.
Open a micro-business online with CPA Digital
Want to start a small business without unnecessary bureaucracy and without dealing with forms? The micro-business owner model is an excellent solution for businesses that prefer a simple, efficient, and economical track. At CPA Digital, you can complete the establishment process online, receive professional guidance, and ensure that registration is carried out correctly and legally.
Open a micro-business online with CPA Digital, a smooth start for a small business managed correctly from day one.