Opening a exempt business account is the first step towards economic independence in Israel. This is one of the most common forms of incorporation among self-employed individuals starting out, primarily due to the relative simplicity of the registration process and the exemption from VAT collection. However, even in a relatively simple procedure, it is important to know which forms need to be submitted and which documents you will need in order to avoid delays or errors.
We have compiled everything you need to open an exempt business account correctly and legally. Adhering to the appropriate documents will ensure an orderly start and allow you to focus on what really matters: developing your business.
Identity Documents and Bank Account Management
At the first stage, you will be required to present an identity card including the appendix. It is important to ensure that the address registered in the appendix is up to date, as most reports and notices from the authorities will be sent to this address.
In addition, you must present a bank account management certificate in the name of the business owner or alternatively a cancelled check. The purpose of the certificate is to link the business activity to the bank account through which payments will be received and transferred, including payments from tax authorities.
Opening a VAT Account (Even Though VAT is Not Collected)
Although an exempt business owner does not collect VAT, they are required to open an account with the VAT authority. To do this, you must fill out form 821; a form for opening an account for a business owner. In the form, you will be required to specify the type of business, a brief description of the business activity, and projected income for the coming year.
It is important to know that once a year, by January 31st, an exempt business owner is required to declare to the VAT authority the total income from the past year, in order to verify that they have not exceeded the ceiling set by law. Therefore, even when opening the account, it is important to be precise with the data to avoid future problems.
Opening an Income Tax Account
In parallel with opening the VAT account, you must open an income tax account using form 5392. The form includes questions about the nature of the business, income details, income and expense forecasts, and other general information.
When submitting, you should also have a lease agreement or a document proving the location of the business activity. If there is no physical business location (such as a store or office), you must declare the activity as home-based. This document is important for business registration and sometimes also for future deduction purposes.
Other Important Documents
If you are engaged in fields that require certification, you will be required to present a certificate of competence or professional certificate. Examples of this include fitness instructors, cosmetologists, licensed therapists, and more. These documents prove that you are authorized to engage in the field according to law.
Additionally, it is recommended to open a dedicated bank account for the business. The separation between private and business activity will allow you to manage income and expenses in an orderly manner and easily track the business cash flow.
At CPA DIGITAL, we can open an exempt business account for you with one click. In a short process and for a symbolic fee, you can open the account without any hassle or bureaucracy. Leave that to us. CPA DIGITAL.