Many Israelis choose to become self-employed and establish their own business. Before starting to sell, provide services, or collect payments, it is of paramount importance to open a self-employed business account within the appropriate legal frameworks. In Israel, there are several possible incorporation routes, and each route is suitable for different types of activities, revenue volumes, and different operational aspects.
Below, we will seek to clarify the options and explain how each route works and what is important to know before choosing.
Micro-business: The simplest route for small self-employed individuals
A micro-business is a relatively new status that came into effect in 2025, and currently serves as an ideal solution for self-employed individuals with limited business activity. This is a route intended for those whose annual income does not exceed 120 thousand shekels and whose activity does not include hired employees or passive income.
A key advantage of this route is the simplicity of reporting. A micro-business automatically enjoys recognition of 30 percent expenses, does not submit an annual report to the tax authority, and is not required to pay tax advances. The registration process is conducted only with the tax authority and is short and user-friendly, making it very suitable for self-employed individuals just starting out who do not require a complex accounting structure.
Exempt business: A solution for businesses just starting out with low revenue
An exempt business is an established and well-known route intended for self-employed individuals with business revenue not exceeding 120 thousand shekels per year, but unlike a micro-business, here there is an obligation to open an account with three authorities: VAT, income tax, and national insurance. The advantage of an exempt business is exemption from collecting VAT from customers and maintaining relatively simple tax operations.
However, an exempt business is required to submit an annual report to the income tax authority and pay national insurance premiums according to its income. This is a route that allows for future expansion and greater flexibility than a micro-business, and is therefore suitable for self-employed individuals just starting out who are uncertain about the scope of their activity or are planning to grow in the future.
Licensed business: A route for self-employed individuals with higher revenue or regulated professions
A licensed business is the most common route among self-employed individuals who exceed the revenue ceiling of an exempt business or operate in professions that require registration as a licensed business, such as lawyers, doctors, psychologists, accountants, and architects. A licensed business must open an account in VAT, income tax, and national insurance and collect VAT from its customers.
Operations in this status are somewhat more complex, as a licensed business submits periodic VAT reports and reports to the income tax authority once a month or every two months, usually with tax advance payments. On the other hand, it enjoys a significant benefit: deduction of input tax for business expenses. This route is suitable for businesses with high expenses or stable and developing activity.
Ltd. Company: The most advanced and complex route
An Ltd. company is a separate legal entity from its shareholders. Opening a company involves registration with the Companies Register, opening a dedicated bank account, opening accounts with the tax authorities, and strict operations in accordance with accounting and reporting rules. An Ltd. company is considered the most advanced route and is suitable for businesses with significant activity, increased risk, or a need for complete legal separation.
The great advantage of an Ltd. company is its tax model. The company pays corporate tax on its profits and allows for more efficient tax planning in expansion stages. This is a route that is particularly suitable for businesses with high expected income, legal exposure, or a need to build a stable business infrastructure for the long term.
Key differences between types of incorporation
Scope of reporting and bureaucracy
A micro-business reports very little. An exempt business and a licensed business report on an ongoing basis. An Ltd. company is required to maintain full books.
Expansion flexibility
An exempt business is limited in revenue. A licensed business and an Ltd. company allow for continuous growth without an income ceiling.
Management costs
A micro-business and an exempt business have almost no costs. A licensed business is higher. An Ltd. company is the most expensive to manage.
Legal structure
An Ltd. company enjoys legal separation. In the other routes, the business owner is also the debtor and responsible party.
How do you choose the right route?
The choice of incorporation form depends on several parameters: expected income level, the type of service or product provided, whether there are significant expenses, the need to employ employees in the future, and the desired degree of legal liability. In recent years, more self-employed individuals choose to start with a micro-business or exempt business and then move to a licensed business or an Ltd. company as the business grows.
With each transition between routes, it is important to understand the implications for VAT, income tax, and national insurance in order to make the change correctly and avoid mistakes that could cost money.
Open a self-employed business account online with CPA Digital
Whether you are considering a micro-business, exempt business, licensed business, or Ltd. company, opening a self-employed business account requires familiarity with the rules and forms of each authority. At CPA Digital, you can open a business online quickly, receive professional guidance, and ensure that everything is registered accurately and legally.
Open a self-employed business account online with CPA Digital, the right way to start a business with peace of mind.