Jerusalem, 4 June, 2026 (TPS-IL) — For about half of small business owners in Israel, income from the business is the only source of income.
In November 2024, the Tax Authority launched the “Small Business Owner” reform, under which businesses with a turnover of a VAT-exempt business (120 thousand NIS as of 2024 and 2025, approximately 122 thousand NIS for 2026) are given the opportunity to register as a “small business owner” with the Income Tax and benefit from simpler interfaces with the Tax Authority.
Businesses registered as “small businesses” are allowed to deduct expenses from their income at a rate of 30% of turnover instead of claiming expenses actually incurred as part of the annual report, and in most cases, they are exempt from filing an annual report, from paying income tax advances during the year, and from filing a capital declaration. Their obligations to the Tax Authority, beyond a one-time online registration process, usually amount to submitting an online tax reconciliation once during the tax year, and online reporting and payment at the beginning of the next tax year.
The Tax Authority is now publishing data resulting from the implementation of the reform for 2025. The data published on the Tax Authority’s website shows that while small businesses accounted for about 52% of all VAT-registered businesses in 2025, their share of the total transaction turnover in the economy was only about 0.7%. Accordingly, the tax liability of those businesses was low. The segmentation of small businesses by marginal tax (determined in the tax coordination) shows that about three-quarters of the businesses did not reach the tax threshold, meaning that their tax liability was 0.