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The Joy/Nightmare of Self-Employment in Israel

About two years ago I decided that conventional employment was not for me and my lifestyle (i.e. mother to a bunch of kids who felt unappreciated by her boss), and decided to go the independent route. On my first try, I approached all the relevant Israeli tax authorities on my own to open files, and in response these tax authorities chose to define me as a high-end earner and tax me for everything I’ve got. I quickly understood that this was a mistake, and closed all my files and got a regular employee job. A while later I decided to really take the plunge, and I hired a yoetz mas, a tax advisor, to take care of all the relevant tax issues for me. This proved to be a worthwhile investment, and since then all scary threatening letters I have received from the tax authorities have been passed on to my accountant for his care.

I am a big fan of self-employment. There are many advantages to being your own boss, particularly if you achieve a certain level of success in your business. And yet, I know many people who contemplate self-employment on a daily basis, and don’t take the plunge for a variety of reasons, one of which is a deep fear of all things related to the Israeli tax authorities.

Due to my relatively smooth experience as an independent, I tell people that if they hire a good yoetz mas or accountant, and they make sure to keep all their financial transactions above-board, then they really have nothing to worry about. Yet lately I have heard so many nightmare stories that I’m beginning to wonder if that’s true.

Recently, the Techshoret mailing list, a list dedicated to “issues of interest to Israeli technical writers,” had quite a lengthy thread going where people described the various forms of torture they have undergone thanks to the Israeli tax authorities. While one person did say that if you have a good accountant, you don’t have to worry, many stories involved people who had hired accountants and were being pursued by threats and letters due to alleged taxes owed. One person even spoke of a friend who had to leave the country after one of the tax authorities refused to cancel an incorrect debt of tens of thousands of shekels.

And then came an article published in the Jerusalem Post by Prof. Gerald M. Steinberg, who among his many positions is also the editor of NGO Monitor, one of illuminea’s clients. In this article, Prof. Steinberg describes the nightmare he is facing with the tax authorities due to a form mistakenly entered in his file which claimed he owed them a major sum in taxes. Without warning, the tax people threatened to confiscate his car and put a lien on his bank account, and no amount of proof that they were wrong helped remedy the situation. After much effort on his part and the part of his accountant, they succeeded in getting the tax people to lay off for a bit so that they can try to resolve this issue.

With so many testimonies to the nightmares of Israeli self-employment, it appears that Israel’s policy is to coddle the big guys and torture the little guys. But my experience has shown otherwise, so the question remains: is self-employment a viable option, or is it the path to tax hell?

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Miriam Schwab on November 24, 2006 • Category Israel,Small Business • Tags: , Comments (3)

3 Responses to “The Joy/Nightmare of Self-Employment in Israel”

  • Comment by Jill Holdaway on Apr 27 2007 at 1:25 am

    While visiting my company’s office in Israel, I tried to hire a contractor and found it very difficult. The one person I did find ended declining for a staff job. Now that you descirbe the tax problems, I better understand why it’s so difficult. I see that your post is from last year. Do you think anything has changed since then?

  • Comment by Miriam Schwab on Apr 27 2007 at 5:45 am

    Hi Jill,

    Unfortunately, I don’t believe that much has changed since I wrote my post. On the one hand, a lot of people are tired of being stifled as employees and dream of self-employment. Even those that are in well-paying jobs in the hi-tech sector want to get out because they get paid well, but work like slaves.

    On the other hand, I think that many are afraid to take the plunge into self-employment because of the uncertainties, and because the State of Israel does not make it easy for you to succeed. Not only do they wrongly accuse people of not paying taxes, but they put you into a situation that makes it very difficult to pay taxes. For example, my business recently experienced a jump in sales, and as a result the government kindly increased my national insurance payments by 700%. This type of taxation places small businesses in a cycle that it’s hard to emerge from: more business=the need to hire more manpower=more expenses+ridiculous taxes.

    There are hi-tech companies in Israel that depend on contractors for a large amount of their manpower. I recently stopped working as a contractor at one such company. But if you had such a difficult time finding a contractor, it’s possible that this country’s high-quality workers prefer the security of employment, or are in high demand due to the shortage of good contractors.

  • Pingback by New Initiative: Entrepreneur Breakfast » illuminea blog on May 02 2007 at 1:18 pm

    [...] For a while I had thought about setting up some kind of forum where entrepreneurs can meet and give each other advice and discuss how they have solved issues or overcome difficulties, and support each other in our decisions to leave the security of employment. Small businesses are in important part of Israel’s economy, and statistics indicate that small businesses account for something like 90% of employment in Israel (if I remember correctly). Therefore, it is important not just on a personal level, but also on a national level, that we help each other…well…survive. (See my previous post on the difficulties of self-employment in Israel to see what I’m talking about.) [...]

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