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?