Exempt Dealer or Licensed Dealer: Which is Right for You?

The main difference between an exempt dealer and a licensed dealer is VAT. An exempt dealer does not charge VAT from clients and does not deduct VAT on expenses, and is limited by a turnover cap. A licensed dealer charges VAT, deducts it on business expenses, and has no cap. The choice depends on your clients and your expenses.

What is the difference between an exempt dealer and a licensed dealer?

In both statuses, you are self-employed in every way: you file an annual income tax return and pay National Insurance as self-employed, with no difference between them. The difference is entirely in VAT, and therefore also in the price the client pays and the documents you issue.

The cap for exempt dealers is updated by the tax authority every year, so it's a good idea to check the current amount on their website. A licensed dealer's VAT reporting is done every month or two, depending on the turnover size.

When is an Exempt Dealer More Beneficial?

When most of your clients are private individuals, when the turnover is expected to remain below the cap, and when there are no significant expenses. For example: a private tutor teaching at home. The parents of the students do not deduct VAT, so a price without VAT is simply a lower price for them. Her expenses are small, so deducting VAT wouldn't return much, and the annual reporting saves time.

When Should You Choose a Licensed Dealer from the Start?

When the clients are businesses and companies, when there are significant expenses for equipment, or when the turnover is expected to exceed the cap in the first year. For example: a graphic designer working with advertising agencies and buying a computer for ₪6,000 including VAT. As a licensed dealer, he deducts about ₪915 VAT on the computer.

His clients, who are also licensed dealers, deduct the VAT he adds to the invoice, so for them, the price does not increase. Additionally, some companies prefer to work only with those who issue tax invoices. In some professions, there is no option to choose, and authorities require a licensed dealer from the start.

Common Mistake: Choosing Based Only on Paperwork

Many choose an exempt dealer simply because they heard there are fewer reports. After a few months, it turns out that the main client is a company requesting a tax invoice, or that the turnover approaches the cap in the middle of the year. Then you need to switch to a licensed dealer under pressure, and sometimes also change prices for existing clients.

Before making a choice, ask yourself three questions: Who are your clients, are significant expenses expected, and how much will you earn in the first year? If the answers are unclear, write to us on WhatsApp (opens in a new tab) before registration. When the choice is clear, open the questionnaire and choose the type of business.

What Happens After You Choose

The registration process is the same for both statuses. Fill out a questionnaire on the website in less than 5 minutes, upload photos of your ID, supplementary ID, account management approval, driver's license or passport, and proof of business readiness, and pay only after everything is uploaded. We complete the registration with VAT, income tax, and National Insurance within 24 hours.

The difference begins after the opening. A licensed dealer submits periodic reports to VAT, and this is easy to transfer to the accountants of our partner EA&CO, with prices on their website (opens in a new tab). Invoices and receipts can be generated in the CPA Digital (opens in a new tab) system, in both statuses.

Frequently Asked Questions

Can you switch from an Exempt Dealer to a Licensed Dealer later?

Yes. When the turnover exceeds the cap for exempt dealers, you switch to a licensed dealer, and under certain conditions, you can also switch in the opposite direction. The transition is done with VAT, and from that moment on, you add VAT to prices and issue tax invoices. It’s better to plan the transition in advance and not wait until the end of the year, so you won’t have to correct receipts and prices retroactively.

Is there a difference in income tax and National Insurance?

No. Both exempt dealers and licensed dealers file an annual income tax return and pay advances to National Insurance as self-employed. The tax is determined by profit, not by the type of dealer. The difference between the statuses is only in VAT: collection from clients, deduction on expenses, and reporting frequency. Therefore, the decision depends on clients and expenses, not on tax rates.

Can an Exempt Dealer deduct VAT on expenses?

No. An exempt dealer pays VAT on every purchase like a private consumer and does not get it back. Therefore, when significant expenses are planned, such as equipment, work vehicle, or renovation of the workplace, a licensed dealer may be more beneficial even when the turnover is small. It’s advisable to calculate this before registration.

What is a Small Dealer and how is it different?

A small dealer is a track for small dealers with a fixed expense deduction of 30% of turnover, without the need to collect receipts for expenses and without an annual report. It is suitable for those with small expenses who want minimal reporting. You can choose it in the questionnaire like other types of businesses, and registration starts from ₪185.

How much does it cost to open each of them?

Registration for an exempt dealer through start.business (opens in a new tab) starts from ₪175, and for a licensed dealer from ₪195. VAT is added to the service price, and the final amount is displayed before payment. You pay only after the documents are uploaded, and approval from the authorities arrives within an average of 3 business days, depending on the authorities. You can also add a meeting with an accountant.