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

A small dealer is not a separate type of business, but a tax status for small businesses. Instead of proving expenses, you receive a fixed deduction of 30% from revenue, and instead of a full annual report, you submit a simplified report. A regular exempt dealer deducts actual expenses. What is beneficial depends on your expenses.

What is a Small Dealer?

This is a tax track that comes into effect in 2024, aimed at easing the burden on small businesses. In terms of VAT, in most cases you are still an exempt dealer: you do not charge VAT to clients, issue receipts, and submit an annual declaration on revenue. The difference is entirely in income tax, meaning how the profit subject to tax is calculated.

To be a small dealer, you must be a resident of Israel, earn from a business or self-employment, and remain with annual revenue below the exempt dealer threshold, which the tax authority updates every year.

How is a Small Dealer Different from a Regular Exempt Dealer?

A regular exempt dealer deducts actual expenses from income, so they must keep receipts and invoices for every expense and submit a full annual report. A small dealer automatically receives a 30% deduction from revenue without presenting documents for expenses and submits a simplified annual report on revenue.

For both statuses, receipts are issued for income as usual, and both pay National Insurance as self-employed individuals. In other words, a small dealer primarily saves on the work surrounding expenses and the annual report, not on reporting income.

This status is particularly suitable for those who work alone and with minimal equipment: private tutors, translators, designers working from existing computers, and service providers from home. Those who purchase goods, materials, or expensive equipment usually benefit more from deducting actual expenses.

Example Calculation: When is 30% Beneficial?

An illustrative example. A private tutor with an annual revenue of ₪80,000 and almost no expenses, say ₪8,000 on books and travel. As a regular exempt dealer, she deducts ₪8,000, and the taxable profit is ₪72,000. As a small dealer, she deducts 30%, which is ₪24,000, and the taxable profit drops to ₪56,000.

Now a photographer with the same revenue of ₪80,000, who buys equipment and pays for software and travel ₪36,000 a year. As a regular exempt dealer, he deducts all ₪36,000, and the taxable profit is ₪44,000. As a small dealer, he deducts only ₪24,000, and the taxable profit rises to ₪56,000. The rule: when actual expenses are less than 30% of revenue, a small dealer is more beneficial, and when they are higher, a regular exempt dealer is preferable.

Who Cannot Be a Small Dealer?

Anyone whose revenue exceeds the exempt dealer threshold is not eligible for this status. Additionally, this status is not intended for those who actually work for a single employer: if more than a quarter of the income from the business comes from your employer or from someone who was your employer in recent years, you cannot be a small dealer. You also need to manage the receipts for income properly. If you are unsure whether you meet the conditions, check this before registration.

How to Choose and How to Register

Before making a choice, answer three questions:

• Are your expenses for the year less than 30% of the expected revenue?

• Is the revenue expected to remain below the exempt dealer threshold?

• Does most of the income come from different clients and not from a single employer?

If you answered yes to all the questions, a small dealer is likely suitable for you. In the questionnaire on the website, select small dealer, fill in the details, upload five documents like for an exempt dealer, and pay only after uploading. Not sure? Message us on WhatsApp (opens in a new tab), or open the questionnaire.

Frequently Asked Questions

Can you switch from a regular exempt dealer to a small dealer?

Yes. An exempt dealer who meets the conditions can update their status with the tax authority to small dealer. It’s advisable to do this after checking how many actual expenses you had in the last year, because if they are higher than 30% of revenue, the switch will increase the taxable profit. For the exact timing, it’s best to consult with an accountant.

Does a small dealer need to keep receipts for expenses?

To receive the 30% deduction, you do not need to present receipts for expenses, which is the main advantage of this status. However, you must issue receipts for income as usual and manage them properly, as they are used to calculate revenue. It’s convenient to generate them in the CPA Digital (opens in a new tab) system, so everything is stored in one place.

Does a small dealer pay National Insurance?

Yes. A small dealer pays National Insurance as a self-employed individual, just like a regular exempt dealer. The income reporting also affects National Insurance payments and rights to benefits. Therefore, it’s important that the reporting is accurate, even when there’s no need to present documents for expenses. National Insurance payments begin immediately after registration.

What happens if revenue exceeds the threshold?

Then you no longer meet the conditions for the status, and you need to switch to regular calculation based on actual expenses, and usually also to a licensed dealer for VAT purposes. It’s best to monitor the total of receipts throughout the year and prepare in advance. If revenue approaches the threshold, consult with an accountant before it is exceeded.

How much does it cost to open a small dealer?

Registration through start.business (opens in a new tab) starts at ₪185, and VAT is added to the service price. The package includes opening files for VAT, income tax, and National Insurance, as well as a dealer certificate. You can add approvals for working with public bodies, a professional guide, a list of deductible expenses, or a meeting with an accountant. The approval arrives within an average of 3 business days, depending on the authorities.