Israel's Self-Employed Face New Burdens Amid Election Neglect
Translated & summarized from Globes by baba
Israel's self-employed population has faced a barrage of new taxes and regulations from the outgoing Knesset, including "trapped profits" taxes and stricter invoice requirements, while their rights and social benefits remain largely unaddressed. Despite comprising a significant portion of the workforce, their fragmented nature hinders their political influence, leading to election campaigns that largely ignored their concerns. Key legislative proposals for improved social security and tax benefits have stalled for years, leaving the self-employed with increased burdens and limited support.
The story in 6 lines · by baba
- Israel's self-employed faced new taxes and regulations, including "trapped profits" law and invoice requirements.
- Election campaigns largely ignored the rights and concerns of the self-employed population.
- Legislative proposals for social benefits and tax relief for the self-employed have stalled for over a decade.
- The self-employed sector struggles to translate its economic weight into organized political power.
- New measures are expected to generate billions of shekels for the state treasury.
- The next Knesset will decide the legal and economic status of self-employed workers.
The outgoing Knesset session imposed a series of significant financial and regulatory burdens on Israel's self-employed population, including tax hikes, new restrictions on issuing invoices, stricter cash usage limits, privacy regulation changes, minimum wage increases, and mandatory call recording. Despite these substantial impositions, the issues and rights of the self-employed were largely absent from the election campaigns of various parties. Concurrently, numerous legislative proposals aimed at equalizing their conditions with salaried employees have stalled, some for over a decade.
A notable burden is the "trapped profits" law, which taxes accumulated profits in small companies at 2% annually on amounts exceeding NIS 750,000, unless a 6% dividend is distributed. This law generated approximately NIS 20 billion for the state, significantly exceeding expectations, but removed a key savings tool for the self-employed. Further measures include the tightening of the "Israel Invoices" model, requiring real-time digital allocations from the Tax Authority for VAT input credit, with thresholds decreasing to NIS 5,000 by June 2026. This has increased state revenue but created bureaucratic hurdles for small businesses.
Additional financial pressures include an increase in national insurance and health tax contributions for the self-employed starting January 2025, projected to bring in NIS 5 billion annually. A 2% surcharge on passive income, dividends, and capital gains above a certain threshold was also implemented. Regulatory changes saw the cash usage law limit transactions with businesses to NIS 6,000, and amendments to the Privacy Protection Law imposed strict data security obligations and heavy fines on even small businesses. The requirement to record and store service and sales calls also incurred software and storage costs, while minimum wage hikes directly increased labor expenses for self-employed employers without corresponding compensation.
While the imposition of new obligations was efficient, legislative efforts to improve the social and legal standing of the self-employed have stalled. Proposals like bereavement grant eligibility, sick pay calculations based on average income, and unemployment benefits for business closures have languished in legislative channels. A bill to recognize childcare expenses as tax-deductible, which followed a 2009 Supreme Court ruling, was also blocked due to potential state revenue losses.
Despite comprising over half a million individuals, roughly 12% of Israel's workforce, the self-employed sector struggles to translate its demographic and economic weight into organized political power. This fragmented nature contrasts with well-organized lobby groups that leverage disciplined political action for significant gains, often at the public's expense. Representatives from the Tax Consultants Association and LAHAV, the Association of Self-Employed, lament the lack of progress on self-employed rights, noting that the last significant legislative wins were mandatory pension contributions and maternity benefits for self-employed women in 2016-2017. The upcoming Knesset will need to address the legal and economic status of the self-employed, bridging the gap between the ease of imposing burdens and the political system's reluctance to provide an equitable social safety net.
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