The purpose of the guide is to elaborate on the differences between independent activity and activity as a company, in terms of different aspects, in order to help choose the type of activity that best suits you. We will be happy to arrange a consultation meeting for you, without any obligation, in which we will review the various considerations for you, and we will examine together with you and according to the nature of the specific activity, how it is recommended to act.
2. Comparison Table:
The following table summarizes the differences between activity as an individual and activity as a company:
|The Relationship with the Tax Authorities:||The business owner deals with the various tax authorities||The Company deals with the various tax authorities. The controlling shareholder is opened with an income tax file as a company owner and is required to submit an annual report|
|National Insurance and Health Tax:||Liability at the rate of 17% of the profit up to the ceiling||There is no liability for National Insurance contributions on the company’s profits. There is no charge for National Insurance contributions on dividends|
|Ownership and Stability:||Based solely on the business owner||Transfer of convenient ownership by way of sale of shares|
|Accounting Bookkeeping Method:||You can choose a single-entry or double-entry method according to the instructions of the tax laws||The obligation to manage books in the double-entry method, regardless of the size of the company|
|Tax Rates on Preferred Income:||Final tax according to the prescribed rates||Corporate tax. When the profit is distributed, an additional tax will be paid on the dividend|
|Risk Exposure of the Business Owner:||Risk of the business owner to different creditors||No personal risk, except in cases where personal guarantees were given|
|The Establishment Process:||A file must be opened in the Income Tax, National Insurance, and Value Added Tax||A company must be opened with the company’s registrar, and the company must open a file with the Income Tax Authority, National Insurance and Value Added Tax|
3. Additional Tax Considerations:
- Individuals are entitled to reduced tax rates on part of capital gains and on activities in the capital market compared to companies that are not entitled to these rates.
- The individual income (ceiling limit) is subject to national insurance contributions and health insurance, the rate of which (minus the taxable portion) is 13%.
- When the Company’s profits are distributed as dividends, there is an additional 30% tax liability, regardless of the source of income, and so there is also an additional tax on capital gains or land appreciation.
- Saving the tax on activity within a company is not relevant to a person who intends to withdraw all profits from the company.
- Preference is given to investments in yielding assets or business activity from the company’s funds after payment of corporate tax.
- In the event that the profits are distributed in full to the shareholders, preference is given to activity as a company starting with annual profits of NIS 600,000 or more.
- In the event that the profits are not distributed to the shareholders, preference is given to the activity as a company starting with annual profits of NIS 300,000 or more.
- In an activity through a company, it is worthwhile for the controlling shareholder to draw a monthly salary of NIS 20,000 and the balance of the profits to be withdrawn as a dividend. Withdrawing monthly wages at this level makes it possible to make the best use of the low tax brackets and the credit points applicable to the individual.
We are happy to assist you in examining these considerations, while providing a comprehensive explanation of each of the various considerations, and applying the above to your specific and unique case.
4. Additional Information:
- Read the full guide of our firm: Opening a company guide and moving from activity as an independent to activity as a company
Read the guide for establishing a company