Rights10/28/2026

New Taxes and New Obligations for the Self-Employed — Without Social Protection

The outgoing Knesset increased the tax and administrative burden on more than half a million self-employed people in Israel. At the same time, initiatives to provide unemployment benefits, sick pay and bereavement benefits, as well as to recognize childcare expenses, did not become law.

Key facts

•Self-employed people: more than 500,000, approximately 12% of the workforce
•Tax on undistributed profits: 2% above 750,000 shekels
•Minimum dividend distribution required for an exemption: 6% per year
•Threshold under the “Israel Invoices” model: 5,000 shekels from June 2026
•Basic insurance contributions: increase from 2.87% to 4.47% in January 2025
•Cash transaction limit with a business: 6,000 shekels

Tax on “Wallet Companies”

The Undistributed Profits Law, approved as part of the Economic Arrangements Law, imposed an annual tax of 2% on “closely held companies” with accumulated profits not used in their operations exceeding 750,000 shekels. This tax can be avoided through an annual dividend distribution of at least 6% of accumulated profits, but the dividends are subject to tax at a rate of up to 30%. According to the source, this measure generated approximately 20 billion shekels in additional state revenue.

Invoices, Insurance Contributions and Cash

Under the “Israel Invoices” model, deducting input tax requires obtaining a digital allocation number from the Israel Tax Authority in real time. The threshold fell from 25,000 shekels in 2024 to 5,000 shekels in June 2026. In January 2025, National Insurance and health insurance contributions for self-employed people in the basic income bracket rose from 2.87% to 4.47%, and the cash transaction limit with a business was reduced to 6,000 shekels.

Privacy Protection and Call Recording

Amendment No. 13 to the Protection of Privacy Law established stricter information-security requirements and substantial financial sanctions, which also apply to small businesses, clinics and offices maintaining customer databases. The Recording Retention Law required many businesses to record service and sales calls and retain them for an extended period. The source does not specify the exact retention periods or the amounts of the sanctions.

Social Rights Remained Legislative Proposals

Proposals to compensate self-employed people for up to six days of bereavement, provide sick pay and grant unemployment benefits when a business closes were not enacted. The bill to provide a benefit during a bereavement period was first introduced in the 18th Knesset in 2009, passed a preliminary reading in 2017 and was reintroduced in the 25th Knesset. Initiatives to pay a benefit for a work injury from the first day and to recognize childcare expenses for tax purposes also did not advance.

What this means for you

Self-employed people and owners of small companies must account for additional taxes, digital invoice issuance, restrictions on cash payments, and obligations to protect customer data and retain recordings. However, the social rights described are not yet in effect because the relevant initiatives were not enacted. The publication date is not stated in the material provided.

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