VAT-Exempt Business: The Easy and Fast Way to Earn Money After Building an E-commerce Website

Many people in Israel aspire to build an e-commerce website but often face an early hurdle—the business setup phase. You might ask yourself, why do I need a business to sell online? In the following article, we will explain why it's necessary, the process of setting up a business, the costs involved, the challenges in starting a business, and the benefits.

It's important to note that we are not accountants but are speaking from the experience of individuals who have gone through the exact process you're likely considering now and understand what it entails.

Why Do You Need to Open a Business to Make Sales After Building an E-commerce Website?

To begin the practicalities required to receive money in your bank account (after all, that's why you're doing this, right?), you need a credit card processor that includes options like PayPal, Apple Pay, and others. Additionally, you need to issue a receipt for every payment received, as per the law. So, what does all this have to do with setting up a business?

Credit card companies, and of course, to issue a receipt, you need to have a registered business. If not, no one will process your payments, and you won't have a way to receive money from your customers.

The need to receive payments for every sale is essentially why you'll need to open a business to run an e-commerce website that automatically receives orders and payments from customers.

Business Setup Process and What Type of Business to Open When Building an E-commerce Website for the First Time

There are numerous options for the types of businesses you can start in Israel—Ltd. company, association, authorized business, exempt business, and more.

For anyone new to business, the strong recommendation is to start as an exempt business. Why? Because an exempt business is exempt from VAT, saving you a lot of money (unlike an authorized business or Ltd. company that pay a 17% VAT on every purchase).

The process of opening an exempt business is relatively straightforward and can be done alone, but it's highly recommended to do it with an accountant to avoid errors.

To open an exempt business, you'll provide some identification details to your accountant, and they can open the exempt business for you in less than a week! Immediately after completing the process, you can connect to a credit company and start receiving payments.

What Are the Obligations of an Exempt Business?

An exempt business needs to submit an annual report once a year. Additionally, there are various other tasks that a self-employed individual must do, but these are things that an accountant will easily handle for you.

Costs of Opening an Exempt Business for an E-commerce Website

The costs of an exempt business can fall into two main categories.

One way is a yearly fee charged by the accountant for submitting your annual report. The amounts range between 1,800 to 2,500 shekels for filing an annual report for an exempt business.

The second way is a monthly fee included in the annual report submission, but the fee is charged monthly. Here, the amounts range between 150 to 250 shekels per month.

Advantages of Opening an Exempt Business

The advantages of opening a business, in general, and an exempt business, in particular, are numerous, but let's highlight a few:

• Once you've opened your business, you can start receiving money for all sorts of work you do now and in the future, which is essentially the first step in your professional development.
• An exempt business doesn't require much effort or engagement, making it very convenient to be self-employed.
• You're not required to stop being an employee elsewhere. You can continue to be an employee and, at the same time, have an exempt business through which you also earn money.

We hope we've shed some light on a topic that intimidates many people. While it's important to consider the business setup process carefully and not rush into it without doing some homework, it's also essential to be cautious that it doesn't stop you from developing professionally.

Note: During registration, through business settings, you can indicate to us that you don't have a business, and we'll connect you to an accountant who works with us and can open an exempt business for you within a few days. They will guide you through the entire process, and you can approach them with any requests you may have.

It's important to clarify that all the information provided here is based on experience only, and we do not advise anyone on what to do. We recommend consulting with an accountant before taking any action.

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