Exempt Dealer Threshold 2026: NIS 122,833 and What Happens When You Exceed It

The exempt dealer (osek patur) threshold for 2026 is NIS 122,833 in annual turnover, as defined in Section 1 of the Value Added Tax Law. In 2024 and 2025, the amount stood at NIS 120,000. The threshold is measured by gross business income before expenses, not by profit. From the day it becomes apparent that the current year's turnover will exceed the amount, transactions are no longer exempt, and you must register as a licensed dealer (osek murshe) and charge VAT at 18%.

An exempt dealer is a business whose total turnover, across all of its business activities combined, does not exceed NIS 122,833 per year. This is the definition in Section 1 of the Value Added Tax Law, 5736-1975, and the updated amount appears on the VAT Amounts and Rates page of the Israel Tax Authority, effective from 1.1.2026.

How Turnover Is Calculated

Turnover is the total price of all transactions in the preceding tax year. The sale of business equipment — such as a computer or vehicle — is excluded from the count under the same definition. Salary earned as an employee is not a business transaction and is therefore also not counted.

A business that operated for only part of the preceding year calculates a monthly average and multiplies it by 12, pursuant to Regulation 14 of the Value Added Tax (Registration) Regulations. A newly opened business is assessed based on its projected turnover for a full year.

The Mid-Year Rule

The definition of "transaction turnover" adds a mid-year rule: if it becomes apparent to the dealer or to the VAT director that transactions in the current year exceed or will exceed the threshold, the higher amount is deemed the turnover from that day through the end of the year. The law also examines anticipated income, meaning a signed contract that has not yet been paid can push the dealer above the threshold.

Who Cannot Be an Exempt Dealer

Regulation 13 of the Registration Regulations lists occupations that must register as a licensed dealer regardless of turnover, even if it falls below the threshold. The list includes, among others, attorneys, accountants, tax advisors, engineers, architects, physicians and psychologists, real estate and vehicle dealers and brokers, and any registered company.

An exempt dealer does not charge VAT and does not file periodic returns. Once a year, by January 31, the dealer declares the previous year's transaction turnover (Regulation 15 of the Registration Regulations). The dealer's transactions are exempt under Section 31(3) of the Law, except for the sale of real estate and the sale of equipment on which input tax was deducted at the time of purchase.

The dealer issues a transaction invoice and a receipt, but not a tax invoice: under Section 47 of the Law, only a licensed dealer may issue one. Consequently, a business customer cannot deduct VAT on payments to an exempt dealer, and the exempt dealer itself does not receive an input tax deduction on its expenses.

The practical difference depends on the customer base. A private customer does not deduct VAT, so from their perspective an exempt dealer's price is a final price with no 18% surcharge. A business customer deducts the VAT shown on a tax invoice, so the surcharge does not increase the cost of the transaction, while a licensed dealer also deducts the VAT paid on its own expenses.

What Happens When You Exceed the Threshold

1. From the day it becomes apparent that annual turnover will exceed NIS 122,833, you are no longer an exempt dealer, and transactions from that day forward are subject to VAT.

2. You must notify the VAT office and request registration as a licensed dealer. Regulation 8 of the Registration Regulations requires written notice within 15 days of an event necessitating a change in registration.

3. From that date you issue tax invoices, charge 18% VAT, and file periodic returns — bi-monthly as long as turnover does not exceed NIS 1,775,000. A tax invoice exceeding NIS 5,000 before VAT also requires an allocation number from 1.6.2026.

4. In the following year, classification is determined by the previous year's turnover. A return to exempt dealer status is possible only after turnover has remained below the threshold for two consecutive years (Section 59(a) of the Law).

For example: a graphic designer registered as an exempt dealer. By the end of August 2026, she has earned NIS 95,000, and in September she signs a project worth NIS 40,000. On the day of signing, it is clear that her annual turnover will reach at least NIS 135,000 — above the NIS 122,833 threshold. Her transactions from that day are subject to VAT, and she must register as a licensed dealer.

Connection to the "Micro-Business Owner" Track

The same threshold also applies to the "micro-business owner" track for income tax purposes. An exempt or licensed dealer whose turnover is at or below the threshold may deduct expenses at a normative rate of 30% and pay tax through an abbreviated annual return. Anyone who exceeds the threshold exits this track as well.

Checking Against Profit

The threshold is measured before expenses. For example, income of NIS 140,000 and expenses of NIS 60,000 yield a profit of NIS 80,000, but the turnover is NIS 140,000 — above the threshold.

Splitting Into Two Businesses

The definition counts the dealer's turnover "across all of its businesses." Opening an additional line of activity, or registering each business separately, does not double the threshold.

Waiting Until Year-End

The mid-year rule takes effect from the day the excess becomes known. Anyone who continues issuing receipts without VAT after that date may end up paying the VAT on those transactions out of pocket, having failed to collect it from customers.

When You Should Have Your Situation Reviewed

It is advisable to seek a review when your income approaches the threshold before year-end, or when a single large transaction changes the picture. An occupation whose boundaries are unclear — for example, consulting that is close to one of the professions listed in Regulation 13 — also warrants a review before registration.

Questions regarding VAT classification and registration are handled at our firm by Adv. & CPA Shlomi Vaknin, who served for approximately a decade as a national supervisor in the professional division of VAT at the Israel Tax Authority.