The Israeli Tax Authority opened their website on May 6, 2020, for the second round of grants for freelancers, and has promised to do so for company owners on May 18 (everyone wishes it were sooner).
Here is the link to make a grant application: https://www.gov.il/he/service/grant-self-employed-persons-for-corona-period-2
You will need to first have a fixed number in addition to your identity number. If you don’t have a fixed number, have ready: your identity card (the issue date will be requested), your Israeli passport (the number will be requested) and your drivers’ license (the number will be requested). If you forgot your fixed number, you can get another.
Below is a recap of the main grant rules.
Grants For Freelancers and Company Owners:
There are two types of grant:
1) Sales decrease grants, and
2) Overhead expense participation grants.
Sales decrease grants:
These are available if sales of the freelance business or company in the period March-June 2020 decreased by over 25% compared with the same period in 2019. If business only began in 2019, 4 times the monthly average up to the end of February 2020 is used as the base.
The grant for freelancers should be 70% of average monthly income in 2018 (2019 for a new business) but no more than NIS 10,500.
If monthly income averaged more than NIS 40,000, the grant is reduced by 17.3% of the excess. The grant therefore decreases to zero for average monthly income above NIS 100,693. For major shareholders of more than one company, income of all of them is aggregated
The main conditions are:
- In business as a freelancer a salaried worker-shareholder throughout the 6 months ended March 31, 2020.
- Aged at least 20 in 2019.
- Israeli resident freelancer or Israeli resident company.
- Maximum income in 2018 NIS 1 million, excluding capital gains but including exempt income (e.g. for Olim) as well as 50% of investment income if married. For company shareholders, their share of company profit is added to salary.
- Minimum monthly average income in 2018 NIS 714.
- Kept proper books.
- Filed a 2018 tax return (or 2019 tax return if started in 2019 or made losses in 2018).
- Filed VAT returns or “exempt dealer” return for smaller freelancers.
- If a company major shareholder, national insurance reporting reflected this.
- Major shareholders must still hold 10% or more when filing the grant claim.
The grants are liable to income tax, not national insurance or VAT.
Claims for sales decrease grants and overhead participation grants must be filed online within 70 days from May 3, 2020, i.e. by July 12, 2020. This is only 12 days after the end of the March-June sales period, so early claims seem advisable. The Israeli Tax Authority is supposed to check the claim within 5 days and pay within 5 more days. An adverse decision is appealable.
Overhead expense participation grants:
These grants are available to freelancers as well as companies and partnerships which suffered a sales/revenue decrease over 25% in March-April (not March-June) 2020 compared with the same period in 2019. If business only began on or after March 1, 2019, double the monthly average up to the end of February 2020 is used as the base.
But there are several stings in the tail – read on.
Limits apply as follows:
- Maximum sales in 2019: NIS 20 million for all businesses
- Minimum sales in 2019: NIS 300,000 freelancers and NIS 18,000 for companies (freelancers already received a sales grant in April unlike companies).
- Maximum overhead participation grant: NIS 400,000.
Grants if 2019 sales up to NIS 300,000:
For companies with 2019 sales in the NIS 18,000-300,000 range, these additional grants are:
- NIS 700 if 2019 sales were up to NIS 100,000
- NIS 1,875 if 2019 sales were NIS 100,001-200,000
- NIS 3,025 if 2019 sales were NIS 200,001-300,000
Grants if 2019 sales were over NIS 300,000:
For freelancers companies and partnerships with 2019 sales over NIS 300,000, grants are calculated using a complex set of formulas. Put simply:
- Sales in March-April 2019
- TIMES a sales decline factor – from 10% to 50%
- TIMES an overhead expense participation factor – maximum 30%
The sales decrease factor ranges from 10% (sales decrease 25.1%-40%) to 50% (sales decrease over 80%).
The overhead expense participation factor is 30% if 2019 sales were no more than NIS 1.5 million. Above that level, it cannot be more than 30% or less than zero.
First, the overhead expense factor is calculated as:
- 90% of 2019 overhead expenses divided by 2019 sales, plus
- annualized savings from employees laid off or dismissed in the period March-April 2020.
The result is a percentage of sales.
However, the “overhead expense participation factor” is the inverse of the “overhead expense factor”. The government has found a way of reducing the grant and making it your fault….
Suppose your overheads were 80% of sales in 2019 – only the inverse of 20% is recognized for grant purposes because you are assumed to be inefficient in controlling costs and/or you let employees go in 2020.
But if your overheads were only 20% of sales in 2019 – the inverse is 80% but this is unfortunately limited to 30% for grant purposes.
Overhead expenses (fixed expenses) apparently refer to inputs (not fixed assets and salaries) that are taken into account for VAT purposes, but clarification is awaited.
All in all, several stings in the tail.
Claims for sales decrease grants and overhead participation grants must be filed online within 70 days from May 3, 2020, i.e. by July 12, 2020, here: https://www.gov.il/he/service/grant-self-employed-persons-for-corona-period-2.
This is only 12 days after the end of the March-June sales period, so early claims are advisable. An adverse decision is appealable.
For many businesses these grants may turn out to be modestly helpful in these difficult times.
The process uses existing data on the Israeli Tax Authority’s computer system and may prove to be more efficient than comparable aid in the UK which needs data to be fed in.
Please contact us if you require assistance in reviewing eligibility and amounts as well as making the grant claims.
And keep healthy!
(c) May 6, 2020