What is the difference between an osek patur and an osek murshe in Israel?

Both statuses are registrations with the VAT department of the Israel Tax Authority, and the choice turns mainly on expected turnover. An osek patur suits a low-turnover service provider: it does not charge VAT, so its paperwork is light and it files just one annual turnover declaration. The trade-off is that it cannot recover the VAT it pays on its own business costs, and it issues receipts rather than VAT invoices. An osek murshe collects VAT at 18% from customers, remits it to the state on a monthly or bi-monthly cycle, and offsets the input VAT it paid on purchases and expenses. Certain regulated professions, such as lawyers and accountants, must register as an osek murshe whatever their turnover.

For a foreign national starting a small business or freelancing in Israel, the practical driver is the client base as much as the numbers. Business customers usually prefer to work with an osek murshe because they can reclaim the VAT on your invoice, whereas an osek patur passes on no VAT credit. If turnover is likely to exceed the annual ceiling, registering as an osek murshe from the outset avoids a mid-year conversion. A common and penalized mistake is to stay an osek patur after crossing the turnover ceiling, which requires prompt reclassification and can trigger back-VAT.

From the full guide: VAT in Israel: A Complete Guide for Foreigners

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