International VAT Guides – Israel

VAT rates in Israel 

How much is VAT in Israel? 

The VAT regime is a modern VAT system that is highly similar to those found within the EU VAT framework. Over the past few years, the Ministry of Finance has been working to establish and incorporate the OECD taxability model, which was developed for non-resident providers of electronic services to residents. 

The Ministry of Finance, in collaboration with other institutions, attempted in 2023 to propose a Bill to amend the VAT law, introducing tax liability for non-resident providers of digital services within the B2C sector, even in the absence of physical presence in the country. 

However, to this day, this Memorandum hasn’t produced any legal effect. Currently, the country hasn’t introduced any type of specific legislation that mandates foreign digital service providers to register and charge VAT for B2C supplies of digital services to residents. 

It should be noted that this “sort” of tax exemption isn’t extended to foreign digital service providers that have an establishment in the country. In cases of significant economic presence, non-resident digital platforms could be instructed to register for VAT. 

The Israel VAT  system mirrors a highly developed, modern, well-established regime. 

VAT threshold in Israel 

The VAT Israel Act defines the requirements and conditions for mandatory VAT registrations. Local small businesses can benefit from the Small Business Scheme. Foreign businesses with an establishment in the country can also, in some instances, take advantage of the tax-exempt scheme. 

The  VAT threshold in Israel is quite similar for both local and non-resident businesses. 

VAT registration threshold for resident businesses: ISL 120,000.

VAT registration threshold for non-resident businesses with physical presence: ISL 120,000.

VAT registration threshold for foreign providers of digital services: No threshold.

VAT Taxable Activities in Israel

Types of taxable activities that trigger mandatory VAT registration:

• Supply of goods and services for consideration;
• Exports;
• Imports of goods and services.

Tax Representative in Israel 

Non-resident digital services providers without permanent establishment in the country should acquire the services of local tax representatives. 

Tax registration 

Standard Registration 

Domestic or foreign taxable persons with a place of business or permanent establishment in the country have different registration options. The standard registration for VAT can be handled online, via the special online service, by telephone, or by email. 

Simplified tax registration 

There is no simplified tax registration system for foreign providers of electronic services. 

How much is VAT in Israel for Electronically Supplied Services?

  The VAT rate Israel for most digital goods and services is 18%. 

Taxable Digital Services in Israel

The following types of digital services trigger mandatory VAT registration of non-resident providers:

• Audio and video streaming services; 
• SaaS services;
• E-books and publications; 
• Intermediation between third parties offering goods or services and those seeking them;
• Travel arranging services.

Marketplace and Digital Platform Operators Rules

There are no specific regulations governing foreign providers of digital services in Israel. 

Invoicing Rules

The minimum requirements of the pro-forma invoice for B2C supplies are the following: 

• The name of the supplier;
• The VAT number of the supplier;
• The date of the issue of the pro forma tax invoice;
• Shipping certificate number (when such a certificate is required);
• The name and address of the customer;
• The description of the goods or the service;
• The unit by which the quantity is measured;
• The quantity;
• The unit price;
• The invoice amount.

Foreign Currency Invoice in Israel  

In most cases, issuing an invoice in a foreign currency is permitted. However, VAT declarations should be submitted exclusively in the local currency.  

VAT Return in Israel 

Standard Return 

Unless otherwise specified, the tax representative for non-resident providers of electronic services is obligated to submit a VAT declaration. 

VAT Return

Penalties for late reporting and omitted declarations 

Late VAT return filing, late VAT payment, and late registration are situations in which taxable persons are most likely to incur an obligation to pay a penalty and/or interest for failing to comply within the prescribed timeframe. 

Fines and penalties according to the VAT Israel Act: 

Late registration of VAT may result in penalties up to 1% of the taxable turnover, in addition to the VAT itself.

Penalties may also include interest and adjustments for inflation.

Failure to submit a VAT report on time can result in a fine of NIS 214 for every two weeks of delay.

Failure to pay the required amount of tax may lead to linkage differentials (based on the consumer price index) and interest on the unpaid amount.

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