Israel – Lovat Compliance

VAT Standard rate

VAT standard rate in Israel in 2024 is 17%, which applies to supplies of all goods in Israel and import, except activities taking place in the Eilat Free Trade Zone (FTZ). Export is zero-rated.

VAT registration threshold

There is no registration threshold in Israel. Businesses which provide taxable supplies must register for VAT purposes starting from the fisrst day of such activity.

Tax representative

Businesses must appoint local tax representative in Israel within 30 days from the beginning of taxable activity.

Registration procedure

For VAT registration in Israel businesses must submit the completed and signed registation form with following documents to the tax authority:

Certificate of registration in the Registrar of Companies;
Protocol of those authorized to sign documents;
Copy of the indentification documents of directors of the company;
Agreement of the purchase/lease of the place of business;
Company bank account reference;
Information about the property of the company (sources of financeing, the amount of the investment, and the estimated turnover of transactions).

Additional information may be requested by the tax office. In case of positive decision business will get the VAT Certificate.

During the registration process, a business may be defined as an “exempt dealer” if their expected turnover is less than a prescribed amount (approx. EUR 30,000).

Deductible VAT

Businesses can reclaim input tax by deducting it from output tax. Expenses that are not relevant to the business cannot be claimed for deduction. Input tax is not recoverable to the businesses that are not registered for VAT purposes in the Israel.

Keeping records

The period of keeping records in Israel must be at least seven years.

VAT returns filing and payment date

VAT returns in Israel must be submitted electronically on monthly or bi-monthly basis, depending on the annual turnover of the business. The deadline for filing and payment is the 15^th day of the month following the reporting period. Businesses who file and pay online are allowed to do it due to 19^th day of the month following the reporting period

Penalties in Israel

Penalty for late registration – 1% from the taxable turnover amount.

Fines and penalties may be applied for the late submissions of VAT returns and payments.

VAT Standard Rates

Israel imposes a standard VAT rate of 17% on digital services. This applies to both domestic and foreign providers of digital services to Israeli consumers.

VAT Zero Rate

Certain transactions might qualify for a VAT zero rate, but this typically applies to services exported from Israel rather than imported digital services. Therefore, for foreign providers of digital services, the 17% standard rate is applicable.

Threshold

Any foreign business providing digital services to Israeli customers in Israel must register as a VAT payer, regardless of sales volume.

Pieces of Evidence

To determine that digital services have been provided in Israel and determine the location of the customer and the applicability of VAT, businesses must collect evidence such as the customer’s place of residence, means of payment used, and infrastructure, or equipment through which the service is received.

E-Services List

The list of digital services in Israel includes the following:

Electronically Supplied Services,
Telecommunication Services,
Television and radio broadcastings,
Cloud-Based Services,
Online Marketplaces,
Online advertising services,
Web hosting and website maintenance services,
Distance teaching and e-learning services,
Online consulting and professional services (e.g., legal, financial).

Registration Procedure

The registration process for foreign companies providing digital services in Israel requires manual filing through a local tax representative. Therefore, it is necessary to appoint a local tax representative to act on behalf of the company in all VAT related matters. Documents such as the registration certificate, the local representative’s ID card and a completed VAT registration form (Form 821) are required. These documents need to be submitted to the Israel VAT Department. Once the registration is processed and approved, the Israel Tax Authority will issue a VAT registration number.

Tax Representative

A local tax representative is mandatory for foreign businesses to manage VAT compliance in Israel. This representative handles all VAT-related processes, including registration, filing returns, and paying VAT.

Keeping Records

Businesses must maintain detailed records of transactions must be kept for at least 7 years and should be available for inspection by the Israeli tax authorities.

Filing VAT Return and Payment Date

VAT returns must be filed periodically, typically quarterly or annually, depending on the business’s sales volume. The due date for filing and payment is usually the 15th day of the month following the end of the reporting period. Payments must be made in Israeli shekels (ILS).