The Israeli VAT Law (hereinafter- The Law) grants VAT at 0% rate on certain deals such as services provided to foreign residents (non- Israeli residents) as well as on sales of intangible assets to foreign residents, subject to certain conditions detailed in the Law.
Who is subject to VAT in Israel?
According to the Israeli VAT Law, VAT in Israel shall apply on transactions undertaken in Israel and on the import of goods to Israel. The VAT rate in Israel stands at 17% at 2017.
A transaction is defined in the Law as follows:
1. The sale of an asset or the provision of service by a dealer during the course of his business, including the sale of equipment;
2. The sale of an asset in which the input tax, imposed on its sale to the seller or on its import by seller, was deducted;
3. A random transaction
VAT at 0% rate
Article 30 (a) of the Law lists transactions for which VAT will be charged at a rate of 0%, as follows:
A service provided to a foreign resident
In order to be entitled to VAT at 0% rate, the service shall be provided to a foreign resident exclusively. Services that are provided in addition to one of the following shall not be entitled:
- Israeli residents
- A partnership in which more than 50% of the rights are of Israeli residents
A company that is regarded as an Israeli resident according to the Income Tax Ordinance of Israel.
Notwithstanding the aforesaid, the article excludes from its scope certain services, even though they were provided to a foreign resident only.
The exceptions in which VAT at 0% shall not apply are as follows:
1. The service was provided with regard to an asset located in Israel, unless the service provider has proved that the consideration for the service is part of the value of goods or, if it was proved to the VAT director’s satisfaction, that the purpose of the service is the export of the goods from Israel, and the service is actually provided by the person who purchased the goods for the foreign resident, if the goods were indeed exported.
2. The service was provided to a foreign resident while he is staying in Israel
3. The service was provided under an agreement in which an Israeli resident is a party.
A 0% VAT rate shall also apply on a service provided outside Israel by a dealer whose main place of business is in Israel and on the sale of an intangible asset to a foreign resident.
An import of services or intangible assets to Israel
Although such imports are not entitled to VAT exemptions or a VAT rate of 0%, a foreign resident apparently will not have a VAT liability for them (except when the Israeli importer is a non-profit organization or a financial institution).
According to the VAT law, when an intangible asset or a service is imported to Israel,the owner of the goods shall be liable for the VAT.
The date of the VAT charge will apply with the purchase of the foreign currency (non-Israeli) from a financial institution in order to pay for the purchase of the goods or the transfer of the foreign currency to the seller who is a foreign resident, whichever is earlier. If no foreign currency has been purchased or transferred, the date of the VAT charge will apply upon the receipt of the consideration.
However, in accordance with the VAT regulations, when a transaction is undertaken in Israel in which the seller or service provider is a foreign resident, the VAT liability shall apply to the buyer, that is, the Israeli resident.
The VAT payment with regard to the import of services or intangible assets to Israel shall be made as follows:
If the importer paid to the foreign provider with foreign currency, purchased from a bank/ financial institution or the foreign currency was transferred by it, then the bank shall deduct the VAT.
Otherwise, the Israeli importer shall issue an invoice made out to himself (“self-invoice”), report the import and pay the VAT or, if the importer doesn’t meet the definition of a dealer, he will report the deal as a random transaction to the VAT authority,
Do you have a client who buys/ exports goods or services to Israel/ from Israel, who could be supported by our international tax consulting activities? Contact us:Arik.c@www.bakertilly.co.il
