Israel VAT Guide for 2026: Rates, Registration & Compliance

Israel applies a standard 18% VAT to most goods and services, including digital supplies. The rate rose from 17% to 18% on 1 January 2025.[2] A 0% rate covers exports, services to foreign residents, and inbound tourism, and some supplies such as residential rental and certain financial services are exempt.[1] Transactions within the Eilat free-trade zone are VAT-exempt.[1] The tax authority is the Israel Tax Authority.[1]

Israeli businesses generally register as licensed dealers; a business below the annual turnover ceiling (about NIS 120,000) may register as an exempt dealer that does not charge VAT [1]. Israel has no dedicated VAT regime for non-resident digital sellers: under Israel Tax Authority Circular 4/2016, a foreign company selling online services to Israeli customers must register and appoint an Israeli representative only if it carries on business in Israel, for example through a permanent establishment or a significant economic presence [1].

Businesses with annual turnover above NIS 1,725,000 file monthly, and those at or below that file every two months, with the return and payment due by the 15th of the following month.[2] Israel's Israel Invoice clearance model requires a real-time allocation number for B2B invoices above a set value: the threshold falls to NIS 10,000 from 1 January 2026 and to NIS 5,000 from 1 June 2026, and buyers cannot deduct input VAT on an invoice without a valid number.[3]

Exports, services supplied to non-residents, inbound tourism services, and certain fresh produce are zero-rated. Residential rental and certain financial services are exempt, and transactions within the Eilat free-trade zone are VAT-exempt.[1] SaaS and digital services supplied to Israeli customers are taxable at 18%, with a reverse charge on B2B sales to registered businesses.[1]

Israel has no US-style resale certificates. A licensed dealer recovers the input VAT it pays on purchases and imports by deducting it from output VAT on its return, provided the purchases support taxable business activity and valid tax invoices are held [1]. Net VAT payable equals output VAT minus deductible input VAT.

Late filing carries a fixed fine for each two-week period a return is overdue, indexed annually. Late payment adds index linkage plus interest and an arrears fine on the outstanding VAT.[2] Operating without registration exposes a business to assessment, denial of input-VAT credits, and administrative fines.[2]

The Israel Tax Authority reviews returns and can open audits, request records, and issue assessments where VAT is under-reported [1]. A dealer who disagrees with an assessment may file an objection with the authority and, if unresolved, appeal to the District Court under the VAT Law [1].

• [1] Israel Tax Authority, VAT information, https://www.gov.il/en/departments/israel_tax_authority

• [2] Knesset, order raising the VAT rate from 17% to 18%, https://main.knesset.gov.il/EN/News/PressReleases/Pages/press12324w.aspx

Verified July 2026 against Israel Tax Authority guidance.