VAT in Israel for Foreign Businesses and Non-Residents: A Complete Guide

Many English-language guides, including older ones, state that every foreign seller must register from its first Israeli sale. That is not what the statute says. The real test turns on presence, and getting it wrong costs money in both directions: registering when you do not need to can cost you the zero rate on your Israeli suppliers' invoices, and failing to register when you do need to brings back-tax, fines and a possible criminal offense.

This guide is for companies and traders based abroad. If you are an individual tourist or a foreign resident asking about refunds on purchases, see our general guide to VAT in Israel for foreigners.

1. How Israeli VAT Works in 2026

VAT (Ma'am) is imposed by the Value Added Tax Law, 5736-1975, on transactions in Israel and on imports of goods. The standard rate rose from 17% to 18% on January 1, 2025. A further rise to 19% for 2026 was proposed and dropped. Section 2 of the law provides for one rate, so there are no reduced bands for food or hospitality.

• Authorized dealer (osek morshe): charges VAT, deducts input tax and files periodic returns. This is the status a foreign company will have.
• Exempt dealer (osek patur): turnover up to NIS 122,833 in 2026. Companies cannot use this status at any turnover, so for a foreign company it is not a threshold you can shelter under. Foreign sole traders should check it with an adviser, since several professions are also excluded.
• Zero rated (Section 30): VAT at 0%, with input tax still deductible.
• Exempt (Section 31): no VAT and no input tax deduction. Residential rental for up to 25 years is the example foreign investors meet most often. Banks, insurers and non-profits pay a separate tax on wages and profit and do not charge VAT in the ordinary way.

Israel treats a one-off commercial deal as VAT-relevant too. The definition of "dealer" in Section 1 includes a person making an occasional transaction of a commercial nature, and the Registration Regulations have a dedicated route for it (Regulation 15A).

2. When a Foreign Company Must Register

Two provisions do most of the work. Section 15 says when a service counts as given in Israel: if it is given by someone whose business is in Israel (having an agent or branch here counts), if it is given to an Israeli resident, or if it concerns property located in Israel. So a service sold from abroad to an Israeli customer is still a transaction in Israel. What changes is who pays the tax.

Section 60 then sets the duty that applies to foreign businesses: a non-resident taxable person with business or activity in Israel must appoint a local representative and be registered. Without that presence, Regulation 6D moves the liability to the Israeli buyer (see Section 6).

A foreign company should expect to register if it has any of these:

• A branch, including a company registered in Israel as a foreign company (branch registration does not change its non-resident status under Section 60)
• Employees, a rented office or a dependent agent in Israel
• Stock held in Israel for sale to local customers
• Construction, installation or other work physically carried out in Israel under its own contract
• A permanent establishment for income tax purposes, which Circular 4/2016 links to VAT registration

Timing matters. Regulation 2 of the Registration Regulations requires the registration form no later than the day business starts. Section 52(b) also lets a person who proves it is setting up a business register in advance, which is what you want if you face large start-up costs, because of the rule in Section 9.

An Israeli subsidiary is a different case. It is an ordinary Israeli dealer with no Section 60 representative. If you are choosing between structures, compare forming a company with a branch before you file anything.

3. The Fiscal Representative (Section 60)

Israeli law calls this person simply the representative (natzig). The rules are short and strict:

• The foreign business appoints the representative within 30 days of starting to do business or operate in Israel.
• The representative's permanent residence must be in Israel, and the written consent goes to the Tax Authority.
• The representative is treated as the taxable person for the purposes of the VAT Law (Section 60(b)). That is why the role carries real exposure.
• When representation ends, notice is due within 14 days, and a replacement must be named in the same period. Until the Tax Authority is told, the duties stay with the outgoing representative.

Section 60 applies to corporations registered or incorporated only abroad, to corporations controlled and managed from abroad, and to foreign companies registered here. For individuals, it also reaches someone staying in Israel on a non-permanent visa, as the Director instructs.

4. How to Register, Step by Step

1. Test your facts. List what you have in Israel: people, premises, agents, stock, contracts performed here. If the answer is unclear, consider a ruling request to the Tax Authority before you commit.
2. Appoint the representative and obtain written consent.
3. File Form 22 with Form 821. Form 22 is the Tax Authority's request to open a VAT file for a foreign business. A company attaches a certificate from its foreign registry; an individual attaches a passport copy showing the entry permit. If signatories are abroad, a notarized power of attorney is required. The gov.il service page lists the service as free of charge.
4. Set up invoicing for tax invoices and allocation numbers (Section 10).
5. Calendar your returns (Section 11) and keep books and source documents for seven years (Section 75).
6. Check the income tax side. VAT registration and income tax are separate. Review corporate income tax for foreign companies and, for payments to you from Israel, withholding on foreign contractors.

5. Digital Services and the 2026 Rules

This is where online guides disagree most. Some describe a "foreign supplier regime" or a simplified digital scheme with mandatory registration from the first sale. We could not trace any of those claims to Israeli legislation. The text of the VAT Law as amended through 2026 contains no digital services chapter, and no enacted scheme appeared in our review of Tax Authority and professional sources.

What does exist:

• Circular 4/2016 (Tax Authority, April 2016). As practitioners summarize it, a foreign supplier of online services to Israeli customers should register under Section 60(a) where its activity amounts to a permanent establishment, or where it has a branch, employees, a rented office or an affiliate in Israel. That registration is ordinary dealer registration, with input tax deduction.
• Proposals that did not become law. A bill to make foreign providers register and charge VAT on sales to Israeli consumers appeared in 2016, again in an August 2021 memorandum and again in a February 2023 memorandum. Reports say the 2023 version was dropped from the 2023-2024 budget. We found no sign of it in the 2026 budget, but it recurs, so check before each budget cycle.

Licenses and downloads can raise a separate point, since "goods" in Section 1 include intangible assets and rights, and Section 16(3) makes the owner of imported goods liable for tax on imports of intangibles. Either way, the liability sits with the Israeli side unless the seller has a presence here.

Private consumers are the gap. On paper, Regulation 6C(d)(2) has a non-dealer report and pay as for an occasional transaction. The repeated bills were aimed at this collection problem, which is why a foreign seller with only consumer customers and no Israeli presence generally charges no Israeli VAT today.

6. Reverse Charge on Services From Abroad

Regulation 6D of the VAT Regulations, 5736-1976, states the rule: where a transaction takes place in Israel and the seller or service provider is a non-resident, the buyer is liable for the tax, unless the buyer holds an invoice for the transaction.

1. The Israeli dealer issues an invoice in its own name.
2. It reports the transaction in its periodic return and pays the VAT with that return.
3. If its activity is fully taxable, it can deduct that VAT as input tax, usually leaving no net cost.

For Israeli buyers that cannot deduct, such as banks, insurers, non-profits and exempt dealers, the 18% is a true cost.

As the foreign supplier, you do not collect this VAT. Issue a normal commercial invoice with no Israeli VAT, and expect Israeli customers to ask for tax residency details and, separately, to consider income tax withholding on the payment.

7. Zero Rating: Exports and Services to Non-Residents

The zero rate matters to foreign businesses in two ways: as buyers of Israeli services, and as owners of Israeli operations that export. The main heads in Section 30(a) are:

• Exported goods (30(a)(1)): an export declaration or other approved document was filed and customs release was given.
• Intangible assets sold to a non-resident (30(a)(2)).
• Services to a non-resident (30(a)(5)): the workhorse for Israeli service exporters.
• Services given abroad (30(a)(7)) by a dealer whose main place of business is in Israel.
• Exhibition space and related services (30(a)(17)) supplied to a non-resident, even while it is in Israel as a tourist for the exhibition.

Section 30(a)(5) has four limits worth knowing:

• Who counts: under Section 30(c), the customer must be outside Israel and have no business or activity in Israel. A foreign group whose Israeli VAT registration reflects local activity should expect its Israeli suppliers to charge 18%.
• Property in Israel: Regulation 12A(a) denies the zero rate for services concerning property located in Israel, with narrow exceptions, including where the charge forms part of the customs value of the goods.
• Services actually delivered in Israel: there is no zero rate where the agreement is to deliver the service also to an Israeli resident in Israel. In the GFI Securities ruling (published February 2024), the Supreme Court applied this to a brokerage fee paid by a foreign bank, because the single service also reached an Israeli bank, however small its share.
• People visiting Israel: Regulation 12A(c) excludes a service whose subject is delivery to another non-resident during a stay in Israel, apart from listed tourism services.

The Tax Authority does narrow these limits sometimes. Tax Ruling 6033/25 (2025) applied the zero rate to warranty repairs in Israel paid for directly by a foreign manufacturer, on conditions including that the charge is part of the value of the imported goods. That follows a district court decision on marketing services for a foreign resident (Tax Appeal 21657-11-19). Section 30(a)(5) itself does not list payment in foreign currency as a condition.

8. Selling Goods Into Israel: Import VAT

VAT on imported goods falls on the owner of the goods as defined in the Customs Ordinance (Section 16(3)), and is paid with customs clearance. When a foreign seller ships to an Israeli importer that clears the goods, that importer pays import VAT and deducts it if it is a dealer named as the owner on the import declaration (Section 38(a)). The foreign seller does not need an Israeli VAT file on those facts alone.

The picture changes if you act as importer of record or hold stock in Israel for local resale. You then have activity here, and a VAT file allows you to deduct the import VAT. Incoterms that make you responsible for clearance deserve a tax review before you sign.

For small parcels to private buyers, a personal import exemption applies. It has moved repeatedly: it stood at $75, an order raised it to $150 in December 2025, and the Knesset and the Finance Minister then clashed over it during 2026, with reports of a $130 level and of a return to $75. Confirm the current figure with your carrier or customs agent.

9. Refunds and Input VAT for Foreign Businesses

If you are not registered: Israel has no equivalent of the EU refund procedure. Section 39 pays refunds of excess input tax to a dealer through its periodic return, and professional guides from Grant Thornton and BDO state that overseas businesses not registered in Israel cannot recover VAT they incur. At least one adviser's guide mentions a "reciprocal refund system"; we could not find one in the VAT Law or regulations, so treat that as unconfirmed and get written confirmation from the Tax Authority before budgeting for it.

Practical alternatives: ask suppliers whether the zero rate applies before they invoice (exhibition space and many business services can qualify), and otherwise price Israeli VAT in as a cost. Hotels and tourist purchases for individuals follow separate rules, covered in the guide for foreigners.

If you are registered:

• Deduct input tax shown on a proper tax invoice or import declaration within six months of its date (Section 38(a)).
• Inputs must be used for taxable transactions (Section 41). Inputs for exempt activity, such as residential letting, are not deductible.
• Invoices issued before you were registered are not deductible (Section 40). This is the main trap for foreign investors with start-up costs.
• Tax invoices above NIS 5,000 before VAT need an allocation number (Section 10).
• Excess input tax is refunded within 30 days of receipt of the return, 90 days if the Director orders a review of your books, and 180 days if an investigation has begun (Section 39(a)). The Director may withhold the refund where books are missing or other returns were not filed (Section 39(b)).

10. Allocation Numbers on Tax Invoices

Under Section 38(a1) of the VAT Law, a buyer cannot deduct input VAT on a tax invoice above NIS 5,000 before VAT unless it carries a number allocated by the Tax Authority. The threshold fell from NIS 20,000 in 2025 to NIS 10,000 on January 1, 2026 and NIS 5,000 on June 1, 2026. This rule binds any authorized dealer, including a registered foreign company.

• Who asks: the supplier requests the number online, and above the threshold must do so if the buyer demands it (Section 47(a2)). Invoicing systems can do this automatically.
• What it covers: tax invoices and tax invoice-receipts. Section 47(a2) excludes zero-rated transactions. Consumers deduct nothing, so they are unaffected.
• What happens without a number: the buyer loses the deduction. Your customer bears that loss first, so expect it to refuse payment of the VAT or the invoice until you correct it. A number can be requested after issue, but the six-month deduction period keeps running.
• If the number is refused: the Director must give grounds online and offer a hearing within two business days. You can choose to invite the buyer to take on the tax and self-invoice, or issue without a number. Objection is possible within 30 days and appeal goes to the District Court (Section 47(a4)).

For a foreign dealer, the operating question is who holds Tax Authority system access: decide in advance whether your representative or your invoicing software requests numbers. Do not split one transaction into smaller invoices to stay below the limit; press coverage of the rollout reports that the Tax Authority treats this as improper.

11. Filing Returns and Paying

• Frequency: monthly as the default. Two-monthly if turnover in the 12 months to August 31 of the previous year did not exceed NIS 1,775,000 (2026 figure; NIS 1,805,000 for 2027). New dealers work from estimated turnover (Regulation 20).
• Deadline: the 15th of the month after the period ends. Dealers not required to file detailed reports who file and pay online have until the 19th.
• Payment: due with the return (Section 88).
• Records: seven years (Section 75).

12. Penalties and Unregistered Past Sales

• Late return: NIS 247 for each two weeks or part of them (Section 94, figure from July 2025, indexed periodically).
• Late payment: 0.25% of the debt per week or part of a week for the first six months, then 0.5% per week (Section 96), plus CPI linkage and 4% annual interest (Sections 93 and 97).
• Books not kept as required: a fine of 1% of transaction value for the tax year, with a minimum of NIS 370 per month (Section 95, July 2025 figure).
• Improper tax invoice: someone not entitled to issue one owes double the tax shown (Section 50).
• No return filed: the Director may assess tax to the best of his judgment (Sections 76 and 77). Objection is due within 30 days (Section 82), and appeal goes to the District Court (Section 83).
• Criminal exposure: failure to meet registration duties is an offense carrying up to one year's imprisonment (Section 117(a)(4)). Intentional evasion falls under Section 117(b), with up to seven years in aggravated circumstances.

If you have been operating here unregistered, take advice before the Tax Authority contacts you. Consider what you can recover from customers: without a tax invoice, they could not have deducted VAT, and you may not be able to pass on the tax later. Past input tax is usually gone, given Section 40. Penalties can sometimes be reduced on a reasoned request showing justification, though this is discretionary.

Primary sources: VAT Law text (Hebrew); VAT Regulations (Hebrew); Form 22, Israel Tax Authority; VAT returns, Kol Zchut. Figures are as of November 2026 and are indexed periodically. This guide is general information and does not replace advice on your facts.