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Israel’s VAT Rate to Increase to 18% Starting January 2025

1. Rate Change:
– The standard VAT rate in Israel will increase from 17% to 18%
– Effective date: January 1, 2025
– This was announced in early 2024 and confirmed by the Israeli Tax Authority on December 5, 2024

2. Key Implementation Rules:
– For Goods:
* Tax point is generally at delivery
* Small businesses (turnover under 2M NIS) use cash basis
* For goods delivered before Dec 31, 2024: 17% VAT applies
* For goods delivered from Jan 1, 2025: 18% VAT applies

– For Services:
* Generally uses cash basis (tax point at payment)
* Large businesses (over 15M NIS turnover) use accrual basis
* Payments received before Dec 31, 2024: 17% VAT
* Payments received from Jan 1, 2025: 18% VAT

3. Special Cases:
– Real Estate: VAT rate depends on when payments are made or when property is transferred
– Imports: 18% applies to goods cleared through customs after January 1, 2025
– Subscriptions: Rate depends on when payment is received
– Credit transactions: Rate applies based on when interest is received/paid

4. Invoice Requirements:
– Businesses must issue corrective invoices if they issued invoices with 17% VAT for transactions that will be subject to 18% VAT
– Separate documentation required for transactions at different rates
– Credit notes for transactions originally at 17% should use the same rate

5. Price Agreements:
– Unless otherwise specified in contracts, businesses can charge customers the additional 1% VAT for agreements made before the rate change but paid after January 1, 2025

Source: gov.il

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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