Israel VAT Guide 2026

Overview — VAT in Israel (Ma'am)

VAT (Ma'am — Mas Erèch Musàf) is Israel's primary consumption tax, administered by the Israel Tax Authority (VAT Division). The standard rate was reduced from 18% to 17% effective January 2025 as part of a broader tax reform. VAT applies to most transactions in goods and services within Israel, with limited exceptions for exports, certain financial and educational services, and residential rentals. Businesses registered for VAT must file periodic returns (monthly, bimonthly, or periodic depending on turnover) and may recover input VAT on business purchases.

Standard Rate — 17%

The standard VAT rate is 17% (reduced from 18% in 2025). It applies to most goods and services sold in Israel, including imports. VAT is charged at each stage of the supply chain, with businesses recovering input VAT on their purchases. The final consumer bears the full 17% cost. VAT-inclusive pricing is standard for B2C transactions. The rate reduction from 18% to 17% was intended to lower the cost of living while maintaining fiscal stability.

Zero-Rated Supplies (0%)

The following supplies are zero-rated for VAT purposes, meaning the supplier charges 0% VAT but may still recover input VAT:

• Exports of goods from Israel
• Certain international transport services
• Services provided to non-residents (specifically listed services)
• Sale of a business as a going concern (under certain conditions)
• Gold sold to the Bank of Israel
• Diamond trading (rough and polished diamonds by licensed dealers)

Exempt Supplies (Without Input VAT Recovery)

The following supplies are exempt from VAT, meaning no VAT is charged but the supplier cannot recover input VAT on related costs:

• Financial services: Banking, insurance, and credit services (interest, fees, insurance premiums)
• Residential rentals: Long-term residential property rentals
• Educational services: Recognised educational institutions
• Healthcare services: Medical services provided by licensed practitioners and hospitals
• Certain non-profit activities: Sales by charitable organisations (limited scope)

VAT Registration Threshold

The VAT registration thresholds for 2026 are:

• Goods: Annual turnover exceeding ₪120,000
• Services: Annual turnover exceeding ₪90,000
• Voluntary registration: Businesses below the threshold may register voluntarily
• Non-residents: Foreign businesses providing taxable supplies in Israel must register regardless of turnover, subject to VAT representative requirements

Electronic Filing — Maam Neto

VAT returns in Israel are filed through the Maam Neto (מע"מ נטו) electronic system. Key features:

• Online filing through the Israel Tax Authority portal
• Monthly filing for businesses with annual turnover above ₪10 million
• Bimonthly filing for businesses with turnover between ₪120,000 and ₪10 million
• Periodic (annual) filing for businesses with lower turnover (optional)
• Returns due by the 15th of the month following the reporting period
• VAT payment due by the same deadline

Purchase Tax (Mas Keniya) on Vehicles

In addition to VAT, a purchase tax (Mas Keniya) applies to motor vehicles at rates ranging from 50% to 83% depending on the vehicle's engine type and environmental classification. The rate structure encourages electric and hybrid vehicles:

• Electric vehicles: 50% purchase tax (reduced rate to encourage adoption)
• Standard petrol vehicles: 83% purchase tax
• Hybrid vehicles: Intermediate rates depending on emissions

FAQs

Can foreign businesses recover Israeli VAT?

Foreign businesses not registered for VAT in Israel generally cannot recover Israeli VAT. Businesses registered for VAT in Israel can recover input VAT on business expenses incurred in Israel, subject to normal rules.

Are digital services subject to Israeli VAT?

Yes, digital services provided to Israeli consumers by foreign suppliers may be subject to Israeli VAT. Foreign digital service providers may need to register for VAT in Israel under the special regime for foreign suppliers.

What are the penalties for late VAT filing?

Late filing penalties include a fine of ₪500 per month of delay plus interest (ribit) and inflation linkage (madad) on any outstanding tax. Intentional evasion may lead to criminal prosecution.

Disclaimer

This guide provides general information about Israeli VAT (Ma'am) for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Israeli tax advisor or the Israel Tax Authority directly for advice specific to your situation. InvestmentKit does not provide tax advice.