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Vat Print

Value Added Tax (hereinafter:  "VAT) is an indirect tax. This means that, unlike a direct tax, such as income tax, VAT is levied on the sale or on the provision of a service.  VAT affects everyone, as it is passed onto the buyer or consumer of the service, and is in effect part of the end price we pay. Therefore, any change in the VAT rate in effect raises or lowers the price of the product.

The principle for the imposition of VAT is set forth in section 2 of the Value Added Tax Law, 5736-1975 (hereinafter:  the "Law"), whereby VAT is imposed on all transactions in Israel and on all imports of goods at a uniform percentage of the price of the transaction or of the goods. For this purpose, there are three categories of "transaction" as defined in section 1 of the Law: The first category is the sale of an asset or the provision of a service by a dealer in the course of his business, including the sale of equipment; the second category is the sale of any asset from which input tax was imposed on its sale to a seller or on its import by the seller; the last category is an occasional transaction.

In addition, under section 2 of the Law, VAT will be imposed on transactions in Israel. That is to say, VAT is a territorial tax that is charged whenever a transaction is made in Israel. With respect to a sale, section 14 of the Law provides that "an asset shall be deemed to have been sold in Israel if the asset was in Israel at the time of its delivery to the buyer or if exported from Israel, and in respect of an intangible asset – if the seller is a resident of Israel." That is to say, there are three alternatives - the asset was delivered in Israel, the asset was exported from Israel or if this involves an intangible asset sold by a resident of Israel. With respect to rendering a service, section 15 of the Law provides that there are three possible alternatives for a service to be deemed rendered in Israel. The first alternative is if the person rendering the service has a business in Israel (and therefore the place of the transaction may be deemed in Israel even if the service was provided abroad) or if the person has an agent or branch in Israel (only the income of the branch in Israel will be liable for VAT); and the second is if the service was rendered for a resident of Israel (the customary meaning of this alternative is that the service was provided for a resident of Israel and used in Israel); the third alternative is if the service was rendered for assets located in Israel.

As for the payment of VAT, section 16 of the Law provides that the person liable for VAT in a sale transaction is the seller; when providing a service, the person liable for VAT is the service provider; and in an export transaction, including a transaction involving intangible goods, the owner of the goods; in the case of activity of a non-profit organization or financial institution, the person liable for VAT is the non-profit organization or financial institution.

Details on the Alternatives for Defining a Transaction

Bloomberg BNA – Israel VAT Navigator