Israel is moving onto a mandatory system of e-invoicing, known as “Israeli Invoices”, on April 1. This will be no joke for quite a few Israeli businesses. The date was pushed back 3 months due to the war.

In a nutshell, if a business wants to issue a Tax Invoice for NIS 25,000 or more, it will need an Allocated Number (Mispar Haktsaah in Hebrew) from the Israeli Tax Authority (ITA). Otherwise, the purchaser will be unable to recover input VAT in the usual way if the purchaser is in business. The aim is to stop purchasers claiming VAT, even unwittingly, on fictitious invoices.

Who needs an Allocated Number:

A business needs an Allocated Number, unless an exception applies (see below), to issue an invoice over NIS 25,000 (before VAT) in April-December 2024. The threshold decreases annually to NIS 20,000 in 2025, NIS 15,000 in 2026, NIS 10,000 in 2027, NIS 5,000 in 2028 onwards.

Who can be trusted?

A freelancer is authorized to register. As for companies, a hierarchy approach applies.

First a business registers for online digital services at his “personal area” (Azor Ishi). Either the person in overall charge (Morshe Al in Hebrew, big boss in our slang) registers; or a representative registers armed with a lawyer’s letter confirming who are the directors. The representative might be a CFO or anyone else, as long as they upload a lawyer’s confirmation that follows a set format published on January 28. A lawyer’s confirmation may take 5 days to be approved at the ITA.

Second, the big boss or representative specify details about the entity, who is authorized  and what they are authorized to do e.g. request Allocated Numbers, and for how long – up to a year presently. The big boss and other authorized people may delegate to named “users”, but users cannot delegate further.

Once someone is specified, they must accept, usually by text messages.

If there is a problem with the online procedure, it may be necessary to phone a hotline (*4954) or visit a tax office – for example if the big boss is a foreign citizen with no Israeli identity number.

How to get an Allocated Number:

The likely way is to use Israeli approved software which communicates electronically with the ITA and gets Allocated Numbers within a second to insert into tax invoices to clients. The ITA claims that the Israeli bookkeeping companies are all adapting their software currently ands should be ready by April 1.

The ITA offers a second dedicated online system to issue Allocated Numbers on an individual basis for businesses not hooked up to the first system, or that still issue paper tax invoices.

Businesses allowed to issue tax invoices on a cash basis when clients pay them (accountants, lawyers, etc) must request advance approval (Ishur Haktsaah) and get a number when issuing a proforma invoice/payment request. The number is good for a year.

A business that forgot to request any Allocated Number or faces a technical difficulty can request an Allocated Number up to a year retroactively.  Alternatively, the customer may be able to self-assess the VAT (“reverse charge”).

Catching the fraudsters:

In the period April-December 2024, any business requesting an Allocated Number should get it. From 2025 sleuths at the Israeli Tax Authority may refuse to grant the Number if something looks suspicious. Businesses that get turned down can appeal to the ITA, then to the District Court.

Both sellers are purchasers can see online Israel invoices between them. If there is a discrepancy between the VAT on the online invoice and the invoice they hold, they should “take care” and inquire before paying. This way the purchaser can check the seller’s invoice (or proforma invoice) is “kosher” but doesn’t have to,

Exceptions:

The rules only apply to B2B (business to business) not B2C (business to customer). The rules do not apply to imported or exported goods, other transactions where 0% VAT or a VAT exemption apply, credit notes, charities, or where the customer self-assesses the VAT (“reverse charge”). In each of these cases there should be no risk of input VAT fraud.

Comments:

The EU is due to apply similar rules called  ViDA (VAT in the Digital Age) in 2030. Israelis hardly need this upheaval right now in wartime, but the Israeli government needs the money.,…. The new system is already supposed to be operation, but this author found some teething problems. Businesses in Israel should contact their accountants about Israel Invoices soon if they didn’t already.

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

[email protected]

(c) Leon Harris 21.2.2024