Claiming VAT on War Security Expenses

Can a business recover VAT on war security expenditure? In many countries that have VAT or similar taxes, a business can claim back VAT on business expenditure but not private expenditure.

So is war security expenditure business or private? The Israeli CPA Institute took this dilemma to the Israeli VAT Authorities and now has an answer.

The Israeli VAT Authorities have just published a “Confirmation (Ishur) about the treatment of security expenses incurred by 45 Israeli kibbutzim and other settlements near the Gaza Strip (“Security expenses in Kibbutzim and settlements by the Gaza Strip border” from the Finance Ministry/VAT Branch March 18, 2024).

In short, up to two thirds of the input VAT on war security expenses  may be claimed back on VAT returns in the usual way in the 45 settlements. This is good to know but leaves open a number of questions – see below. Following is an overview of the Confirmation.


After the October 7 atrocities and multiple threats to civilians by the Gaza border, civilians were ordered on October 12 to evacuate an area which was then closed off, on October 17 last year. But security standby teams (Kitot Konanut) remained operational in the evacuated areas, resulting in security expenses guarding the plants/enterprises, repairing them and fuel and maintenance for patrol vehicles, Related expenses included: flashlights, ceramic body armor, tactical clothing, generators, security cameras, boots, helmets, tactical vests, electricity for the security HQ, water, tools, panels, armory, office equipment and fire extinguishers for the security standby teams.  All the listed 45 settlements (see below) are registered for Israeli VAT purposes as authorized dealers (Osek Morshe).  Clarification was needed whether the 45 settlements are entitled to recover input VAT on such war security expenditure.

Analysis and decision:

Input VAT is the VAT imposed on goods sold on goods sold to a business or imported by a business and services rendered to a business. Input VAT is not deductible unless the inputs (supplies) were used in a taxable sale transaction subject to VAT (VAT Law Secs. 1 & 41).

What about inputs put to mixed use, partly for taxable sales, partly not so?  Here the Confirmation quotes rules in the VAT Regulations regarding mixed supplies (VAT Regulations Sec.18).

The regulations allow input VAT to be claimed pro rata to business usage. Where the business usage is indeterminate, the Regulations allow two possibilities. These two possibilities are more normally applied to company car expenses where the car is used for a mixture of business and private purposes. Israelis don’t need to keep milage/kilometer travel logs. Instead, where any asset or service is used mainly for business purposes, the business may deduct (claim) 2/3 of the input VAT on related expenses.

But where any asset or service is used mainly for private purposes, the business may claim 1/4 of the input VAT on related expenses. The Confirmation is valid until any amendment is made to the VAT Law or regulations.

The decision:

The VAT Confirmation says that security standby teams guard all of a settlement, both parts used for business purposes and “municipal” purposes. But the use is deemed to be mainly for business purposes. Therefore, the 45 settlements concerned are entitled to claim 2/3 of the VAT on security expenses they incur. This assumes that the parties concerned are not related to each other. Related parties are not defined. No time limit is stated.

The settlements:

The 45 settlements listed in the Confirmation are: Avshalom, Ohad, Or Haner, Beeri, Bnei Netzrim, Bror Hayal, Gevim, Gavram, Dorot,  Dekel, Zikim, Holot, Yivul, Yad Mordechai, Yesha, Yated, Kisufim, Kfar Aza,  Carmia, Kerem Shalom, Mivtahim, Magen, Miflasim, Nava, Nahal Oz, Nir Yotzhak, Nir Oz, Nir Am, Nirim, Ntiv Haasara, Sofia, Saad, Ein Habesor, Ir Hashalosha, Alumim, Amioz, Pri Gan, Tzohar, Reim, Sdeh Nitzan, Sdeh Avraham, Shlomit, Shokeda, Talmi Eliahu, Talmi Yosef.


So now we know that two thirds of the input VAT on war security expenses may be claimed back on VAT returns in the usual way in the 45 settlements.

No mention is made about places elsewhere in the North and across Israel. But tax rulings are meant to be used as examples….

No mention is made of the income tax side – is war security expenditure deductible for income tax purposes? If so, can any resulting losses be offset as business losses against other income that year or business income in future years? To what extent? The two thirds rule is a VAT rule not an income tax rule.

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 31.3.24

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