Israeli Budget Law Passes

The budget law has now passed the Knesset. It contains various measures relating to e-invoice numbers, small businesses, rental income taxed at 10% and much more. Below is a review of some income tax and VAT measures (Economic Efficiency Law (Legislative Amendments To Achieve Budgetary Goals for Budget Years 2023-2024), 2023, SH 3045 published May 31, 2023).

ITA Invoice Numbers:

Commencing January 1, 2024, invoices above NIS 25,000 before VAT must bear invoice numbers allocated by the Israeli Tax Authority (ITA) so that the customer may recover input VAT on the invoice. The supplier may apply online for the ITA invoice number and must do so if the customer demands it unless 0% VAT applies. The supplier must then record the ITA number on the Tax Invoice, this may be in handwriting.

The aim, of course is to counter fictitious invoices by denying customers input VAT recovery regarding (bigger) expense invoices the ITA knows nothing about.

By January 2028, the above threshold amount for an ITA invoice number will decrease from NIS 25,000 to only NIS 5,000 before VAT. The rules expire at the end of 2028 unless renewed.

If the ITA suspects the invoice will be issued unlawfully, the ITA may immediately notify the supplier that no number is being issued and invite the supplier to a hearing within two business days in person or by video conference (Comment: currently the ITA doesn’t hold meetings by Zoom or similar, hopefully this is changing). In such a case, the ITA may also allow the customer to apply a reverse-charge (self-invoicing) procedure using the ITA invoice number.

For example, Avi is a freelancer who needs to pay Ben Ltd NIS 25,000 plus 17% VAT or NIS 4,250 in 2024. Ben Ltd must obtain an ITA invoice number from the ITA and state the number on its tax invoice to Avi and pay over the NIS 4,250 to the ITA (generally monthly). Avi can only recover the NIS 4,250 input VAT if he has the Tax Invoice with the ITA invoice number.

In addition, the Budget bill allows a start-up business to recover input VAT on invoices paid before the business registered for VAT purposes if the invoice has an ITA invoice number and, in exceptional circumstances, even if it has no such number.


Detailed instructions are awaited. Amended accounting and invoicing software will be needed.  Certain real estate deals are also impacted. Businesses should request ITA Invoice Numbers from their suppliers starting towards the end of 2023. We also await detailed rules for foreign e-commerce suppliers.

Small Businesses:

The Budget Law tries to make things easier for small businesses. In the years 2024-2026, the maximum annual revenue for an exempt dealer (Osek Patur) for VAT purposes will be NIS 120,000 per year, up from NIS 107,692 in 2023.

Moreover, commencing 2024, a freelancer with annual revenue up to NIS 120,000 may elect to be a Small Dealer (Osek Zair) when filing his annual income tax return, and claim a flat expenses deduction of 30% of revenues for income tax purposes. This is instead of deducting actual expenses.

The 30% expense deduction will not be available if any of the following apply: employees, inadequate books, unearned business income (comment: unclear, undefined), employer or ex-employer (in the 3 preceding years) also pays freelance income, part of income is from a transparent entity (house property or family company company apparently), over 25% of freelance income is from a related party, 10%-or-more shareholders (in any company apparently), anything else prescribed by the Finance Minister.

If an ex-small dealer disclaims this status in any year, the disclaimer generally covers the following 2 years as well.

If the small dealer sells a fixed asset such as real estate, depreciation not separately claimed under the 30% rule is still added to the taxable “sale value” (not deducted from index linked cost).

Residential Rental Income:

As many know, landlords of Israeli residential homes may elect to pay a flat rate of tax of 10% of gross rental income, with no deduction for expenses or depreciation. This is an alternative to paying regular tax rates of up to 50% on net rental profit after deducting expenses and depreciation.

Commencing this year, 2023, expenses up to NIS 90,000 per year may be deducted if these expenses relate to the rental of an only home (generally) in Israel and the landlord or their spouse resides in an old age home or geriatric hospital. The expenses may not be paid to a relative.

Next Steps:

The above is not exhaustive. 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 2023

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