VAT in Israel

The City of Eilat - Israel's Free Trade Zone

VAT is an indirect tax based on the consumption of goods and services in Israel and is an important component of the taxation system in Israel. VAT (Value Added Tax) is levied at each stage of the sale (including imports). The current rate of VAT in Israel is 15.5% and is constant for all taxation transactions.

The added value of the tax is the difference between the cost of the product or service provided and the total estimated costs to manufacture the product or the service.

VAT payments accountable on the 15th of each month, based on the previous month's income and expenditure. The VAT in Israel is included in the total cost of the products and services and is generally the same when applied to private and public consumption. The Israeli Tax Authority is responsible for levying the tax.

VAT exemption in Israel

Income from export of goods or overseas services is exempt from VAT in Israel (income from services provided to overseas residents in Israel is liable for VAT).

Furthermore, some transactions such as: exported goods, sale of fresh fruit and vegetables, certain services rendered to non-residents, hotel services and car rentals to tourists who pay in foreign currency are not subject to VAT in Israel.

VAT in Israel: Eilat's free trade zone

Sales in the city of Eilat are exempt from VAT in Israel. Eilat is Israel's southernmost city and a renowned tourist destination on the Israeli shore of the Red Sea. The city offers visitors beautiful beaches, amazing scenery and natural attractions, alongside tourist attractions and luxury hotels.

In 1985, the Eilat Free Trade Zone law was passed in Israel. The purpose of the law was to support the remote city and to encourage the city's employment rate and its economical situation. Eilat's economy is based upon internal and foreign tourism and VAT exemption helped to promote its status versus other centers of tourism around the world.

Since 1985, the city's economic situation has greatly improved and tax benefits remained as before. Recently, the Israeli Ministry of Finance decided to cancel the tax exemption, but execution of the decision is still pending.

VAT exemption in Eilat applies mainly to goods and services sold in the city, which are used in the city, such as: lodging in hotels, transportation and sustainable products. Every business in Eilat is entitled to VAT exemption for the sale of products or services within the city limits.

VAT exemption does not apply to products, such as cars, several electrical products, cigarettes and jewelry priced in excess of $200 per item. These products are sold in the same amount of VAT in Israel.