VAT in Israel - VAT rate increased from July 1 2009

The standard rate of VAT in Israel was increased from 15.5% to 16.5% on July 1, 2009.  The current change of VAT rate is not the first time the standard rate of VAT in Israel changes. Last time VAT in Israel was changed in July 2006 while decreasing from 16.5% to 15.5%.

Changing the VAT rate has potential to cause a certain amount of procedural and technical confusion.
To avoid this confusion, payers of VAT in Israel should always remember and follow some basic rules of VAT taxation in Israel:

• VAT rate applicable while issuing VAT invoice is the rate in force at the time when a relevant transaction is taxable according to VAT law and regulations and not necessarily the rate in force at the time the invoice is being issued.

According to VAT law and its regulations, an invoice for VAT purposes might be issued 14 from the date the transaction is taxable (or 7 days since the date the money was received for certain kinds of transactions or certain categories of tax payers taxable on cash-basis).

Therefore invoices for some transactions, that became taxable prior to July 1, 2009 when the tax rate was 15.5%, might be issued after the transition date July 1, 2009 when the VAT in Israel was increased to 16.5%. In this case, the relevant rate would be still 15.5%. For example, supply of goods is taxable for VAT purposes at the date of delivery/supply, but the invoice might be issued during 14 days since that date. Invoices issued after July 1, 2009 in respect of sale of goods supplied prior to July 1, 2009, shall be issued therefore with the tax rate of 15.5% even though standard VAT rate is now 16.5%.

• A credit note's purpose is usually to correct/cancel an invoice issued in respect of some past transaction. Therefore a credit note should show or include VAT at the rate in force at the time the original invoice issued. Following this rule, any invoice issued after July 1, 2009 in respect of some prior transaction, that was taxed and invoiced at the rate of 15.5%, should be issued exactly with the same VAT rate of 15.5% despite of the changed standard VAT rate.

In order to assist tax payers in understanding of consequences of VAT rate change and to avoid confusion, the VAT authorities in Israel use to publish explanatory materials and examples which are very useful in understanding the consequences of the tax rate changes and reporting VAT correctly in the transition period.

If you have any questions regarding the influence of VAT standard rate change on specific transactions your business is involved in or on VAT reporting in the transition period, please contact Raveh Ravid & Co. CPA

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