2023/24 Budget drops proposals for VAT collections obligations for non-resident service providers from 2024
The Israeli government has reportedly abandoned 2023/24 budget plans to extend Israeli VAT collections obligations to foreign providers and digital platforms for digital or electronic services to consumers.
Under the proposals, B2B transactions with a foreign or non-resident provider would have been the responsibility of the customer, using the reverse charge mechanism. The draft provided no details on the liabilities of marketplaces or similar digital intermediaries to act as the VAT deemed supplier.
This was originally proposed in 2016, and in many budgets since. It would follow many other global VAT digital services implementations.
The current VAT rate in Israel is 17%.
What digital services would be liable to Israeli VAT in the future?
The plans included taxing the following supplies:
- Electronic services: streaming or download music, films etc; software; e-books; e-learning etc
- Communication services: texting; phone; internet access
- Online store: for sale of tangible goods
- Low value consignments of goods
Operators of online stores or “Digital Area” would be liable to the VAT too. A digital area is defined as “an online system used to carry out transaction between Digital Services providers and recipients of Digital Services.”
Determining the place of supply as Israel
For the provider to determine if the consumption takes place in Israel, and therefore liable to local VAT, the following pieces of evidence may be considered:
- Home address
- IP or similar access identification
- Address of the means of payment
VAT compliance obligations
When the new rules do eventually get the green light, the Tax Authorities will be provided with the powers to set registration and compliance rules, with an expectation of simplified processes with limited rights. For example, no right to deduct any input VAT.
The following guidelines are likely to be set by the Ministry of Finance in the draft bill:
- No requirement to appoint a local Fiscal Representative
- No obligation to open a local bank account
- No requirement to locally incorporate
Preparing Israeli VAT returns can be challenging. VAT Calc’s single platform VAT Filer can accurately complete any country filings with verified transactional data from our VAT Calculator or VAT Auditorintegrated tools.
Digital Services Tax still an option
Israel’s Finance Ministry and tax authority announced in April 2022 that they intend to introduce a digital sales tax (DST) that may reap some $280 million for the treasury. The tax authorities will be working on a tax on the local sales turnover of foreign digital companies in Israel. This is likely to be rolled into the OECD inclusive tax reforms, which includes the right to tax turnover on digital services provided by large non-resident providers.
Africa & Middle East VAT on digital services
|Comments (click for details)||Rate||Date||Threshold||Comments|
|Cameroon||19.5%||Jan 2020||XAF 50 million|
|Egypt||14%||Sep 2016||EGP 500,000|
|Ghana||12.5%||Apr 2022||GHS 200,000|
|Kenya||16%||Sep 2013||-||Registration threshold removed 2023|
|Oman||5%||Apr 2021||OMR 35,000|
|Saudi Arabia||15%||Jan 2018||Nil|
|Senegal||18%||Jan 2023||Nil||Fiscal representative required|
|Sierra Leone||15%||SLE 100,000|
|South Africa||15%||Jun 2014||ZAR 1 million|
|Tanzania||18%||Jul 2022||Nil||Residents since Jul 2015|
|Tunisia||19%||Jan 2020||Nil||Withholding VAT; 3% Royalty Tax|
|Uganda||18%||Jan 2020||UGX 150m|
|United Arab Emirates||5%||Jan 2018||AED 375,000|