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Israel VAT foreign B2C digital services delayed

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
Algeria 9% Jan 2020 Nil
Angola 14% Oct 2019
Bahrain 10% Jan 2019 Nil
Benin 18% Oct 2023 TBC
Botswana 14% 2024 - Pending implementation
Cameroon 19.5% Jan 2020 XAF 50 million
Cape Verde 15% Jan 2022 Nil
Congo, Democratic Republic 16% Jan 2024 -
Egypt 14% Sep 2016 EGP 500,000
Ghana 12.5% Apr 2022 GHS 200,000
Guinea 18% Jan 2016 Nil
Israel 17% TBC Proposals withdrawn
Ivory Coast 18% 2022 -
Jordan 16% JOD 30,000
Kenya 16% Sep 2013 - Registration threshold removed 2023
Kuwait 5% Jan 2024? - TBC
Madagascar 20% Nil Collections via fiscal rep
Mauritius 15% 2020
Morocco 20% 2024
Mozambique 16% 2017 Nil
Nigeria 7.5% Jan 2020 $25,000
Oman 5% Apr 2021 OMR 35,000
Rwanda 18% TBC
Saudi Arabia 15% Jan 2018 Nil
Senegal 18% Jul 2024 Nil Fiscal representative required
Sierra Leone 15% Jan 2021 SLE 100,000 No non-resident rules
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
Zambia 16% Jan 2024 Fiscal Representative req'd
Zimbabwe 14.5% Jan 2020 Nil


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