Tax rate by region Israel

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VAT Compliance for SaaS Businesses in Israel

SaaS businesses in Israel are subject to a Value Added Tax (VAT). The standard VAT rate in Israel is 17%, and businesses are required to register for VAT if their annual turnover exceeds a certain threshold. VAT registration and compliance are crucial for SaaS companies operating in Israel, as failure to comply can result in significant penalties and fines.

Israel

Israel adopted a VAT system in 1976 to modernize its tax administration and enhance revenue collection.

Official government link: Israel Tax Authority

17.00%

E-products and services VAT/Sales tax rate

Reduced tax rate product categories

No specific digital goods or services have reduced tax in Israel

Exempted product categories

No specific digital goods or services categories are exempt in Israel

Reverse charge mechanism for B2B sales

Yes

Tax ID validation required

Yes

When do you have to register

Registration is necessary before supplying taxable goods or services in Israel

Online registration possible

Local representative needed

Yes

Registration procedure

For foreign companies offering digital services in Israel, the registration process necessitates manual submission via a local tax representative. This means a local tax representative must be appointed to handle all VAT-related issues on the company’s behalf. The required documents include the company’s registration certificate, the ID card of the local representative, and a filled-out VAT registration form (Form 821). These documents should be submitted to the VAT Department in Israel. Upon processing and approval of the registration, a VAT registration number will be issued by the Israel Tax Authority.

List of digital and electronic services liable for tax

Cloud-Based Services
Distance teaching and e-learning services
Electronically Supplied Services
Online advertising services
Online consulting and professional services (e.g., legal, financial)
Online Marketplaces
Telecommunication Services
Television and radio broadcastings
Web hosting and website maintenance services

Penalties

Penalty for late registration – 1% from the taxable turnover amount.

Fines and penalties may be applied for the late submissions of VAT returns and payments.

Registration threshold

No threshold, non-resident companies must register for VAT

Filing interval

Quarterly or annually depending of the sales volume

Filing deadline

By the 15th day of the month following the end of the reporting period

E-invoicing requirements

Not mandatory

Record keeping

Businesses are required to keep comprehensive transaction records for a minimum of 7 years, and these records should be accessible for review by the tax authorities in Israel.

Effortless Subscription Management and Billing

Filing, Deadlines, and Record-Keeping

SaaS companies in Israel are required to charge VAT on all taxable sales. When it comes to compliance, businesses must file VAT returns regularly, either quarterly or monthly, depending on their sales volume. The filing deadline is typically the 15th day of the month following the end of the reporting period. Additionally, businesses must keep comprehensive transaction records for a minimum of 7 years and these records should be readily available for review by the tax authorities.

Streamlining VAT Compliance in Israel

For SaaS companies looking to streamline their VAT compliance in Israel, e-invoicing is becoming increasingly popular. E-invoicing can save businesses time and money by automating the invoicing process and ensuring adherence to compliance requirements. However, it is important to consult with tax professionals to ensure that your business is complying with all relevant VAT regulations in Israel.

What is the VAT rate for SaaS in Israel?

The standard VAT rate for SaaS in Israel is 17%. Businesses with an annual turnover exceeding a certain threshold are required to register for VAT and charge VAT on all taxable sales.
How can SaaS companies comply with VAT regulations in Israel?

SaaS companies in Israel can comply with VAT regulations by registering for VAT, charging VAT on taxable sales, filing VAT returns regularly, keeping comprehensive transaction records, and potentially adopting e-invoicing for streamlined compliance.
How does customer location affect VAT obligations for SaaS businesses in Israel?

The location of a SaaS company’s customer generally determines the applicable VAT rate. If the customer is located in Israel, the standard VAT rate of 17% applies. However, if the customer is located outside of Israel, the VAT rate may vary depending on the specific circumstances.

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