Regulatory updates - Israel

As stipulated by the technical specifications’ version 2.0, taxpayers must implement the updated requirements by 1 January 2025.

Key updates include:

• New JSON File Lines: Additional lines have been added to the JSON file required for clearing tax invoices, along with changes in validations for some lines.
• Updated and New Web Services: New web services have been introduced for cases where the ITA does not return an Allocation Number during the clearance process. ITA will offer four different methods to address this situation.
• New Document Types: Two new document types now require an Allocation Number:
  • • Agent Tax Invoice (חשבונית מס סוכן)
    • Journal Command (פקודת יומן)

1 January 2025 also marks the end of the pilot period, after which the ITA will begin applying technical validations to each received JSON file.

ITA has decided to grant an additional extension to taxpayers in the jurisdiction resulting from ongoing concerns stemming from the impact on the Israeli economy.

The mandate is now set to commence on 5 May 2024, giving taxpayers an additional month to adhere to the CTC requirements and obligations.

Initially, all Authorized Dealers registered in Israel were supposed to start clearing their Tax Invoices above NIS 25.000 (ca. EUR 5.800) [before VAT] from 1 January 2024. Due to current state of war in Israel, the obligation is now postponed to 1 April 2024.

As the obligation for the suppliers to obtain the Allocation Number is now delayed to 1 April 2024, the buyers will be able to deduct VAT even for invoices without such Allocation number issued during the period 1 January to 1 April 2024. Starting from 1 April 2024, all invoices in the scope must, however, include the Allocation number assigned by SHAAM.

Important to note, as ITA is on track with SHAAM development, the suppliers will be able to obtain the Allocation Number already starting from 1 January 2024 on voluntary basis. 

The official ITA statement is available here.

According to the latest specifications published by  ITA, the CTC mandate will be implemented based on the net amount of issued invoices according to the following schedule:

• January 2024- Invoice amount higher than NIS 25.000 (ca. EUR 6.100) before VAT (pilot phase)
• January 2025 - Invoice amount higher than NIS 20.000 (ca. EUR 4.900) before VAT
• January 2026 - Invoice amount higher than NIS 15.000 (ca. EUR 3.700) before VAT
• January 2027 - Invoice amount higher than NIS 10.000 (ca. EUR 2.450) before VAT
• January 2028 - Invoice amount higher than NIS 5.000 (ca. EUR 1.220) before VAT

Which CTC model is implemented?

The model Israel will be implementing is ultimately a  Centralize Clearance Model. Taxpayers exceeding the thresholds stated above will be required to request an “Allocation Number” (“מספר הקצאה”) via API or web portal of the ITA system. The request for the “Allocation Number” will require sending the invoice information prescribed by the tax authority such as:

• Invoice ID
• Invoice type
• Accounting software number
• Issuer VAT number
• Invoice date
• Payment amount
• VAT amount
• Payment amount including VAT, among some other mandatory information

Once the allocation number is acquired by the issuer, it will be required to add this number to the tax invoice - otherwise, the invoice will have no tax validity and taxpayers will not be eligible to deduct input VAT.

By utilizing the allocation number or its 9 last digits from the right, purchasers will have the ability to access detailed information about an invoice through the tax authority service. This functionality is intended to streamline and optimize the process of integrating the invoice into the buyer's accounting system.

Manual solution

Taxpayers using manual invoice books will have the opportunity to receive the Allocation Number through a dedicated application provided by the Tax Authority. This will be possible by entering the invoice details into the application.

Contingency procedure

The published technical specifications also describe the procedure in case of communication failure with the tax authority, when it is not possible to obtain an “allocation number” from it. For this purpose, the tax authority will allow taxpayers to ask for “emergency allocation numbers”, which must be saved and used when needed in the contingency situation.

As part of their economic plan for 2023-2024, the Israeli government has opted to introduce a continuous transaction control model. Israel wishes to prevent the issuance of falsified invoices used to avoid proper taxation pertinent to standard transactions in Israel and has designated CTC implementation to address this.

The initiative is planned to begin on 1 January 2024, with the tax authority opting to assign confirmation numbers to invoices at the time of their issuance. The preliminary scope of transactions subject to the controls is those with values over NIS 25.000 (ca. EUR 6500,00).

This will be a gradual roll-out, encompassing all invoices valued at 5000 NIS (ca. EUR 1300,00) or more by 1 January 2028. Furthermore, after a two-year piloting period, the Israeli Tax Authority will begin to refuse requests to assign confirmation numbers to invoices before issuance to the customer.

Israel is just one of the many countries moving forward with CTC, hoping to impede tax evasion and fraud. Follow Pagero as we continue to monitor Israel’s journey towards continuous transaction controls.

As previously reported by Pagero, there have for a long time been discussions in Israel to implement a CTC model in the country. The country has been plagued by tax evasion and the enforcement agencies have been missing the proper tools to combat this.

On 24 February 2023, the Government of Israel approved the 2023-2024 state budget and economic plan, which outlines the introduction of a clearance-based model into the tax system. Under this model businesses will require real-time approval by the tax authority of issued invoices above the threshold of NIS 5000 (ca. EUR 1300,00).

There is still a long way until the CTC model becomes a reality for Israeli businesses. The plans must pass additional readings and approvals to be cemented. Furthermore, there is a need for amendments to the VAT law in preparation for this new e-invoicing regime.

Avi Simhon, the head of the National Economic Council, originally presented the proposal aimed at supporting businesses and boosting consumption in order to battle the negative effects of the COVID-19 pandemic. However, senior officials opposed the proposal, stating that it would reduce government revenue drastically and benefit the wealthy more than lower-income earners.

At a recent meeting of the parliament’s Economic Affairs Committee, Director of the Finance Ministry Keren Terner Eyal gave reasoning behind the decision to oppose. Eyal declared that private consumption is already high, leaving no current need to encourage it further.

The adoption of the Chilean model was discussed a few years ago, but the plan was abandoned as it was not broadly supported at the time. Current Tax Authority Director General, Eran Yaacov, has been making efforts to reintroduce the discussions. As part of his efforts, he appointed a team to fight fictitious invoices: The Committee Responsible for the Invoices Allocation Model in the Tax Authority, led by Miri Savion. The team’s first proposal aimed at introducing the mandate only for transactions exceeding NIS 50 000. However, after months of discussion, the Committee lowered the threshold to NIS 5 000.

Key elements of the mandate

Although it is too early to determine how the model will work, there are some elements of the mandate that the tax authorities are planning to implement:

• Invoices that exceed NIS 5 000 must be reported to and approved by the Israel? Tax Authority through software or a web portal. The Tax Authority will check the data and approve or reject the document.
• The model will only apply to business-to-business (B2B) invoices.
• The date of the transaction, invoice number, business numbers of the issuer and receiver, and the amount of the invoice excluding VAT will have to be shared with the Tax Authority.
• An internet application will allow the receiver to verify the particulars of the received invoice in order to ensure the authenticity of the document.
• Both issuer and the receiver will be required to report the number of approvals. Inconsistency between the number of approvals and the invoice particulars will lead the invoice to be rejected.

Combating fictitious invoices

Tax evasion, defined as “a national plague” by Israeli officials, has been a big problem in the country. Israeli authorities during recent years revealed professional networks distributing hundreds of millions of shekels in fictitious invoices. Currently, it is not possible for the authorities to check all invoices that are issued in Israel, which exacerbates the problem.

An e-invoicing mandate allowing authorities to check each transaction exceeding NIS 5 000 will contribute to a more transparent system and to the reduction of human errors and fictitious invoices.

The Tax Authority has been carrying out discussions with several tax-related institutions to promote the implementation of the e-invoicing mandate once a new government is formed.