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Israel plans digital services VAT for foreign companies

Israel’s government has published a proposal to introduce digital services VAT. The new VAT would apply to foreign businesses that supply online services to customers in Israel.  The proposal is part of a broader memorandum detailing numerous policy proposals issued by the Israeli finance ministry

Analysts do not expect the new digital services VAT to come into effect before 2022.

No threshold for VAT registration (for now)

In terms of the memorandum, there is no VAT registration threshold. Foreign companies providing digital services must register for VAT once they make their initial sale.  

Note, however, that these are proposed regulations, and are subject to change by the time they are implemented. 

What will Israel’s Digital Services VAT apply to?

In line with similar VAT policies elsewhere, Israel’s proposed digital VAT is fairly broad. Foreign companies supplying streaming services, communication services, ebooks and other services will be liable for VAT.

Foreign companies that supply digital services to customers in Israel should pay close attention to the developing regulations. 

What is the purpose of the new VAT?

According to Israel’s finance ministry, digital services VAT would create a more level playing field for local and foreign businesses. Moreover, the new tax will boost revenue collection. 

The Israeli plan is thus in line with global norms. Given the global reach of digital services, and the central importance of the digital economy, more countries around the world are therefore adopting digital services VAT.

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