Indirect Taxes

Non-profit organizations (NPOs) are generally exempt from VAT in Israel. This means that they do not have to charge VAT on the goods or services they sell, and they are not required to pay VAT on the goods or services they purchase.

However, there are some exceptions to the VAT exemption for NPOs. For example, NPOs that generate business-related income, such as income from providing services, are subject to VAT on that income. Additionally, NPOs that purchase goods or services for the purpose of resale are also subject to VAT on those purchases.

In addition to VAT, NPOs are also subject to a special "salary tax" on the total gross amount paid to their employees. The current rate of the salary tax is 7.5%.

Pursuant to the provisions of Section 2 of the Value Added Tax Law, the obligation to pay tax under the law shall be at the time of the performance of a "transaction". A "transaction" is defined in Section 1 of the law, and it includes 3 options: Sale of a property or provision of a service by a trader during his business, including the sale of equipment; Sale of a property on which input tax was deducted on its sale to the seller or on its importation by the seller; A casual transaction.

Under the current rules, non-resident digital service providers with an "Israeli economic presence" are already required to register for VAT in Israel, establish a tax agent in the country, and file regular VAT returns. The definition of "Israeli economic presence" is quite broad and includes factors such as having a considerable number of Israeli clients, a website designed for the Israeli market and in the Hebrew language, allowing Israeli payment methods, and promoting Israeli consumers.

The new plan to charge VAT on digital services regardless of whether there is an Israeli economic presence is likely to have a significant impact on many businesses around the world. It will be important for businesses to carefully consider their activities in Israel to determine whether they will be subject to the new VAT rules.

Value-added tax (VAT) is imposed at a single rate of 17% on any transaction executed in Israel, on the import of goods by any person, and on the provision of services. The tax also applies to any casual transaction executed by any person, even if he is not a registered taxpayer, provided that the transaction is of a commercial nature and involves the sale of goods or real estate or the provision of services, and that the buyer is a registered taxpayer.