LawTax Law
Value Added Tax Law, 5736-1975
חוק מס ערך מוסף, תשל"ו-1975
Published: 1976-01-06Consolidated Hebrew text as of 2026-07-13 · Last amended 2026-03-31✓ Amendment status checked against the Knesset legislation record on 2026-09-29
Premium
Unofficial English translation — for reference only. It may contain errors or omissions and cannot be relied on as a legal text. Only the Hebrew text published in Reshumot is legally binding.More
This English text was translated from the official Hebrew using a range of translation tools, and it undergoes ongoing checks and updates. It is not a certified translation.
Despite these checks, it may contain errors, omissions, or imprecise renderings of legal terminology and cross-references, and it may not yet reflect the latest amendments. It cannot be relied upon as a legal text.
The Hebrew text as published in Reshumot (ספר החוקים) and on the Knesset website is the sole authoritative and legally binding version. In any discrepancy, the Hebrew text prevails.
This translation is provided for informational purposes only and does not constitute legal advice. For use in legal proceedings, request a certified Expert Legal Opinion.
Chapter VIII: Deduction of Input Tax, Other Deduction and Tax Refund
Deduction of Tax Paid on Inputs§
38.
(a)A dealer is entitled to deduct from the tax for which he is liable the input tax included in a tax invoice lawfully issued to him or in an import declaration or in another document approved by the Director for this purpose, provided that the import declaration or the other document bears the name of the dealer as the owner of the goods and that the deduction is made within six months of the date of issuance of the invoice, declaration or document.
(a1)Notwithstanding the provisions of subsection (a), a deduction of the input tax included in a tax invoice whose amount, excluding the tax, exceeds NIS 5,000 and which does not include a number allocated to it by the Director pursuant to section 47(a2)(2) or (a3)(1) or (a4) (hereinafter – a number allocated by the Director) shall not be permitted.
(a2)Notwithstanding the provisions of subsection (a), a deduction of the input tax included in a tax invoice shall not be permitted if the consideration for which the tax invoice was given is a payment that has been determined to constitute a violation under the Law for the Reduction of the Use of Cash, 5778-2018, and in respect of such violation a monetary sanction was imposed pursuant to section 9 of that Law, unless it has been proved to the satisfaction of the Director that the tax in respect of the transaction was paid as required by law; if an appeal lodged with the court against a decision to impose a monetary sanction as aforesaid was allowed, the tax paid in excess shall be refunded with the addition of linkage differentials and interest as defined in section 93, from the date of its payment until the date of its refund.
(b)The Minister of Finance may prescribe provisions different from those of subsection (a), including provisions determining that it shall not be possible to deduct input tax paid by providers of services whose principal income is from salary, a benefit or a pension and upon whom the Minister of Finance has, pursuant to section 21, imposed the payment of tax in respect of the services they provide on the recipients of the services.
(c)
(1)A dealer is entitled to deduct from the tax for which he is liable the tax included in a tax invoice lawfully issued to him by a dealer registered in the area and in the Gaza and Jericho areas, provided that the invoice is in the form prescribed by the Director and includes the particulars prescribed by him, and that the deduction is made within six months of the date of issuance of the invoice; the Minister may prescribe that an additional condition for such deduction is approval from the Director concerning the entry of the goods from the area and from the Gaza and Jericho areas into Israel in accordance with the provisions made pursuant to section 129a;
(2)Tax deducted as aforesaid in paragraph (1) shall be regarded as input tax included in a tax invoice under this Law, provided that the dealer requesting such deduction has submitted to the Director a periodic report pursuant to section 67a, or has submitted together with the periodic report required pursuant to section 67, a report required pursuant to section 72 in respect of the acquisition of assets or the receipt of services from dealers registered by the Palestinian Authority.
Refund§
39.
(a)If, in a particular reporting period as referred to in section 67, the input tax exceeds the value added tax for which the dealer is liable in respect of his transactions in that period, the excess shall be refunded to him within 30 days of receipt of the report, or at a later date prescribed by the Minister of Finance; however –
(1)if the Director has ordered an examination of the books of the dealer in order to determine whether he is entitled to the excess – the excess shall be refunded within 90 days of receipt of the report;
(2)if a person authorised by the Director, or the Israel Police, has commenced an investigation in respect of a suspicion of the commission of an offence under this Law by the dealer – the excess shall be refunded within 180 days of receipt of the report;
(3)if within the period referred to in paragraph (2) an indictment has been filed against the dealer in respect of such an offence, or a ransom payment has been taken from the dealer as referred to in section 121, the Director may deduct from the amount of the excess, including the linkage differentials and interest due thereon pursuant to section 105, any amount for which the dealer is liable, and the balance shall be refunded to the dealer within 30 days of the date on which a final judgment was given or the date on which the ransom payment was taken, as the case may be.
(b)Notwithstanding the provisions of subsection (a), the Director may refrain from refunding the excess to a person who does not keep books or who keeps them in material deviation from the provisions of this Law or the Regulations thereunder, and the Director may also refrain from refunding the excess to a person who, by the time of submission of the report in which the said excess is included, has not submitted a report that he was required to submit under this Law, for as long as he has not submitted the report.
(c)A decision of the Director pursuant to subsection (b) not to refund the excess shall be regarded, for the purpose of an appeal before an appeals committee or an appeal to a court, as a refusal by the Director to accept a report, and the provisions of section 74 shall apply thereto with the necessary modifications.
(d)For the purpose of this section, the date of receipt or submission of the report, as the case may be, in respect of a report in which not all the particulars have been correctly stated – is the date on which the particulars were completed or corrected.
Input Tax Prior to Registration§
40.
The input tax included in tax invoices, import declarations or another document approved by the Director pursuant to section 38(a) that were issued to a dealer before he was registered pursuant to section 52 shall not be deductible.
Input Tax of a Business under Establishment§
40a.
Notwithstanding the provisions of sections 38 and 40, input tax paid by a dealer prior to his lawful registration shall be deductible, provided that both of the following conditions are met, as the case may be:
(1)it has been proved to the satisfaction of the Director that the inputs were acquired in the stages of establishing the business and were used for its establishment;
(2)if the amount of the tax invoice, excluding the tax, exceeds the amount referred to in section 38(a1), it includes a number allocated to it by the Director;
and all this even if the tax invoice, import declaration or other document approved by the Director pursuant to section 38(a) were not issued in the name of the dealer.
Power of the Director to Approve Deduction of Input Tax Included in an Invoice to which No Number has been Allocated§
40b.
If the Director is satisfied that exceptional circumstances arose in connection with the computer systems of the Tax Authority, as a result of which, for technological reasons, the allocation of a number by the Director was not possible, he may direct, notwithstanding the provisions of sections 38(a1), 40a(2) and 43a, that a deduction of the input tax included in a tax invoice to which no number has been allocated shall be permitted.
Inputs Used for an Exempt Transaction§
41.
Tax on inputs may not be deducted unless they are for use in a transaction that is liable to tax.
42.§
(Repealed — תשס״ב־3)
Reduction on Account of Cancellation or Variation§
43.
If a transaction has been cancelled or its terms have been varied in a manner that reduces the tax after the purchaser has deducted the tax thereon as input tax, the purchaser shall reduce the input tax in the amount of the difference in his subsequent periodic report or shall pay the difference as prescribed by the Minister of Finance.
Deduction in the Sale of Real Property§
43a.
(a)In the sale of real property by an exempt dealer or in the sale of real property that is an incidental transaction, the taxable person is entitled to deduct from the tax for which he is liable the tax paid in respect of the acquisition of the real property and its improvement (in this section – the acquisition), if he holds, in respect of the said acquisition, a tax invoice, provided that if the amount of the tax invoice, excluding the tax, exceeds the amount referred to in section 38(a1), it includes a number allocated to it by the Director, or another document approved by the Director evidencing payment of the tax as aforesaid, and the tax has not been deducted.
(b)The provisions of subsection (a) shall not apply in the sale of real property as referred to in section 30(a)(16), however a non-profit organisation or financial institution that is an absorbing company in a merger or a new company in a split, as the case may be, shall be entitled to deduct, at the time it sells the real property, from the tax for which it is liable the tax paid in respect of the acquisition of the real property by the merging company or the splitting company, as the case may be, if it holds an invoice for the tax paid by it and the tax has not been deducted, provided that if the amount of the tax invoice, excluding the tax, exceeds the amount referred to in section 38(a1), it includes a number allocated to it by the Director.
(c)The total deduction from the tax pursuant to subsections (a) or (b) shall not exceed the tax for which the taxable person is liable in respect of the sale of the real property.
(d)In this section –
"the tax paid" – the amount of tax included in the tax invoices, or in the other document, as the case may be, multiplied by the index last published before the date of the sale of the real property and divided by the index last published before the date of payment of the tax, less the amounts of tax deductible as depreciation pursuant to section 21 of the Income Tax Ordinance [New Version] and pursuant to any other law;
"improvement" – all expenditure incurred by the seller from the date of acquisition until the date of sale for the purpose of improving the real property that is not deductible under the Income Tax Ordinance [New Version];
"index" – as defined in section 93.
Tax Refund to a Tourist§
43b.
(a)A tourist is entitled, upon his departure from Israel, to a refund of the tax paid upon the purchase of goods at a business establishment approved for this purpose pursuant to the provisions of subsection (c), provided that the tourist has proved upon his departure from Israel, to the satisfaction of the Director, that all of the following conditions have been met:
(1)he is departing from Israel with the goods;
(2)he holds a tax invoice lawfully issued as well as another document containing particulars relating to the sale of the goods as shall be prescribed by the Minister of Finance.
(b)The Minister of Finance may prescribe additional conditions to those set out in subsection (a) for the refund of tax to a tourist, including payment by the tourist to the person through whom the Director refunds the tax to the tourist.
(c)The Minister of Tourism, in consultation with the Director, may approve business establishments for the purpose of this section, in accordance with rules that he shall prescribe; once a year the Minister of Tourism shall publish in the Reshumot (Official Gazette) the list of business establishments approved in that year as well as the list of business establishments whose approval for this purpose was revoked in that year.
(d)For the purpose of this section, passage to the area or to the Gaza and Jericho areas shall not be regarded as departure from Israel.
Regulations in respect of Deduction of Input Tax§
44.
The Minister of Finance may prescribe, generally or for a particular class of dealers or transactions, provisions regarding –
(1)assets and services in respect of which the input tax paid on transactions in them or on their import shall not be deductible, or in respect of which the right to deduct it shall be limited as he has prescribed;
(2)rules for the deduction of input tax where the assets or services in respect of whose import or the transaction in which the tax was paid were used both in transactions in respect of which the tax thereon is deductible and in transactions in respect of which the tax thereon is not deductible;
(3)the manner in which the balance of input tax exceeding the value added tax shall be refunded, including its crediting to the account of the dealer;
(4)rules and conditions for the deduction of tax paid pursuant to the law corresponding to this Law in the area or in the Gaza and Jericho areas.
Need to cite this law in a foreign court?
Eli Shimony Israeli Attorneys-at-Law provides certified Expert Legal Opinions on Israeli law within 24–48 hours, accepted by courts worldwide.
Contact Us →Chapter IX: Invoices
Obligation to issue a transaction invoice§
45.
A dealer is required to issue to the purchaser a transaction invoice in respect of every transaction or part of a transaction, even if they are exempt from tax.
Time of issuing an invoice§
46.
(a)An invoice shall be issued within fourteen days of the date of the tax liability.
(b)Where the transaction is exempt from tax, an invoice shall be issued at the time at which it would have been required to be issued under subsection (a) had it been liable to tax.
Right to issue a tax invoice§
47.
(a)An authorised dealer may issue in respect of a taxable transaction a tax invoice in lieu of a transaction invoice, and is required to do so upon the demand of the purchaser.
(a1)Notwithstanding the provisions of subsection (a) or (a2), the purchaser shall not demand a tax invoice as referred to in that subsection prior to payment of the consideration or part thereof, as the case may be, if the date of the tax liability in respect of the transaction falls upon receipt of the consideration and on the amount received.
(a2)
(1)An authorised dealer who issues a tax invoice as referred to in subsection (a) may request the Director to allocate a number to the tax invoice (in this subsection – the applicant), and in a transaction the amount of which, exclusive of tax, exceeds the amount referred to in section 38(a1), is required to do so upon the demand of the purchaser; the provisions of this subsection shall apply in respect of a tax invoice issued in connection with a transaction to which the tax applicable is not at the zero rate;
(2)The applicant shall submit the request referred to in paragraph (1) online as the Director shall direct; where the Director has allocated a number to the tax invoice, the applicant shall indicate the number on the tax invoice, including in handwriting;
(3)Where the Director has reasonable grounds to suspect that the tax invoice in respect of which the request was submitted will be issued unlawfully, the Director may decide not to allocate a number to the tax invoice (hereinafter – preliminary decision); where the Director has so decided – the Director shall send the applicant the preliminary decision immediately, by online notice, and shall enable the applicant to act in accordance with what is set out therein; the online notice shall include the following:
(a)the grounds for the preliminary decision not to allocate a number to the tax invoice;
(b)the date on which the applicant may bring arguments before the Director, which shall be within two business days of the date of sending the online notice (in this section – the hearing);
(c)the option for the applicant to indicate online the applicant's choice of one of the following:
(1)the Director shall send an online notice to the purchaser, if the purchaser is a dealer, in which the purchaser will be offered to assume the obligation to pay the tax in respect of the transaction; such a notice shall include a number for the tax invoice that the purchaser shall issue, if the purchaser chooses to assume the obligation to pay the tax and confirms this online;
(2)the applicant shall issue to the purchaser a tax invoice without a number having been allocated to it, and the provisions of section 38(a1) shall apply in this regard.
(4)An authorised dealer may request the Director to allocate a number to a tax invoice also after the invoice has been issued, but this shall not change the date fixed in section 38(a).
(a3)Where the purchaser has assumed the obligation to pay the tax as referred to in subsection (a2)(3)(c)(1), the following provisions shall apply:
(1)The purchaser shall issue a tax invoice drawn in the purchaser's own name and shall indicate thereon the number allocated to it by the Director; the purchaser shall report the transaction in the return that the purchaser is required to submit in respect of the purchaser's transactions under Chapter XI;
(2)The applicant shall issue a tax invoice in which the transaction is reported as though the zero rate applied to it, shall indicate thereon the number allocated to the tax invoice as referred to in paragraph (1) and also that it was issued by virtue of this subsection.
(a4)The following provisions shall apply in respect of a hearing under subsection (a2)(3)(b):
(1)Until the hearing has taken place the applicant shall not receive a number for that tax invoice, unless the Director has decided to allocate a number to the invoice;
(2)The Director may conduct the hearing by means of visual conference; for the purposes of this paragraph, "visual conference" – communication between several centres enabling the transmission of image and sound in real time;
(3)Where the applicant has chosen not to appear at the hearing, the preliminary decision shall be deemed to be a decision not to allocate a number as referred to in paragraph (4), first part;
(4)Where the Director has decided, after conducting the hearing, that the issuance of the tax invoice in the circumstances of the matter would be unlawful – the Director shall not allocate a number to it; the Director shall decide on the request within one business day of the conclusion of the hearing; where the Director has not decided on the request within the said period, the request for the allocation of a number shall be deemed to have been accepted and the Director shall allocate a number to the tax invoice;
(5)A dealer may object to the decision not to allocate a number to the tax invoice under paragraph (4) before the Director within thirty days after the hearing has taken place or at a later date permitted by the Director for special reasons; the following provisions shall apply to an objection under this paragraph:
(a)the Director shall decide on the objection within 21 business days of the date of its submission; where the Director has not decided on the objection within the said period, the objection shall be deemed to have been accepted;
(b)notice of the Director's decision on the objection and the reasons therefor shall be delivered to the applicant;
(c)a person who made the decision after conducting the hearing shall not decide on the objection thereto;
(6)A dealer may appeal to the District Court against the Director's decision on an objection under paragraph (5), and the provisions of section 83(b) and (c) shall apply in this regard.
(b)
(1)A tax invoice shall include particulars as prescribed by the Director, provided that the tax is set out separately therein as well as the registration number of the purchaser; however, the Director may permit, generally or for classes of dealers or transactions, the indication of the words "tax inclusive" in lieu of setting out the tax separately, and the non-indication of the registration number of the purchaser;
(2)A tax invoice issued by an authorised dealer to a dealer, a financial institution or a non-profit registered with the Palestinian Authority shall be in the form prescribed by the Director, shall include particulars as prescribed, and shall be submitted online.
(c)Where the tax invoice relates both to taxable transactions and to transactions exempt from tax, or relates to taxable transactions and to transactions liable to the zero rate, the invoice details shall be set out separately for each type.
(d)(Repealed)
Obligation of a dealer upon purchase§
47a.
A purchaser who is a taxable person and who has acquired assets or services for the purposes of the purchaser's business or for use in the purchaser's business or for the purposes of the purchaser's activity, is required to act as follows:
(a)where the value of the assets or services exceeds NIS 362 but has not reached NIS 29,112, the purchaser shall demand from a seller who is an authorised dealer a tax invoice, or shall pay by bank transfer, by credit card or by cheque signed by the purchaser as drawer and stating that the payment is to the seller only;
(b)where the value of the assets or services is NIS 29,112 or more, the purchaser is required to demand from a seller who is an authorised dealer a tax invoice and shall not pay in banknotes, and if the purchaser paid by endorsed cheque the purchaser shall add on the reverse of the cheque the purchaser's name, signature and registration number at the value added tax office.
(c)A person who claims that the conditions of this section have been fulfilled – the burden of proof is on that person.
Registration at an excess or a deficit§
48.
Where an invoice has been issued in which the price of the transaction, or the part thereof due at that time, or the value added tax, has been registered at an excess or at a deficit, the following provisions shall apply:
(1)registered at an excess – the tax shall be paid according to the registered price or the registered tax, whichever is the higher, so long as the invoice has not been corrected in the manner prescribed by the Minister of Finance;
(2)registered at a deficit – the dealer shall issue a supplementary invoice.
Transaction that did not take place or was cancelled§
49.
Where an invoice has been issued in respect of a taxable transaction and the transaction or part thereof did not take place or was cancelled or an error occurred in the invoice – the tax shall be paid in accordance with the invoice so long as it has not been cancelled or corrected as prescribed by the Minister of Finance.
Unlawful issuance of a tax invoice§
50.
(a)A person who is not entitled under section 47 to issue a tax invoice, and who has issued a tax invoice or has issued a document purporting to be a tax invoice even if it lacks particulars required in respect of a tax invoice, shall be liable to pay double the tax indicated in the invoice or implied by it.
(a1)In respect of a dealer who has deducted input tax included in a tax invoice that was issued unlawfully, the Director may impose on the dealer double the tax indicated in the invoice or implied by it, unless the dealer has proved to the satisfaction of the Director that the dealer did not know that the invoice was issued unlawfully.
(b)An appeal against a demand to pay double tax under subsections (a) or (a1) may be brought before the District Court; the filing of the appeal shall stay the payment of double tax, unless the court has ordered otherwise.
Regulations in respect of invoices§
51.
The Minister of Finance may prescribe for classes of dealers or transactions supplementary provisions for the implementation of this Chapter, including, inter alia –
(1)the form of the invoice, the particulars to be recorded therein and the making of copies thereof;
(2)provisions regarding the keeping of the invoice and copies thereof;
(3)exemptions for dealers, a class of dealers or a class of transactions from the obligation to issue an invoice, and making them conditional on the keeping of records or the issuance of documents in lieu of an invoice.
Need to cite this law in a foreign court?
Eli Shimony Israeli Attorneys-at-Law provides certified Expert Legal Opinions on Israeli law within 24–48 hours, accepted by courts worldwide.
Contact Us →Read the entire law on one page — continuous text, no page breaks, plus PDF downloads.