Tax Revolution in Israel — VAT Payment Rules to Change Completely

Israel's Tax Authority plans to overhaul the VAT payment mechanism: the tax will be remitted immediately after each transaction rather than periodically. The reform is set to begin in January 2027, aiming to combat evasion and reduce bureaucracy. For installment payments, VAT will be paid per installment. The VAT refund mechanism is not yet defined.

Israel's Tax Authority is preparing a reform that will change the order of VAT payment for businesses. According to an internal document, the tax will be transferred to the state immediately after the completion of a transaction and receipt of payment, rather than accumulating and being paid periodically. The reform is scheduled to take effect in January 2027. Its goals are to combat tax evasion, reduce opportunities for accounting schemes, and decrease bureaucracy. For installment payments, VAT will be remitted separately after each installment. For example, in a sale for 1,000 shekels paid in two installments, the tax liability will be distributed between the payments. The VAT refund mechanism is not yet defined; automation is being considered. The Tax Authority expects to receive data on financial transactions faster and more effectively identify attempts to hide income. The authorities intend to abandon the system that has been formed over decades and move to real-time accounting of transactions, allowing real-time comparison of transactions and VAT paid.