Israel VAT — 17% standard, 0% exports, Osek statuses
The 17% VAT rate, how Osek Patur and Osek Murshe differ, and how zero-rated exports are evidenced for the ITA.
Israel applies a single standard VAT (Mas Erech Mosaf) rate of 17%, raised from 16% on 1 June 2013 by the Knesset to fund the budget and held at 17% since then. Most goods and services are taxed at 17%. Exports of goods and qualifying services to non-residents are zero-rated under Section 30 of the VAT Law, while a narrow list of supplies (e.g. fruit and vegetables in retail) is fully exempt. Dealers are split into two statuses: Osek Murshe (registered, charges and recovers VAT) and Osek Patur (exempt, does not charge VAT). The Osek Patur ceiling for 2025 is ILS 120,000 of annual turnover.
- Standard 17%: applies by default to goods and services in Israel.
- Zero-rated 0%: exports of goods and qualifying services to non-residents.
- Exempt: narrow list — fruit and vegetables, rental of residential housing.
- Osek Patur ceiling 2025: ILS 120,000 annual turnover (updated yearly).
How it works
Decide the VAT status at registration. A new dealer whose turnover is forecast above ILS 120,000 must register as Osek Murshe and charge 17% on taxable supplies. A dealer below that ceiling may register as Osek Patur — no VAT on issued invoices, no input VAT recovery, simpler monthly returns. The ceiling is updated annually by the ITA.
Apply the correct rate per invoice line. 17% is the default; 0% is applied to exports with documentary evidence (export declaration, shipping documents, foreign bank receipt); exemption applies only where the VAT Law explicitly grants it (fresh produce in retail, residential rent). Mixed invoices must split lines clearly.
Issue a tax invoice (cheshbonit mas) for B2B transactions including: supplier Mispar Osek and address, buyer name and Mispar Osek, invoice number and date, line items with net + VAT, total VAT amount, and from 2024 the ITA allocation number where the threshold applies.
File the VAT return monthly (form 836) — or bi-monthly for very small Osek Murshe dealers below a separate threshold. Returns are due by the 15th of the following month, with payment of net VAT due. Osek Patur dealers file an annual declaration (form 821) reporting turnover only.
Reconcile reported VAT against allocation numbers from 2025 onwards. The ITA cross-checks output VAT in form 836 against the allocation log of cleared invoices. Discrepancies above tolerance trigger automated queries — keep monthly allocation reports as evidence.
Legal framework
- Value Added Tax Law 5736-1975 (Chok Mas Erech Mosaf).
- VAT Regulations 5736-1976 (tax invoice form and content).
- Section 30 VAT Law (zero-rating of exports).
- Annual ITA Order on Osek Patur ceiling (updated yearly).
Frequently asked questions
Why is Israel's VAT rate 17% rather than the 16% I have seen quoted?
The rate was 16% until 31 May 2013, then raised to 17% on 1 June 2013 by Knesset budget legislation. It has been 17% ever since. Older guides, training materials and even some software still default to 16% — make sure your accounting system, tax invoice templates and any imported third-party rate tables reflect the current 17% standard rate.
Can I stay an Osek Patur indefinitely?
Only while annual turnover stays below the published ceiling (ILS 120,000 in 2025, updated each year by the ITA). The day turnover crosses the ceiling, you must upgrade to Osek Murshe and start charging 17% VAT. Many small businesses stay below the line deliberately, but exceeding it for even one year triggers a mandatory upgrade and back-VAT exposure if not declared.
How is an export zero-rated in practice?
The supplier issues the invoice at 0% VAT and retains documentary evidence: an Israeli customs export declaration, a bill of lading or air waybill, a commercial invoice in foreign currency and a foreign bank credit advice. The ITA can audit the evidence for up to seven years. Services to non-residents that are 'consumed abroad' qualify too — software, consulting, R&D — provided the customer has no Israeli permanent establishment.
Do Osek Patur dealers need to issue tax invoices at all?
They issue a 'receipt' (kabbala) rather than a tax invoice — no VAT line, no allocation number, no Mispar Osek of the buyer required. The receipt still needs the supplier's Mispar Osek and a sequential number. Crucially, an Osek Murshe buyer cannot recover any VAT from an Osek Patur supplier because there is none charged on the invoice.
Are there reduced rates like the EU's 5% or 9%?
No. Israel is unusual in having a single non-zero rate (17%). There are no reduced rates for hospitality, books, e-books, food or restaurants — all are 17%. The only deviations from 17% are the explicit 0% exports and a narrow exempt category (residential rental, fresh fruit and vegetables in retail). This makes Israeli VAT administratively simple but politically contentious.