Recently, VAT authority reviews, particularly concerning associations and non-profits, are emphasizing the issue of VAT charges on imports, and sometimes these VAT amounts can be considerable and significant.
Here is a summary of the matters:
- VAT liability for imported services
- In accordance with regulation 6(d) of the VAT Regulations, when a person pays funds to a non-resident for imported services, these services are considered to have been provided in Israel, meaning they are a transaction subject to VAT in Israel.
Examples of VAT-taxable payments:
- Payment to an attorney residing abroad for legal proceedings pending in Israel
- Payment to a foreign-resident architect for a building in Israel
- Payment to an nonresident lecturer/artist for lectures/performances in Israel
- Payment for advertising on foreign websites (including payments to Facebook, Google, and the like)
- When the payer is a nonprofit organization, the nonprofit is required to report this transaction via an ad hoc transaction report and pay the VAT authorities the VAT amount at a rate of 17% of the amount paid to the foreign resident.
- When the payer is registered as a VAT-registered business, they must issue a self-invoice, thereby becoming liable for VAT at a rate of 17% of the payment amount; conversely, they may claim the input tax included in the self-issued invoice to the extent they are entitled to do so under the VAT Law.
- Please note that the above applies to services consumed in Israel. However, when payment is for a service consumed abroad, such as payment to a foreign lawyer for legal proceedings abroad or payment to lecturers for lectures given abroad, this will not be considered as import of services, and therefore the VAT charges described above will not apply.
- There may be borderline cases where it is difficult to determine where the service is consumed. In such cases, you can contact our office for individual advice.
- VAT Liability for Import of Intangible Goods or Printed Matter by Mail
According to Section 26 of the VAT Law, when a payment is made to a non-resident for the import of intangible goods or printed matter by mail, VAT must be paid on 17% of the amount paid to the non-resident.
For example: Payment to a non-resident for the right to use software.
When payment to a non-resident is made through the bank, the bank is supposed to collect the VAT amount and transfer it to the Tax Authority.
Otherwise, VAT payment must be made using a casual transaction form or a self-invoice as mentioned above.
- To complete the picture, it should be noted that:
- In the import of "regular" tangible goods, VAT is collected by the authorities directly through the import declaration.
- It is worth noting, for clarity, that the VAT authorities" approach presented above is based on court rulings and is included as a reporting position, and as stated, it is applied in practice within the framework of assessments.
All that is stated in this circular is provided as a service only and does not constitute binding professional advice.
