shekel versus dollar 370.
(photo credit: REUTERS)
The standard rate of value-added tax (VAT) in Israel is expected to go up from
16 percent to 17 % on September 1 – a month later than first
Businesses in Israel that are “authorized dealers” for VAT
purposes will generally pass on the increase to their customers. They are
allowed to do so under Section 6 of the VAT Law, which says that if VAT is
imposed at a higher rate than was previously agreed for a transaction, a
business may demand payment of the additional tax from the purchaser, unless
Consequently, the main effect of the higher VAT will be
felt by “end consumers,” which means private individuals, charities, financial
institutions and companies that are not in business. An example of a company not
in business is one that invests in real estate for the long term, not as a
Since real estate is probably the hardest hit, here are
a few examples of what happens before and after the expected VAT rate
• When renting out real estate, the date of VAT
liability is determined on a cash basis.
If rent is actually received by
August 31, the old rate applies even if rent is paid in advance. If rent is
received after then, the new rate applies. This applies to commercial rentals,
as residential rentals remain exempt from VAT.
• When selling Israeli
real estate (or shares in a property company), the VAT liability arises when the
real estate is placed at the disposal of the purchaser, or registration in his
name, or whenever an amount is paid on account of the purchase price if
Therefore, home buyers who brought forward a payment to August
may escape the VAT increase on that payment. This also applies if they took
early possession before August 1. However, when selling secondhand homes,
private sellers not trading in real estate are not required to charge
• As for building services, the VAT liability arises upon completion
of the work and placing the real estate at the disposal of the party who ordered
the work, or upon making any payment on account. So anybody who paid for
building services before September 1 will be entitled to pay VAT at the old
• As for “combination” deals (barter deals, e.g. completed units in
a new building in exchange for land), according to case law, if the land owners
deliver possession of the land to the builder before September 1, the old VAT
rate will apply.
In practice, possession is usually only given once
planning permission is obtained.Goods and services
What about other
cases not involving real estate? If goods are sold, the VAT liability arises
when the goods are delivered to the purchaser.
So the old VAT rate
applies if the goods are delivered before September 1. If delivery takes place
in stages, the VAT liability arises when each part is sold.
In the case
of consignment deals, if not more than 10% of the price is due to a supplier
before an onward sale of the goods concerned, the VAT liability will generally
arise upon the onward sale date.
In the case of services, the VAT
liability arises when the service is rendered. If the service is rendered in
parts, the VAT liability arises on each part.
If the service is
continuous and indivisible, the VAT liability arises upon completion, unless
payment is made on account, in which case the VAT liability will arise on the
payment when it is made.As always, consult experienced tax advisers in
each country at an early stage in specific email@example.com
Harris is a certified public accountant and tax specialist at Harris Consulting
& Tax Ltd.