Good news for almost everyone in Israel. The standard rate of Value Added Tax (VAT) on transactions in Israel was reduced from 16.5% to 15.5% on July 1. This follows a rush announcement on the Web site of the Israeli Tax Authority on June 27 that the Minister of Finance had just signed an order to this effect. In addition, the "Wage Tax" imposed on charitable and other not-for-profit institutions was reduced to 7.5% and the "Wage and Profit Tax" applicable to financial transactions was reduced to 15.5%. These changes apply to transactions with a "chargeable date" on or after July 1, 2006. So, when is the chargeable date for transactions that had already begun? How can you take advantage of the new lower standard rate of VAT? This depends on the type of transaction. Following is an overview of the position and a few examples taken from the Israeli Tax Authority's Web site announcement. In the case of transactions for the sale of goods, the chargeable date is the date of delivery of the goods (not the date of payment generally. See below.). If the goods are delivered to you on or after July 1, the new lower VAT rate of 15.5% applies. For example, automobiles, televisions, refrigerators and so forth. A few special rules exist. First, the term "goods" includes intangible assets such as technology or goodwill. Second, the chargeable date is the earlier of delivery or payment of any amounts on account in the case of the following items: central heating systems, prefabricated buildings, acoustic ceilings, elevators and traffic lights. Third, small retailers with less than five employees and annual revenues below NIS 1.7 million will charge VAT at the rate prevailing on the date of payment. Imported goods will be subject to the new lower rate of VAT of 15.5% if they are released from customs on or after July 1. For example, suppose you ordered a new car and paid for it in full (NIS 100,000 plus VAT) on March 1, 2006, with delivery of the car scheduled for July 15. The new lower rate of 15.5% would apply to the entire price of the car if it is delivered to you on or after July 1. In the case of Israeli real estate transactions, the chargeable date is generally the earlier of (1) placing the real estate at the possession of the buyer for his use, (2) registration of the real estate in the buyer's name in a registry according to the law, such as the Israeli Land Registry, or (3) payment of any amounts on account. The date of signing a real estate contract is generally not relevant. For example, suppose you bought a home in Israel on March 1, 2006 for $200,000 plus VAT and paid $40,000 plus VAT on March 1, 2006 and $60,000 plus VAT on March 5, 2006, with the balance scheduled for payment upon handover of the key to the home on October 1, 2006. The old rate of VAT of 16.5% applied to payments made before July 1, 2006 and the new lower rate of 15.5% will apply to payment of the balance ($100,000 plus VAT) as it will be paid on or after July 1. In the case of asset transactions for the rental of buildings, automobiles and so forth, the VAT rate on the date of payment applies - so the new lower VAT rate of 15.5% applies to payments on or after July 1. Service transactions are more complicated. In principle, in the case of a single service, the chargeable date is the date when the service is rendered. So the new lower VAT rate of 15.5% applies to services rendered on or after July 1, but the old rate of 16.5% will apply to services rendered before then, irrespective of when payment is made. For example, on March 1, you order catering services and pay upfront NIS 10,000 on account for an event that will take place on August 15, 2006. The new lower rate of VAT of 15.5% will apply to the entire catering transaction price. However, services divisible into parts and billed monthly, such as cleaning or security services, will be subject to VAT at the new lower rate of 15.5% for the month of July onwards. And for certain services where the tax law allows reporting on a cash basis, the new lower VAT rate of 15.5% applies to payments on or after July 1 - this applies to the services of professionals such as architects, lawyers, doctors, engineers and so forth, as well as providing credit and sales of newspaper subscriptions, magazines, books, files and concerts. The new lower VAT rate of 15.5% also applies to continuing indivisible services paid before the provision of the service is complete. For example, a lawyer deals with a lawsuit you filed a year ago in the labor court. You agreed a fee of $2,000 but haven't yet paid it. In principle, VAT is due at the rate on the date of payment, i.e. 15.5% if you pay on or after July 1. However, according to the Supreme Court (Natan v. Zagori) if the parties didn't state whether the price includes VAT or not, then the transaction price is assumed to be inclusive of VAT. So it pays to check the small print.