VAT Number Required for All Businesses Exporting to Israel

As of November 1, 2003, the Israeli Customs Authority has requested that all transportation related documents, i.e., bills of lading, waybills, etc., for imports to Israel must bear a "VAT registration number" for the foreign supplier, as well as the importer. Because businesses in the United States do not have VAT (Value Added Tax) registration numbers, companies are advised to use their Employer Identification Number (EIN) or other tax identification number in place of the VAT number.

Tariff/Tax Information

[Note: Tariffs and regulations are under the domain of the Israeli Custom's Authority. Questions pertaining to these rates and regulations should be directed to Israeli Customs. Click here for the Israel Tax Authority website. The Trade Information Center (TIC) can assist American companies find this information.]

Tariffs

All American goods exported to Israel have a tariff rate of zero (0) provided that they meet the U.S.-Israel Free Trade Agreement Rules of Origin. A product meets the U.S.-Israel FTA rule of origin if it is at least 35 percent American and/or Israeli origin.

Taxes & Other Fees

An import port fee of 1.1% and an export port fee of .2 % is assessed. A VAT of 18% is applied (see formula below).

Other fees apply to certain products such as fuel, alcoholic beverages, tobacco, and other goods produced locally for domestic consumption. [These fees are currently unavailable from the TIC].

TAMA & Purchase Tax: Israel levies purchase tax on some products, primarily luxury and consumer items. Calculation of the tax is based on the wholesale price of domestic products and on the CIF landed value plus "Tama" (the Hebrew acronym for "additional rate of increase", also called "Import Increment Rate") on imports. Tama was designed to artificially raise the declared value of an imported product for purposes of calculating purchase taxes. The Tama system results in higher taxation on imported goods than on domestic products. The U.S. and Israel Governments have agreed upon an "Optional Tama track," under which a U.S. exporter can declare the real wholesale price of a product for the calculation of purchase tax. The purchase tax is then applied to the adjusted price.

There is an uplift assessment (TAMA), which increases the CIF value to a "wholesale value" for the imposition of a Purchase Tax, even when no tariff applies. This acts somewhat like an import surcharge. Purchase taxes are imposed on certain product categories only, such as: refrigerators, air conditioners, alcoholic beverages, certain automotive products, cosmetic products and household appliances.

For example: Basic CIF value $100

TAMA Uplift of 30 percent 130

(TAMA Uplift rate will vary)

Purchase tax 10 percent on uplifted CIF $ 13

(Purchase Tax rate will vary)

Basis for VAT calculation $113

On this amount an 18 percent Value Added Tax (VAT) is charged.

(This above calculation is based when there is no Port Fee involved. A Port Fee is charged only for goods shipped by sea, and not by air -- When there is a Port Fee of 1.3 percent, it is added to the Basic CIF value.)

Please note, both the TAMA and Purchase Tax, is not a fixed rate, it depends on the item.

In 1991, the Israeli government revised the TAMA calculation system providing most registered importers with the option to declare the actual wholesale value of their products. Although this new arrangement has existed since 1991, not a single importer has opted for this new system. Allegedly, the importers are reluctant to use this system because they have determined that the former TAMA rates are more advantageous. Importers, however, cite a variety of problems with this optional system, including the inability to modify prices once they have been declared. The U.S. Government continues to seek the elimination of the TAMA uplift. 

For Israel Customs Assistance:

Director General of Customs and VAT

Directorate of Customs and Excise

Phone: 972-2-6703333 or 972- 2- 24 56 10

Fax: 972-2- 25 86 02

* Duties, Taxes and Customs Procedures for IT Products

The following guidelines for the U.S. business traveler and the U.S. exporter of computer software and hardware to Israel are based on information given by the Israel Customs Authorities.

• Hardware: Computer systems as a whole or as individual components are exempt from customs and purchase tax. However, Israel levies seventeen percent Value Added Tax (VAT) on the computer system's invoice value. Business travelers may enter a portable computer into Israel without payment of duties/taxes, no matter what software is loaded on the computer, including encrypted software. The traveler will have to declare the laptop to the Customs officials upon entry into Israel and deposit a bond of 17 percent over the estimated value of the laptop. The deposit will be returned to the traveler upon departure from Israel with the laptop.
• Software/Services: Software is exempt from duties/taxes, with the exception of 17 percent VAT - Software, which is sent to a distributor who has a license to produce and sell the software, and to press it onto a CD for sale in Israel, is taxed as follows: the software is subject to 17 percent VAT levied on the total cost (cost of the software plus the cost of the license) listed on the invoice. Customized software is treated the same as packaged software. Software sold with updates - the invoice accompanying the original software should specify the total cost of the software (the medium, e.g. CD, and the intellectual property) and the number of updates included in the sale. Upon arrival of each update, the importer shall present to the Customs Authorities the original invoice and a detailed letter from the supplier indicating that the update is part of the original sale. Software licenses are not classified in HS4907 by the Israel Customs. Software licenses are not subject to import duties. They are, however, subject to withholding tax and VAT on services. The Customs Authorities levy 17 percent VAT over the value of the license as declared by the supplier on the invoice. Software-related services, i.e. training, and set-up, relating to the sale of the software are subject to withholding tax and 17 percent VAT over the value of the service.
• Internet: Currently, software delivered to the end-user over the internet is not taxed.  

Sending American Employees

1. U.S. IT-solution providers are permitted to send personnel to Israel to set up hardware/software-related systems.
2. The Ministry of the Interior issues special visas/work permits. U.S. companies may apply for the permits at one of Israel's consulates in the U.S. The application will have to be accompanied by a letter from the U.S. company specifying the purpose of the visit, the nature of the work, the location of the work and the time the applicant will need to spend in Israel to complete the job.

Customs Procedures for IT Products 

• Customs documentation includes invoice, certificate of origin, and the sales document to include specification of the software if more than one item is included on the invoice.
• Currently, digital products sold over the internet are not taxed.
• Israel has no foreign exchange restrictions.
• Import of remanufactured parts for photocopiers, fax machines, laser printers and toner cartridges is permitted. Special labeling is required, as specified by the Ministry of Industry and Trade. The value shown on the invoice should be the value of the original, new equipment reduced by amortization. The Customs Authorities levy seventeen percent VAT over the value of the shipment as declared on the invoice.
• Israel Customs have a special classification for re-imported, repaired computer equipment. The invoice should state the value of the repair, the cost involved in the two-way transportation of the equipment, and insurance. VAT is levied over the total cost listed on the invoice. The repair of the equipment is subject to customs and purchase tax only if the original equipment would have been subject to those taxes. While computer hardware is exempt, items such as fax modems, video cameras for computer systems, etc., which may also be used independently from the computer, may be subject to customs and purchase tax.