VAT and invoicing in Israel (2026): 18% and allocation numbers

VAT in Israel is called מס ערך מוסף (Ma'am) and is administered by the Israel Tax Authority (רשות המסים בישראל, ITA). Two changes matter most to a small business in 2026: the rate has been 18% since 1 January 2025, and the Israel Invoices (חשבוניות ישראל) reform now requires an allocation number (מספר הקצאה) on every business tax invoice above NIS 5,000 before VAT. This guide explains both, together with dealer status, returns, invoice details and a worked example in shekels. Rules are as of October 2026.

VAT in Israel at a glance

Exempt dealer or licensed dealer

Every business registers with the VAT office in one of two main statuses:

• Exempt dealer (עוסק פטור, osek patur): for small businesses whose annual turnover stays under the ceiling, which is NIS 122,833 for 2026 (it was NIS 120,000 in 2025). Turnover means gross takings, not profit. An exempt dealer charges no VAT, cannot reclaim VAT on its purchases, issues receipts rather than tax invoices, and files an annual turnover declaration instead of periodic returns.
• Licensed dealer (עוסק מורשה, osek murshe): charges 18% VAT, issues tax invoices, reclaims input VAT and files periodic returns. Your dealer number is shown on every tax invoice.

Some professions cannot be exempt dealers whatever their turnover. The list in the VAT registration regulations includes lawyers, accountants, engineers, architects, doctors, dentists, veterinarians, real estate agents and car dealers.

If an exempt dealer's turnover passes the ceiling, its transactions from that point are subject to VAT and it has to change its status to licensed dealer with the regional VAT office. Many businesses that sell mainly to other businesses register as licensed dealers anyway, so that their customers can deduct the VAT and they can reclaim VAT on their costs.

VAT returns and payment

• Monthly returns if your annual turnover is above the limit set in the VAT regulations, which was NIS 1,725,000 for 2025 (the figure is updated periodically).
• Bi-monthly returns (every two months) if your turnover is below it.
• Deadline: the return and the payment are due by the 15th of the month after the end of the period.
• Exempt dealers do not file periodic returns; they file an annual declaration.

What an Israeli tax invoice must show

Only a licensed dealer can issue a tax invoice (חשבונית מס), the document your customer needs to deduct input VAT. The requirements come from the VAT Law and the Income Tax bookkeeping instructions. A tax invoice shows:

1. 1The words “tax invoice” (חשבונית מס) and whether it is the original (מקור) or a copy (העתק)
2. 2A serial number
3. 3The date of the transaction (computerised invoices may also show the issue date)
4. 4Your full details: name, business address and licensed dealer number
5. 5The customer's details (not required for cash register sales to walk-in customers)
6. 6A description of the goods or services
7. 7The amount before VAT, the VAT and the total in shekels
8. 8The allocation number, when the invoice is above the threshold (see below)
9. 9Your signature or that of your representative; a computerised invoice is signed electronically and marked as a computerised document (מסמך ממוחשב)

Corrections and other documents:

• Credit note (תעודת זיכוי): issued when goods are returned or the price is reduced; it refers to the original invoice.
• Debit note (תעודת חיוב): used for later charges such as price differences or late-payment interest.
• Receipt or transaction invoice: an exempt dealer issues a receipt or a transaction invoice (חשבונית עסקה). It looks similar but does not allow the buyer to deduct VAT.
• Records: the ITA can generally reassess a filed return for four years from the end of the tax year in which it was filed, so keep your books and documents at least that long. Seven years is the retention period commonly cited for Israeli bookkeeping records; confirm the exact period for your business with your accountant.

Israel Invoices: the allocation number system

Israel has introduced a form of real-time invoice control. Before you give a customer a tax invoice above the threshold, you request an allocation number from the ITA, and the number must appear on the invoice. Without it, your customer cannot deduct the input VAT on that invoice.

The original plan was NIS 15,000 in 2026 and NIS 5,000 only in 2028; the ITA brought the dates forward.

How it works in practice:

• Who asks: the seller. Licensed dealers, partnerships and companies that issue tax invoices or tax invoice-receipts above the threshold.
• How: through the ITA's online system, or automatically by accounting software connected to the ITA. You test each invoice against the threshold in force on its issue date.
• Timing: the number must be printed on the invoice before it reaches the customer.
• Not required for: exempt dealers (they do not issue tax invoices), zero-rated transactions and customers abroad. Credit notes did not need a number as of spring 2026.
• Checks: since 2025, requests are assessed against risk criteria and can be refused. Customers can verify a number through the ITA's verification service.

Clientlly does not request allocation numbers from the ITA. For invoices above the threshold, you need the ITA's online system or software connected to it for that step.

Worked example in shekels

A licensed dealer running a small marketing agency has this two-month period:

• Sales: NIS 40,000 before VAT. Output VAT at 18%: 40,000 × 0.18 = NIS 7,200. Clients pay NIS 47,200.
• Purchases: a laptop and software for NIS 15,000 plus NIS 2,700 VAT, backed by tax invoices with allocation numbers where needed.
• VAT due: 7,200 − 2,700 = NIS 4,500, filed and paid by the 15th of the following month.

Allocation numbers in the same period: a client invoice of NIS 6,000 plus NIS 1,080 VAT, issued after 1 June 2026, needs one. An invoice of NIS 4,900 plus NIS 882 VAT does not, even though the total with VAT is above NIS 5,000, because the threshold is measured before VAT.

To find the VAT inside a price: NIS 1,180 × 18 ÷ 118 = NIS 180.

Common mistakes

1. 1Sending the invoice before the allocation number is on it. A number added later does not repair it, and your customer loses the deduction.
2. 2Measuring the threshold on the total with VAT. The NIS 5,000 is before VAT.
3. 3Splitting one sale into several invoices to stay under the threshold. It is an obvious pattern for a tax authority to look for, and the allocation system was built to stop fictitious invoices.
4. 4Staying an exempt dealer after passing the ceiling, or in a profession that must register as a licensed dealer.
5. 5Missing the 15th for the return or the payment.
6. 6Using a receipt where the customer needs a tax invoice to deduct VAT.

How Clientlly helps

Clientlly numbers your invoices sequentially in each series, applies your country's VAT rate on every invoice and links credit notes to the original invoice. It keeps sales and purchase VAT books per rate, including exports and reverse charge, reads the VAT from scanned purchase receipts, and prepares tax reports for you and your accountant with Excel and PDF exports. You can send invoices as a PDF in your client's language with a card payment link, see when each one was opened, and let automatic reminders go out 3, 14 and 30 days after the due date; our guide to getting paid faster explains why that matters. See the invoicing module.

Clientlly is not connected to the ITA's allocation number system: for tax invoices above the threshold, request the number through the ITA or software certified for it before you send the invoice.