Israel taxes qualifying exports of goods and certain services supplied to non-residents at 0 % VAT, instead of the standard 18 %, provided the exporter holds the evidence the Tax Authority requires. Charging 18 % by mistake angers the customer, and claiming 0 % without proof invites an assessment.
A zero-rated sale is a taxable sale at a rate of 0 %. The seller reports it in the VAT report, charges no VAT to the customer and keeps the right to deduct the input VAT paid on related purchases. This is different from an exempt sale, where no VAT is charged but input VAT on related costs may not be deducted.
The distinction explains why exporters are often in a refund position. They pay 18 % VAT on rent, equipment and suppliers, charge nothing on their foreign sales, and claim the difference from the Tax Authority in each period.
Refunds attract closer examination than payments. A dealer who regularly claims refunds should expect requests for documents, and the cleanest defence is a file in which every zero-rated invoice has its evidence attached.
Foreign currency invoices add one more point: the VAT report shows the shekel value of the sale, so the conversion rate you apply must be recorded on the invoice file.
Exports of goods qualify when the goods leave Israel and the exporter can prove it with the customs documents. Services supplied to a customer who is not a resident of Israel may qualify, including software and consulting delivered to foreign businesses, subject to the conditions set by the Tax Authority.
The conditions are what make it difficult. Questions arise when the foreign customer has an Israeli branch, when the service is used in Israel, or when the customer is a private person. A contract that clearly identifies the foreign legal entity helps, but the substance of the supply decides.
Services connected to property in Israel, tourism-related services and certain other categories follow their own rules. Before you treat a type of service as zero-rated, obtain a written view from your accountant or the authority.
For goods, the evidence includes the export declaration, the transport document and proof of payment from abroad. For services, it includes the contract showing the foreign customer, the invoice, proof of the customer's foreign status and proof of payment from an account outside Israel, where relevant.
Store the evidence next to the archived invoice so that each is retrievable by invoice number. An inspector who asks for ten zero-rated invoices from last year should receive ten complete folders the same day.
Do not rely on the customer's assurance alone. A short customer questionnaire, signed once, with the company registration extract from the customer's country, builds a record that the supply was to a non-resident business.
The commonest error is charging 18 % on an export because the invoice template defaults to it. Customers abroad then dispute the VAT, and a credit note and corrected invoice follow. Fix this at the template level: a separate template or setting for foreign customers, approved by the accountant.
The second error is zero-rating a sale that does not qualify, for instance a service to a foreign private person. The VAT is then due even though it was not charged, and the seller pays it from its own margin.
Record the VAT category on every invoice when you issue it. That field is what your accountant will use for the VAT report, and it prevents a debate at month end about how an invoice was meant to be treated.
A Tel Aviv agency builds mobile apps. Client A is a Berlin company that signs the contract through its German legal entity, pays from a German bank account and uses the app outside Israel. The agency invoices in euro without Israeli VAT, and files the contract, the company extract and the bank advice with the invoice.
Client B is the Israeli subsidiary of an American group, and the contract is signed by the Israeli entity. Even though the parent is foreign, the customer is an Israeli resident, so the invoice carries 18 % VAT and is an ordinary tax invoice.
Client C is a foreign private person who orders a small app. Here the zero-rating route is not safe, and the agency asks its accountant for a view before issuing the invoice. The three cases show why the question is who the customer is, not where the money comes from.
Is the customer a legal entity outside Israel, and can I show it? Is the service used outside Israel, or does it relate to property or events in Israel? Does the contract name the foreign entity as the party? Is the payment made from abroad, or does an Israeli payer reimburse the foreign client?
Write the answers in a one-page memo kept with the first invoice to a new foreign client, and refresh it when the relationship changes. A future inspector will see a reasoned decision instead of a habit.
If a client later opens an Israeli branch that actually receives the service, switch to invoices with VAT from that date and note the reason in the file. Prompt correction is easier to defend than a historical pattern discovered by the authority.
4invoices.net generates PDF invoices from the rate you choose, and the archive holds each document. The ecosystem does not apply zero-rating automatically by customer country, does not attach evidence to invoices and does not prepare files for the Tax Authority. 4hosting.net can host your own document archive, but the legal conditions and the evidence file stay your responsibility.
Export services are invoiced with 18 % VAT by mistake — the customer disputes the charge.
Check the export conditions with the ITA and review each invoice before you issue it. 4invoices.net does not apply zero-rating automatically by customer country.
Evidence for zero-rating is scattered and missing at audit.
Keep export evidence in your own file for each invoice, alongside the archived PDF. 4b2b does not attach evidence to invoices or export files for PCN874 audit support.
A customer abroad turns out to have an Israeli branch that uses the service.
Ask for the contracting entity and the place of use at sign-up, and update the file when they change. 4b2b does not verify customer status.
A zero-rated sale is a taxable sale at 0 %. You charge no VAT to the customer but keep the right to deduct input VAT on related purchases. This differs from an exempt sale, where input VAT on costs may not be recoverable, so the correct classification affects your cash flow.
Services supplied to a non-resident customer may qualify for the 0 % rate if the conditions of the Tax Authority are met. Factors include who the customer is, where the service is used and how it is documented. Get a written confirmation from your accountant for your type of service before applying 0 %.
For goods, keep the export declaration, the transport documents and proof of payment. For services, keep the contract identifying the foreign customer, the invoice and proof of payment from abroad. Store each set with the archived invoice, so you can respond quickly if the authority asks for the file. Store them by invoice number.
Issue a credit invoice referring to the original and then a corrected invoice at the right rate, and report both in the VAT period in which they are issued. Tell the customer in advance so that its accounts team does not pay the first document. Update your template to prevent a repeat.
No. 4invoices.net does not know which sales qualify for zero-rating and does not apply a rate by customer country. You or your accountant choose the rate on each invoice, and the archive stores the result. Confirm the treatment with the Tax Authority or your accountant for unusual supplies. Document the decision in the invoice file.
This page is informational. Confirm requirements with the competent authority; 4b2b tools cover general invoicing and records only.
