Israel: Proposed VAT on digital services and goods

A new proposal would require non-resident vendors of digital services and low value goods to register for, collect, and remit VAT

Proposed VAT on digital services and goods

Article Posted date 23 March 2023

Israel on 15 February 2023 introduced a new proposal, which, if approved, would require non-resident vendors of digital services and low-value goods to register for, collect, and remit value added tax (VAT).

Scope

  • The proposed regime would apply to the following:
    • "Electronic Services"—including the provision of software, entertainment products, books, music, lotteries, games, TV programs, movies, webcasts, and distance learning services
    • "Communication Services—including telephone services, fax, access to internet, and other similar services
    • "Tangible low-value goods"—tangible goods on the importation of which no importation taxes are imposed as defined in the Customs Ordinance, with the exception of VAT
    • "On-line store"—website, software or service through the internet or an electronic network providing services through which tangible goods are sold by a foreign resident to an Israeli resident

Business-to-business (B2B) vs. business-to-customer (B2C)

  • The obligation to register, charge, and collect VAT applies to sales made to consumers (B2C sales).
  • A B2C customer would be an Israeli resident who is not a dealer (taxpayer for VAT purposes), a financial institution, or a not-for-profit association. 

Customer location

  • The location of a customer would be determined by, among other things, the place of residence, the means of payment, and the equipment or stationary infrastructure through which the customer receives the service.

Marketplace

  • It is still unclear if a marketplace will be obligated to charge and collect VAT for sales facilitated on behalf of vendors on their platforms. 

Registration and threshold

  • The proposal does not include any reference to a registration threshold.
  • It is still unclear if a VAT registration would have any permanent establishment (PE) consequences given previous circulars published by the tax authority relating to the digital economy.


For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com

 

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