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

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).


  • 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.


  • 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 |

Chinedu Nwachukwu |


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