New VAT Deduction Thresholds Starting in 2026
The Knesset Finance Committee has approved a series of tax measures aimed at tackling the informal economy in Israel. These provisions are part of the Economic Efficiency Law, which is linked to the state budget.
Among the most notable changes is the reduction of the threshold above hich obtaining an allocation number is required as a condition for deducting VAT from invoices.
- As of January 1, 2026, it will be mandatory to obtain an allocation number for transactions starting from 10,000 NIS (before VAT).
- As of June 1, 2026, the threshold will be further reduced, applying to transactions from 5,000 NIS (before VAT).
Israel is moving towards a digital transformation of its tax administration with the progressive implementation of electronic invoicing. This system aims to strengthen tax control, fight tax evasion, and reduce the use of fictitious invoices, which pose a significant threat to the country’s formal economy.
The electronic invoicing system in Israel began in 2024 with a voluntary enrollment phase. It will be gradually completed by June 2026, affecting both large companies and small to medium-sized organizations operating within the national territory.
The Israeli model establishes specific requirements for invoice validation, including obtaining a tax allocation number as a mandatory condition for VAT deduction.
Companies operating in Israel or doing business with local entities should prepare in advance to:
- Review their invoicing workflows.
- Ensure compliance with the newly established thresholds.
- Implement electronic invoicing solutions that enable efficient integration with the Israeli tax system.
In this regard, partnering with a specialized technology provider can be key to ensuring a smooth and seamless transition.
Phased Implementation Schedule According to Invoice Value
- May 5, 2024: All invoices with a value exceeding 25,000 NIS
- January 1, 2025: All invoices with a value exceeding 20,000 NIS
- January 1, 2026: All invoices with a value exceeding 10,000 NIS
- June 1, 2026: All invoices with a value exceeding 5,000 NIS
How does B2B electronic invoicing work in Israel?
- Invoices must be communicated to and approved by the Israeli Tax Agency in real-time. The Tax Authority will assign a unique identifier (allocation number) and verify the data to approve or reject the invoice.
- The transaction date, invoice number, company information of the issuer and recipient, and the invoice amount excluding VAT must be shared with the Tax Authority.
- Once validated by the tax authority, it will be returned to the seller so that they can deliver it to the buyer.
- The implementation of an e-Invoicing solution will allow the recipient to verify the received invoice data to ensure the authenticity of the document.
- Electronic invoices must be archived for 7 years.
