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Value Added Tax Law

Disclaimer : The Following is an unofficial translation, and not necessarily an updated one.
The binding version is the official Hebrew text. Re aders are consequently advised to consult
qualified professional counsel before making any de cision in connection with the enactment,
which is here presented in translation for their ge neral information only.

VALUE ADDED TAX LAW 5736-1975

CHAPTER ONE: DEFINITIONS

Definitions
1. In this Law – “area ” – each of the following: Judaea, Samariah and the Gaza Region,
except for the Gaza and Jericho territories; ” Gaza and Jericho territories ” – the areas included in the territorial
jurisdiction of the Palestine Authority, according to the Agreement on
the Gaza Strip and the Jericho Area, which was sign ed in Cairo
between Israel and the Palestine Liberation Organiz ation on May 4,
1994; ” hotel ” includes a boarding-house, rest-house, guest-hous e or the like
in which overnight accommodation is generally provi ded for
consideration for at least five persons; ” District Court ” – the District Court in whose area of jurisdictio n the
principal place of business or the registered offic e of the appellant is
located; ” Director ” – the Director of Customs and Value Added Tax;
” the tax ” – value added tax, wage tax or wage-and-profit ta x;
” body of persons ” – within its meaning in the Income Tax Ordinance;
” person liable to tax ” – a dealer, a non-profit organization or a
financial institution; ” invoice ” – a transaction invoice or a tax invoice;
” tax invoice ” – an invoice issued under section 47;
” transaction invoice ” – an invoice that must be issued under section
45; ” goods ” include –
(1) trees, saplings, flowers, crops and the like so ld separately from
land;
(2) rights, benefits and other intangible asset an d, inter alia, know-
how, but exclusive of rights in real estate or in b odies corporate,
and exclusive of securities or negotiable documents or rights
therein;
” insurer ” – an insurer within the meaning of the Insurance Business
(Control) Law 5711-1961, other than a benefit fund exempt from
income tax under section 9(2) of the Income Tax Ord inance;
” financial institution ” –
(1) a company or cooperative society that receives money on current
account in order to make therefrom payments on dema nd by
check;
(2) a company which lawfully uses the word “bank” a s part of its
name, other than a company the name of which mentio ns a
company or cooperative society to which paragraph ( 1) applies;
(3) a financial institution, within the meaning of the Bank of Israel Law

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5714-1954, to which the liquidity provisions under the said Law
apply;
(4) an insurer;
(5) a category of persons designated by the Minist er of Finance;
” non-profit organization ” –
(1) the State, a local authority or an association of towns;
(2) an incorporated or unincorporated body of pers ons, which does
not carry on business for profit and which is not a financial
institution;
(3) a body corporate established by virtue of Law and not registered
as a company, cooperative society or partnership;
(4) a benefit fund exempt from income tax under se ction 9(2) of the
Income Tax Ordinance;
” turnover of a dealer ” – the total price, within its meaning in section 7,
of transactions in the preceding tax year, and if t he amount is not
known or if he carried on business only during part of that year – the
amount likely to be received in the current tax yea r, calculated in
accordance with directives prescribed by the Minist er of Finance;
however, if – on any day during the current tax yea r – it becomes clear
to the Director or to the dealer that the said tota l price of transactions
during the current tax year exceeds or will exceed the total price of
transactions in the preceding year or the total in the current year,
calculated as aforesaid, then – from that day until the end of the tax
year – the greater amount shall be deemed the deale r’s turnover; for
this purpose, ” transactions” – exclusive of sales of equipment;
” sale ” – in relation to any asset, includes its letting or hire-purchase, the
grant of a right to use it for consideration, the g rant of a right therein, its
use for personal requirements, and it includes its expropriation,
forfeiture or confiscation for consideration, as we ll as its bestowal as a
gift, including as a gift to an employee, and in re spect of real estate –
including a real estate association act, within its meaning in the Land
Appreciation Tax Law 5723-1963, and registration on an exchange of
securities issued by a real estate association, as said in section 8 of the
said Law, but exclusive of transactions in a securi ty traded on an
exchange; ” input tax ” – the value added tax imposed on a sale of assets to a
dealer, on the importation of assets by a dealer or on the performance
of services for a dealer, when those are for the pu rposes of his
business or for use in it; ” real estate ” – including real estate rights and real estate as sociation
rights within their meaning in the Land Appreciatio n Tax Law 5723-
1963; ” securities ” – as defined in the Securities Law 5728-1968, inc luding
securities issued by the Government or under a spec ial Law, as well as
shares not issued in series; ” asset ” – goods or real estate;

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“dealer ” – a person, other than a non-profit organization or a financial
institution, who sells any asset or renders any ser vice in the course of
his business, and also a person who effects an occa sional transaction;
” authorized dealer ” – a dealer registered under section 52 or under
section 58, who is not an exempt dealer, and also a person who
belongs to a category of dealers, in respect of who m the Minister of
Finance prescribed that they be registered as autho rized dealers;
” exempt dealer ” – a dealer, whose transaction turnover from all his
businesses does nor exceed NS 65,721 per year, or a larger amount
set by the Minister of Finance; (last adjusted in YP 5768, p. 3700)
” transaction ” – any of the following:
(1) the sale of an asset or the performance of a s ervice by a dealer in
the course of his business, including the sale of e quipment;
(2) the sale of any asset, if the input tax imposed on its sale to the
seller or on its importation by the seller was dedu cted;
(3) an occasional transaction; ” occasional transaction ” –
(1) the occasional sale of goods or performance of a service, the sale
or service being of a commercial character;
(2) the sale of real estate to a dealer by a perso n whose business is
not the sale of real estate, as well as an aforesai d sale of real
estate – other than the sale of a residential dwell ing – to a non-
profit organization or to a financial institution;
” business ” includes a profession and a vocation;
” equipment ” – an asset which is used, was used or is intended to be
used by a dealer in his business, its sale not bein g part of the dealer’s
business; ” purchaser ” includes the recipient of a service;
” profit ” – chargeable income, within its meaning in the In come Tax
Ordinance, before the set-off of losses from tax ye ars that preceded the
tax year in which the income was received and after deduction of the
tax on wages under section 4(b), exclusive of incom e from a dividend
received from a financial institution and exclusive of income created in
consequence of structural changes that meet the con ditions of Part
Five “B” of the Income Tax Ordinance, but inclusive of income from
interest or dividend or from the sale or redemption of a unit or from a
profit distribution to unit holders, on which exemp tion from income tax
was granted under any statute; for this purpose, ” unit” – within its
meaning in the Joint Investment Trusts Law 5754-199 4;
” use for personal requirements ” –
(1) use of any asset of a business otherwise than for the purposes of
that business by a person who has a share in the ow nership or
management of the business or is employed in it;
(2) use of an asset, of a kind and on conditions p rescribed by the
Minister of Finance, for the purposes of the busine ss;
” service ” – the performance of anything for another for con sideration,

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other than a sale, including a credit transaction and a deposit of money,
and in respect of a body of persons – also an afore said performance for
its members, even without consideration or against a membership fee;
an employee’s work does not constitute service to h is employer;
” wage ” – work income within its meaning in the Income Ta x Ordinance,
including pensions paid by employers to their forme r employees;
” tax year ” – within its meaning in the Income Tax Ordinance, including
a special assessment period for that tax year; ” foreign resident ” –
(1) in respect of an individual – an individual who permanently lives
outside of Israel;
(2) in respect of a body of persons – a body of per sons registered or
incorporated only outside Israel;
” tourist ” – an individual who stays in Israel under a visa and permit for
transit residence or for residence during a visit, under paragraphs (1)
and (2) of section 2(a) of the Entry into Israel La w 5712-1952, or a
person to whom the provisions of that Law do not ap ply by virtue of
section 17 of that Law, except for a person who sta ys in Israel under a
visitor’s permit in order to work in Israel tempora rily for pay.

Applicability of this Law to an area and to Gaza an d Jericho territories
1A. (a) In respect of the sale of goods, the tran sfer of goods and the
performance of services –
(1) the transfer of goods to an area, from Israel t o the Gaza and
Jericho territories and from the Gaza and Jericho t erritories
to Israel shall not be deemed import or export;
(2) the sale of an asset to an area resident, to a resident of the
Gaza and Jericho territories or to a person who tra vels to an
area or to the Gaza and Jericho territories shall n ot be
deemed a sale to a foreign resident or to a person who
leaves Israel;
(3) the performance of a service for an area resid ent or for a
resident of the Gaza and Jericho territories shall not be
deemed the performance of a service for a foreign r esident,
and the performance of a service in an area or in t he Gaza
and Jericho territories shall not be deemed its per formance
abroad;
(4) an area resident or a resident of the Gaza and Jericho
territories shall not be deemed a tourist;
(5) travel to an area or to the Gaza and Jericho t erritories shall
not be deemed travel abroad, and the transport of g oods
from Israel to an area or to the Gaza and Jericho t erritories
and from an area or from the Gaza and Jericho terri tories to
Israel shall not be deemed import or export;

(6) for the purpose of section 60, business or acti vities in an

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area or in the Gaza and Jericho territories shall not be
deemed business or activity abroad.
(b) This Law shall also apply to the following: (1) transactions performed by an Israel resident in an area or in
the Gaza and Jericho territories;
(2) activity in an area or in the Gaza and Jericho territories by
an Israel citizen financial institution or non-prof it
organization;
for purposes of this subsection – ” Israel citizen ” – any of the following:
(1) an Israel citizen, within its meaning in the C itizenship Law
5712-1952;
(2) an Israel resident;
(3) a person entitled to immigrate to Israel under the Law of
Return 5710-1950;
(4) a body of persons, of which an Israel citizen, within the
meaning of paragraphs (1) to (3), is a controlling member;
for this purpose, ” controlling member ” – as defined in
section 32(9) of the Income Tax Ordinance;
” Israel resident ” –
(1) in respect of an individual – an individual who resides in
Israel and is not absent from it, except temporaril y;
(2) in respect of a body of persons – (a) a body of persons registered in Israel, most of its
business and activity being in Israel;
(b) a body of persons, the control and management o f
which are exercised in Israel.
(c) Subsection (c) shall not apply to – (1) transactions of a business that is permanently and
continuously in the Gaza and Jericho territories or in an
area, on condition that it is registered there unde r the Law
which applies there and corresponds to this Law;
(2) permanent and continuous activity of a financia l institution or
non-profit organization in the Gaza and Jericho ter ritories or
in an area, on condition that it is registered ther e under the
statute which applies there and corresponds to this Law.

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CHAPTER TWO: IMPOSITION AND RATE OF TAX

Imposition and rate of value added tax
2. Value added tax shall be imposed on transactions in Israel and on the
importation of goods, at a single proportion of the price of the
transaction or of the goods, as prescribed by the M inister of Finance by
order after consultation with the Knesset Finance C ommittee.

Application of the Customs and Excise Duties (Varia tion of Tariff) Law
3. The provisions of the Customs and Excise Duties (Variation of Tariff)
Law 5709-1949 shall apply to orders under section 2 , as if they were
orders under section 1 of the said Law, mutatis mut andis as the case
may be and with the following changes: that “two mo nths” be replaced
by “two weeks”, that the time between Knesset sessi ons be taken into
account, that “Knesset Finance Committee” be replac ed by “the
Knesset”, and that the provisions of sections 2(a)( 2) and (3) not apply.

Imposition and rate of tax on non-profit organizati ons and financial
institutions
4. (a) A wage tax shall be imposed on the activit y in Israel of a non-
profit organization, at a percentage of the wages p aid by it, as
prescribed by the Minister of Finance by order with approval by
the Knesset.
(b) A wage-and-profit tax shall be imposed on the activity in Israel of
a financial institution, at a percentage of wages p aid and profit
earned by it, as prescribed by the Minister of Fina nce with
approval by the Knesset; a loss sustained by the fi nancial
institution in any tax year may be set off against the wages paid
by it in that tax year; in this subsection, ” wages” – wages,
including grants for severance pay and in case of d eath, less said
grants paid by a benefit fund or paid out of funds deposited with a
benefit fund and returned to the employer for the p ayment, as well
as any amount paid by the employer to a training fu nd or to a
benefit fund, even if – under the provisions of sec tion 3 of the
Income Tax Ordinance – it is not deemed work income when it is
paid into the training fund or the benefit fund, an d the amount of
insurance payments paid by the employer for his emp loyee under
the National Insurance Law [Consolidated Version] 5 755-1995,
less the insurance payments that the employer deduc ted from his
employees’ wage under the provisions of section 342 (c) of the
said Law.

Value added tax on art objects and used assets
5. (a) The Minister of Finance may designate categ ories of art objects
and used assets – other than dwelling units – when they are sold
by a person whose business is the sale of such asse ts, on which

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tax shall not be on their full price, but on the difference between
their price at the time of sale and their price at the time of
acquisition; when the Minister of Finance has presc ribed as
aforesaid, then input tax imposed on their sale to or importation by
a dealer shall not be deducted.
(b) When a dwelling unit is sold by a real estate d ealer, who acquired
it from a person who is not a non-profit organizati on, a financial
institution or a dealer, then the tax on it shall n ot be on its full
price, but on the difference between its price at t he time of sale
and its price at the time of acquisition; for this purpose, “dealer” –
exclusive of a dealer who was not lawfully entitled to deduct input
tax in respect of the acquisition of a dwelling uni t.

Collection of tax from purchaser
6. If tax was imposed on a transaction, or if the r ate of the tax thereon was
increased after the transaction was agreed upon, th en the dealer may
require the purchaser to pay him the amount of tax or of additional tax
to which the dealer has become liable, unless other wise provided by
agreement or by any statute that deals with price c ontrol.

CHAPTER THREE: PRICE

For a transaction
7. The price of a transaction is the consideration agreed upon, including –
(1) every tax, levy, fee or other compulsory payme nt imposed on the
transaction otherwise than under this Law, unless i t is lawfully
imposed on the purchaser, but exclusive of tax on c apital gains
under the Income Tax Ordinance and tax under the La nd
Appreciation Tax Law 5723-1963;
(2) every other expenditure incurred in carrying o ut the transaction
which the purchaser is required to refund under the agreement,
including fees or interest because of installment p ayments,
interest or any other payment for delay in payment and
compensation for any violation of the agreement tha t does not
entail cancellation of the transaction, and includi ng the price of
packaging.

For a combined sale and service
8. If a transaction involves both an asset and a s ervice, then the
aggregate price of all shall be the price of the tr ansaction.

For transactions to which section 19 applies
9. (a) The price of a transaction said in section 19(a) is the commission
or other consideration received by the person who r enders the

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service, received from the person who supplies the sold asset to
him.
(b) The price of transactions, which under section 19(b) are deemed
the performance of service, is the difference betwe en the total
acquisition price of the securities, documents or f oreign currency,
which are the subjects of transactions in a given r eturn period,
and between their total sale price in that reportin g period; for this
purpose, the repayment or redemption price of docum ents shall
be deemed their sale price.

For a service for which a fee is payable
9A. The price of a service transaction, in respect of which a fee or some
other consideration is payable under any statute, i s that fee or other
consideration.

For transaction that is a registration on an exchan ge
9B. The price of a transaction, which is the regis tration on a stock exchange
of securities issued by a real estate association, is the value set for that
transaction for purposes of the Land Appreciation T ax Law 5723-1963,
and the date for the payment of appreciation tax un der the said Law is
the payment date.

In special cases
10. If the price of a transaction is affected by a special relationship between
the parties, if no price has been set for it, or if all or part of the
consideration is in kind, then its price shall be t he price which would
have been payable under ordinary circumstances; if the price cannot be
determined in this manner, then the price shall be the cost of the asset
or service, plus profit customary in that branch of the economy.

Imported goods
11. (a) The price of imported goods, other than g oods to which
subsection (b) applies, is their value as said in s ections 129 to
134A, as the case may be, of the Customs Ordinance, on the
date on which the tax is paid, plus customs duty an d every other
tax or levy that applies to the import.
(b) The price of goods said in section 26(b) is th e new shekel
consideration for the foreign currency, at its purc hase rate when
the currency is acquired for payment of the conside ration or at the
time of its transfer abroad for payment, whichever was the earlier;
if no foreign currency was acquired or transferred as aforesaid,
then the price of the goods shall be the price said in section 7.
(c) If goods exported from Israel are repaired, ren ovated or improved
while they are abroad and are reimported to Israel, then their price
on reimportation is the value of the repair, renova tion or
improvement, with the addition of the payments said in subsection
(a).

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Price of sale prior to customs clearance
11A. If a transaction consists of the sale of imported goods before they are
cleared through Customs, the entry for consumption in Israel having
been made out in the purchaser’s name, then its pri ce is the agreed
consideration, less the price of the goods for impo rt tax purposes.

Provision on donations, assistance and the like
12. (a) Donations, assistance or other aid (herea fter: receipts) received
by a dealer shall be deemed part of the price of hi s transactions;
this provision shall not apply to categories of rec eipts or of dealers
designated by the Minister of Finance.
(b) The Minister of Finance may prescribe how recei pts shall be dealt
with in respect of invoices, deductions, entry in t he dealer’s
account books, and the like.

Rules for calculation of price
13. The Minister of Finance may prescribe rules on –
(1) calculation of the price under section 10;
(2) calculation of the price of packaging;
(3) the circumstances and conditions under which a sum paid as
deposit or surety is to be deemed part of the price of the
transaction, in the course of which it was paid.

CHAPTER FOUR: PLACE OF TRANSACTION

Place of sale
14. An asset shall be deemed to have been sold in Israel, if the asset was
in Israel at the time of its delivery to the purcha ser or if it was exported
from Israel, and in respect of an intangible asset – if the seller is an
Israel resident.

Place of service or activity
15. (a) A service shall be deemed to have been re ndered in Israel, if one
of the following applies to it:
(1) a person whose business is in Israel rendered i t; if a person
has an agent or branch in Israel, then – for this p urpose – he
shall be deemed a person whose business is in Israe l;
(2) it was rendered to an Israel resident, to a pa rtnership most
of the rights in which vest in partners resident in Israel or to
a company which is deemed an Israel resident for pu rposes
of the Income Tax Ordinance;
(3) it was rendered in relation to assets located in Israel.
(b) An activity shall be deemed to be conducted in Israel if one of the
following applies to it:

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(1) it was wholly or mostly conducted in Israel;
(2) it was conducted by a person whose principal activity is in
Israel and it is within the scope of his activity;
(3) it is that part of an activity mostly conducte d abroad, which is
conducted in Israel.
(c) The Minister of Finance may prescribe – genera lly or in respect of
a particular service or activity said in subsection (a)(1) or (2) and
in subsection (b)(1) or (2) – that only the part of the service or
activity rendered or conducted in Israel be deemed to have been
rendered or conducted there.

CHAPTER FIVE: PERSONS OBLIGATED TO PAY THE TAX

Persons obligated to pay the tax
16. The following are obligated to pay the tax: (1) in respect of a sale – the seller;
(2) in respect of a service – the person who rende rs it;
(3) in respect of imports, including the importati on of intangibles – the
owner of the goods, within its meaning in the Custo ms Ordinance;
(4) in respect of the activity of a non-profit org anization or a financial
institution – the non-profit organization or the in stitution.

Agent
17. (a) If a dealer sells an asset or renders a s ervice to a purchaser
through an agent who acts in the dealer’s name, the n the dealer
shall be deemed the person who sells the asset or r enders the
service to the purchaser, and the agent shall be de emed a person
who renders a service to the dealer, if the fact of the agency and
the dealer’s name as the principal are stated in th e documents
issued by the agent to the purchaser; if they are n ot so stated,
then the asset or service shall be deemed to have b een sold or
rendered twice: once by the dealer to the agent and once by the
agent to the purchaser.
(b) If a dealer sells in his own name an asset tha t belongs to a person
who contracted with him for this purpose, then the dealer shall be
deemed to have sold the asset to the purchaser, and the said
person to have sold the asset to the dealer.
(c) If a dealer buys an asset or receives a servic e for another dealer,
then he shall state the fact of the agency and the name of the
other dealer as the principal on documents issued b y him in the
ordinary course of his business to the seller or pe rformer of the
service; if he does not do so, then he shall be dee med to be the
purchaser for himself.

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Appointee’s responsibility for payment of tax
18. (a) In this section, ” appointee” – a person lawfully appointed to the
position of executor, liquidator, receiver, guardia n, estate
manager or trustee, or the holder of any other posi tion whom the
Court appointed in order to deal with a dealer =s assets.
(b) If, by virtue of his position, an appointee sel ls an asset or provides
a service in a dealer =s name, then the following provisions shall
apply to him in respect of tax liability:
(1) he must pay tax as does the dealer, in the deal er=s place;
(2) he shall be deemed to provide a service to the business.
(c) If the appointee received any consideration in respect of a
transaction said in subsection (b), then the tax on the transaction
shall be paid out of the consideration received for it before it is
transferred to any other purpose, and the tax shall not be deemed
part of the consideration.
(d) If the appointee reported the transaction and p aid the tax on it
under the provisions of this Law, then the dealer s hall be deemed
the one who reported the transaction and paid the t ax on it.
(e) The Director may prescribe rules on the manner in which invoices
shall be issued by the appointee, and on how he sha ll report.

Seller of stamps, telephone tokens, promissory note s, securities, etc.
19. (a) If a dealer’s business is the sale of pos tage stamps, telephone
tokens, revenue stamps, stamped promissory note for ms and the
like, at the price stated on them, then he shall be deemed to be
rendering a service to the person who supplies them to him for
sale.
(b) If a dealer’s business is the sale of securiti es or other negotiable
instruments, including the acquisition of aforesaid securities and
instruments in order to collect their redemption or retirement price,
or if his business is the sale of foreign currency, then that sale or
collection of redemption or retirement shall be dee med a
brokerage service rendered by the dealer, between t he person
who sold them to him and the person who bought them from him
or redeemed them or retired them.

Permission to pay tax in place of person liable the reto
20. A person not liable for payment of the tax may , with the Director’s
consent and on conditions prescribed by him, take t he payment upon
himself, and after the date of that consent he shal l be treated as the
person liable for its payment.

Imposition of liability on purchaser
21. The Minister of Finance may prescribe, in respe ct of categories of
dealers or categories of transactions, that the pur chaser be liable for
payment of all or of part of the tax, or that certa in categories of

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purchasers be liable to pay all or part of the tax, and he may prescribe
conditions for imposition of the liability on the p urchaser, and he may
also prescribe that other obligations under the pro visions of this Law
and of regulations thereunder that apply to particu lar categories of
persons liable to the tax shall apply to the purcha ser; if obligations were
imposed on the purchaser as aforesaid, then the sel ler or performer of
the service shall be exempt of them, unless the Min ister of Finance
prescribed otherwise and on the conditions prescrib ed by him.

CHAPTER SIX: DATE OF TAX LIABILITY

Upon sale of goods
22. Upon a sale of goods, liability to tax accrues at their delivery to the
purchaser; if the goods are delivered in installmen ts, then liability to tax
accrues on each part delivered; for this purpose, ” delivery” – within its
meaning in section 8 of the Sale Law 5727-1968.

Goods on consignment
23. If an asset is delivered by one person to anoth er so that he shall sell it,
and if it is agreed in writing that not more than 1 0% of the consideration
– or a higher percentage prescribed by the Minister of Finance for
particular categories of dealers or transactions – shall be paid before
the other sells the asset, and that he may return i t if he does not sell it,
then liability to tax on the sale of the asset by t he one person to the
other shall accrue when the other sells it; the sam e applies to an
aforesaid sale in respect of which the agreement wa s oral, if it is proved
to the Director’s satisfaction that it belongs to a category of sales, which
according to commercial usage are made on the said conditions without
a written agreement.

Service
24. In the case of a service, liability to tax accr ues when the service is
rendered; if the service is rendered in installment s, liability to tax on
each installment accrues when it is rendered, and i f the service is
rendered over a prolonged period and is not separab le into parts,
liability accrues when its performance has been com pleted.

Use for one’s own requirements
25. In the case of use for one’s own requirements, liability to tax accrues –
(1) in relation to goods – when they are taken int o use as aforesaid;
(2) in relation to real estate – when possession t hereof is taken for
use as aforesaid, when the use begins or upon regis tration in the
Land Register, whichever is the earliest.

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Imports
26. (a) In the case of imported goods, except goods said in subsection
(b), liability to tax accrues when they are cleared through
Customs.
(b) In the importation of intangibles and in the i mportation of
newspapers, periodicals or other printed matter imp orted by post,
liability to tax accrues when foreign currency to p ay for the
acquisition is acquired from a financial institutio n, or when the
foreign currency is transferred to the seller, whic hever is earlier,
and if no foreign currency is acquired or transferr ed as aforesaid –
when the consideration is given.
(c) The Minister of Finance may make regulations f or purposes of
subsection (b), including regulations on the collec tion of tax by the
financial institution, on when and how it shall tra nsmit the tax, and
also on the payment of interest if the tax is not t ransmitted at the
prescribed time.
(d) repealed

Upon expropriation
27. In the case of expropriation, forfeiture or con fiscation, liability to tax
accrues when the compensation or the consideration is paid.

Real estate transaction
28. (a) In the case of a real estate transaction, liability to tax accrues
when the real estate is placed at the purchaser’s d isposal or
made available for his use, or when it is registere d in the
purchaser =s name in a register kept under Law, whichever is
earliest.
(b) In the case of building operations, liability to tax accrues when the
work is completed or when the real estate on which the work was
performed is placed at the purchaser’s disposal or made available
for his use, whichever is earliest; if part of the real estate is placed
at the purchaser’s disposal, then liability in resp ect of that part
accrues at that time.
(c) In this section, ” building operations” include excavation,
demolition, sewerage and drainage work, the laying of pipes, road
and highway construction, land preparation and the like.

Special cases
29. Notwithstanding the provisions of this Chapter –
(1) in the case of a service rendered over a lengt hy period, which
cannot be separated into parts, in the case of a tr ansaction to
which section 28 applies, and in other categories o f transactions
designated by the Minister of Finance – if any amou nts are paid
on account of the consideration before the accrual date under this
Chapter, then tax liability accrues in respect of e ach amount so
paid when it is paid;

14
(2) the Minister of Finance may designate categories of transactions,
including transactions said in paragraph (1), in wh ich liability to tax
accrues upon receipt of the consideration and on th e amount
received, and he may also prescribe when a payment not paid in
cash shall be deemed to have been paid.

CHAPTER SEVEN: NIL RATE AND EXEMPTIONS

Tax at the nil rate
30. (a) The tax on the following transactions sha ll be at the nil rate:
(1) the sale of goods – other than goods said in se ction 33 – if
an export entry or some other document approved for this
purpose by the Director has been passed for them;
(2) the sale of an intangible asset to a foreign re sident;
(3) the sale of goods to the owner of a licensed wa rehouse,
within its meaning in the Customs Ordinance, approv ed for
this purpose by the Director (hereafter in this sec tion:
licensed warehouse), for transfer to the warehouse, if the
goods have been so transferred;
(4) the sale of goods at a licensed warehouse to pe rsons
leaving Israel, as well as the sale at a licensed w arehouse of
supplies approved by the Director – on a form presc ribed by
him – to a vessel or aircraft used for the transpor t of
passengers or cargo on international routes;
(5) the rendering of a service to a foreign residen t, other than a
service designated by the Minister of Finance for t his
purpose; a service shall not be deemed to have been
rendered to a foreign resident if the subject matte r of the
agreement is the actual rendering of the service, i n addition
to a foreign resident, also to an Israel resident i n Israel, to a
partnership most of the rights of which vest in Isr ael resident
partners, or to a company, which – for the purposes of the
Income Tax Ordinance – is deemed an Israel resident ,
unless it is a service the consideration for which forms part
of the value of the goods determined as said in sec tions 129
to 133I of the Customs Ordinance, as the case may;
(6) a service in connection with the entry or depar ture of aircraft
or vessels into or from Israel or in connection wit h the
handling of goods –
(a) rendered by the Airports Authority or the Ports
Authority to a vessel or aircraft or to a passenger on
them in connection with his entry to or departure f rom
Israel;

15

(b) rendered to the owners of cargoes, the consideration
therefor being part of the customary price within t he
meaning of sections 129 to 133I of the Customs
Ordinance, as the case may be;
(7) the rendering of a service abroad by a dealer w hose
principal place of business is in Israel;
(8) (a) overnight accommodation of a tourist in a hotel and
additional services, designated by the Minister of
Finance with approval by the Knesset Finance
Committee, rendered incidentally to the aforesaid
overnight accommodation;
(b) (1) rental of a private motor vehicle to a tou rist to
drive himself;
(2) transportation of a tourist on a sightseeing tr ip in
a private motor vehicle or in a bus, as well as the
supply of meals to a tourist by the transporter
incidentally to said bus transportation, whether he
supplies them directly or indirectly;
all on condition that a license or a permit was gra nted
to the said vehicles for the said rental or transpo rtation
under the Commodities and Services (Control) Law
5718-1957;
(b1) rendering a service to a tourist by a person w ho,
whether for consideration or not, regularly provide s one
of the services provided by a tourist agency, withi n its
definition in the Tourism Services Law 5736-1976;
(b2) (1) rendering a service to an international organization, in order to hold a conference in
Israel with the participation of at least fifty
tourists;
(2) sale to a tourist of the right to participate i n an
international conference with the participation of
at least fifty tourists;
(c) repealed
(d) repealed
(e) transportation of a tourist by aircraft from o ne place in
Israel to another place in Israel;
(f) repealed
(g) hospitalization of a tourist in a hospital regi stered
under the Public Health Ordinance 1940, and
additional services rendered incidentally to the
aforesaid hospitalization;
(9) the sale of goods to a person entitled – becau se of his entry
into Israel – to acquire them fully exempt of purch ase tax;
(10) a transaction that is the sale of a right to f oreign travel; for

16
this purpose, “right to foreign travel ” – the right to travel in
an aircraft or a vessel from Israel to a place abro ad, or from
a place abroad to another place abroad, or from a p lace
abroad to Israel, and if the place abroad is a stat e with which
Israel has a common land border and which was desig nated
for this purpose by order (hereafter in this sectio n: bordering
country) – also a right to travel by means of trans portation
other than aircraft or vessels;
(11) transportation of cargoes by air or by sea fro m and to Israel;
(11A) transportation of cargoes from Israel to an a djacent country
or from an adjacent country to Israel;
(12) (a) the sale of aircraft to a dealer whose bus iness is the
rendering of regular aviation service on fixed rout es, for
the transportation of passengers or cargo for
consideration;
(b) the sale of vessels to a dealer whose business is the
transportation of passengers or cargo, for
consideration, between Israel ports and ports abroa d;
(c) the importation of aircraft or vessels by a dea ler said in
subparagraphs (a) or (b);
(13) the sale of fruit and vegetables of kinds desi gnated by the
Minister of Finance, which have not undergone any
processing; for this purpose, cleaning, sorting, pa cking,
ripening, storage and refrigeration shall not be de emed
processing;
(14) the sale of assets – including equipment – fro m the business
of a dealer or of dealers to a company, only agains t shares
in that company, if – immediately after that sale – the dealer
or dealers hold at least 90% of the voting rights i n that
company; however, the sale of those assets by the
company, after it acquired them under the said
circumstances, shall be liable to tax even if the c ompany is
not deemed a dealer on the day of the sale;
(15) the sale of all assets – including equipment – of its business
by a dealer who is a body of persons in the course of being
wound up, to holders of rights in the body of perso ns, if a
share of the assets proportional to his share in th e wound up
body of persons is sold without consideration to ea ch of the
owners of rights who is a dealer; however, the sale by the
dealer of those assets which were acquired under af oresaid
circumstances shall be liable to tax, even if on th e day of the
sale the owner of the rights is not liable to tax f or any reason
whatsoever;
(16) the sale of real estate by a financial institu tion or by a non-
profit organization to a financial institution or t o a non-profit
organization, carried out within the framework of s tructural

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changes that meet the conditions of Part Five “B” of the
Income Tax Ordinance;
(17) the grant, to a foreign resident, of permissio n to use
exhibition space and related services provided by t he person
who gives the said permission in connection with an
exhibition, and that also if the foreign resident i s in Israel as
a tourist for purposes of the exhibition;
(18) the provision of services to a foreign residen t by an Israel
production company, for the production of a motion picture
in Israel that is not an Israeli motion picture.
(b) A person to whom the nil rate applies shall, fo r the purpose of this
Law and regulations thereunder, be treated like a p erson liable to
tax, and in respect of subsection (a)(18) – also wh en he is in
Israel for the production of a motion picture.
(c) In this section –
“foreign resident ” – a foreign resident, as defined in section 1,
while he is abroad and has no business or activity in Israel;
” production of a motion picture ” or “Israel production
company ” – as defined in the Encouragement of the Producti on
of Motion Pictures in Israel Law (Ad Hoc Provisions and Law
Amendments) 5769-2008; ” motion picture ” and “Israel motion picture ” – as defined in the
Motion Picture Law 5759-1999.

Exemption of certain transactions
31. The following transactions are exempt of tax:
(1) rentals for residential purposes for a period of not more than 25
years, other than rentals of accommodations in a ho tel;
(1A) the sale of that part of a building which was approved as a rental
building under the Encouragement of Capital Investm ents Law
5719-1959, that part having been let during at leas t five years, on
condition that the application for the aforesaid ap proval was
submitted in or after 1979, and that the conditions set in or under
the said Law have been met;
(2) giving possession of real estate against key-mo ney, as defined in
the Tenant Protection Law (Consolidated Version) 57 32-1972,
real estate rentals to which that Law applies and t he sale of real
estate rented out as aforesaid;
(3) transactions of an exempt dealer, other than tr ansactions that are
sales of real estate or transactions that are sales of equipment
which is not real estate, in respect of which input tax paid on it
was deducted at the time of its acquisition;
(4) the sale of an asset, on which input tax in res pect of its acquisition
or importation could not be deducted lawfully at th e time of its
acquisition or importation; however, if it was dete rmined that part
of the input tax could be deducted, then part of th e tax shall be

18
paid in the proportion of the deductible part of the input tax to all
the input tax;
(5) deposits of money by a dealer with a financial institution or
extension of a loan by a dealer to a financial inst itution.

Clearance and construction areas – special provisio ns
31A. (a) The terms used in this section shall have the meaning they have
in part Five AD @ of the real Estate Taxation (Appreciation, Sale
and Acquisition) Law 5723-1963 (in this section: th e Real Estate
Taxation Law).
(b) When a right in an exchanged dwelling unit is s old by an
entrepreneur, and also when construction services a re provided in
an area by an entrepreneur as consideration for his acquisition of
rights in a dwelling unit in the area, carried out in accordance with
the provisions of section 49V of the Real Estate Ta xation Law,
then that part of their price that does not exceed the ceiling value
shall be exempt of tax.
(c) The provisions of this section shall also apply to the sale and
provision of construction services as said in subse ction (b), in an
urban renewal area, as defined in section 49DD.
(d) The Minister of Finance may, with approval by t he Knesset
Finance committee, prescribe rules and provisions f or the
purposes of this section.
(e) The provisions of section 49CC of the Real Esta te Taxation Law
shall apply for the purposes of this section, mutat is mutandis.

Provision of building services under the reinforcem ent scheme –
special provisions
31B. (a) The terms that appear in this section shal l have the meaning they
have in Chapter Five “A” of the Real Estate Taxatio n
(Appreciation and Sale) Law 5723-1963 (in this sect ion: the Real
Estate Taxation Law).
(b) The provision of building services under the r einforcement
scheme in consideration for the sale of the sold ri ght that is
exempt of tax under the provisions of section 49GG of the Real
Estate Taxation Law shall be exempt of tax.
(c) The Minister of Finance may, with approval by the Knesset
Finance Committee, prescribe rules and provisions f or the
purposes of this section.

Exemption of imports
32. Importation of the following goods is exempt o f tax:
(1) goods imported by a person who, because of his entry into Israel,
is fully exempt from customs on them;
(2) goods that were exported from Israel and then r eturned, and
which – while abroad – were not repaired, renovated or improved,

19
or which were repaired, renovated or improved within the scope of
the supplier’s responsibility and for no considerat ion;
(3) gift parcels, the importation of which is fully exempt from customs;
(4) original works of art, the importation of which is fully exempt from
customs, which are imported for and for use by a mu seum or
educational institution, or are imported for a loca l authority or for a
public institution designated by the Minister for t his purpose, in
order to be placed permanently in a public place.

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Exemption of precious stones
33. The importation and export of unset diamonds, o ther than synthetic
diamonds, of unset precious and semiprecious stones of a kind fully
exempt from customs duty, and any transaction in th em with a dealer
whose business, in the course of which the transact ion is carried out, is
solely concerned with them, are exempt from tax.

Power to exempt or to apply nil rate
34. (a) The Minister of Finance may exempt the imp ortation of the
following goods from all or from part of the tax:
(1) goods to be exempted from indirect taxes, or fr om part
thereof, under an international convention to which Israel is
party;
(2) goods imported otherwise than permanently;
(3) goods the importation of which is fully exempt from customs.
(b) The Minister of Finance may exempt from tax the importation of
goods by persons specified in the Schedule to the C ustoms,
Excise and Purchase Tax (Abolition of Special Exemp tion) Law
5717-1957, or the sale of goods or the rendering of services to
aforesaid persons, and he may also apply the nil ra te to aforesaid
transactions.

Exemption of certain non-profit organizations
35. (a) If a non-profit organization does not pay its employees an
aggregate annual wage total in excess of NS 361,000 , or of a
greater amount prescribed by the Minister of Financ e, then it is
exempt of the tax under section 4(a).
(b) The Foundation, within its meaning in the Binat ional Science
Foundation Law 5737-1977, the Foundation within its meaning in
the Binational Industrial Research and Development Foundation
Law 5738-1978, the Fund, within its meaning in the United States
– Israel Agricultural Research and Development Fund Law 5740-
1980, and the Fund, within its meaning in the Germa ny – Israel
Scientific Research and Development Fund Law 5754-1 994 are
exempt of the tax under section 4(a).

Power to exempt person registered in an area
35A. The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe in regulations exemption from tax of transactions
or activity in Israel – which are not continuous an d not permanent – by
a dealer, financial institution or non-profit organ ization registered under
the statute that corresponds to this Law in an area or in the Gaza and
Jericho territories.

Power to set nil rate for contributions
35B. The Minister of Finance may set the nil rate o n the sale of goods to

21
bodies that contribute to the Palestine Authority, as will be defined in
regulations, if the goods are intended for developm ent projects or
noncommercial humanitarian objectives in the Gaza a nd Jericho
territories or in an area and if they will actually be used for those
purposes.

Power to make exemption and nil rate conditional
36. The Minister of Finance may subject any exempti on or application of
the nil rate to conditions he deems appropriate.

Inapplicability of exemption under other statute
37. The provisions of any statute that exempts from an indirect taxes shall
not apply to the tax under this Law, unless the Kne sset prescribed
otherwise by resolution.

CHAPTER EIGHT: DEDUCTION OF INPUT TAX, OTHER DEDUCTIONS AND TAX REFUND

Deduction of tax paid on inputs
38. (a) A dealer is entitled to deduct from the t ax to which he is liable the
input tax included in a tax invoice lawfully issued to him or in an
import entry or other document approved by the Dire ctor for this
purpose, on condition that the import entry or othe r document
name the dealer as owner of the goods and that the deduction be
made within six months after the invoice, the entry or the
document was issued.
(b) The Minister of Finance may prescribe provision s different from
those of subsection (a), including provisions presc ribing that input
tax paid by performers of services whose income is mainly from
salary, benefit or pension shall not be deductible, if the Minister of
Finance, under section 21, imposed payment of the t ax due on
services rendered by them on the recipients of thos e services.
(c) (1) A dealer is entitled to deduct from the tax to which he is
liable the tax included in a tax invoice lawfully i ssued by a
dealer registered in an area or in the Gaza and Jer icho
territories, on condition that the invoice is in th e form
prescribed by the Director, that it includes the pa rticulars
prescribed by him and that the deduction be made wi thin six
months after the invoice was issued; the Minister m ay
prescribe that the Director’s certification that th e goods were
brought into Israel from an area and from the Gaza and
Jericho territories in accordance with the provisio ns of
section 129A;
(2) tax deducted as said in paragraph (1) shall be treated like

22
input tax included in a tax invoice under this Law, on
condition that the dealer who applies for a said de duction
submitted to the Director, together with the period ic return
required under section 67, a return required under section
72 about the acquisition of assets or the receipt o f services
from dealers registered by the Palestine Authority.

Refund
39. (a) If, during a particular return period unde r section 67, input tax
exceeds the value added tax to which the dealer is liable in
respect of his transactions in that period, then th e excess shall be
refunded to him within 30 days after receipt of the return, or at a
later date prescribed by the Minister of Finance; h owever –
(1) if the Director ordered the dealer’s books to be examined, in
order to determine whether he is entitled to a refu nd , then
the excess shall be refunded within 90 days after r eceipt of
the return;
(2) if a person so empowered by the Director or the Israel Police
began to investigate a suspected violation of this Law by the
dealer, then the excess shall be refunded within 18 0 days
after receipt of the return;
(3) if, during the period said in paragraph (2), a n indictment was
filed against the dealer in respect of a said viola tion, or if
monetary composition was accepted from the dealer a s said
in section 121, then the Director may subtract from the
amount of excess, including linkage differentials a nd interest
due on it under section 105, any amount owed by the dealer,
and the balance shall be refunded to the dealer wit hin 30
days after the day on which the final judgment was issued or
after the day on which monetary composition was acc epted,
as the case may be.
(b) Notwithstanding the provisions of subsection (a ), the Director may
refrain from refunding the excess to any person who does not
keep books or who keeps them in substantial digress ion from the
provisions of this Law or of the regulations under it, and the
Director may also refrain from refunding the excess to any person
who failed, until the date on which the return that includes the said
excess was submitted, to submit a return which he w as under
obligation to submit under this Law, and that as lo ng as he has
not submitted that return.
(c) A decision by the Director under subsection (b) not to refund the
excess shall, for purposes of objection and appeal, be treated like
a refusal by the Director to accept a return, and t he provisions of
section 74 shall apply to it, mutatis mutandis.
(d) For purposes of this section, the date on which a return in which
not all particulars are correctly stated is receive d or submitted, as

23
the case may be, shall be the date on which those particulars are
corrected or completed.

Input tax before registration
40. Input tax included in tax invoices, import ent ries or other documents
approved by the Director under section 38(a), which were issued to a
dealer before he registered under section 52, is no t deductible.

Input tax of business in process of establishment
40A. Notwithstanding the provisions of sections 38 and 40, input tax paid by
a dealer before he is lawfully registered shall be deductible, on
condition that it is proved to the Director’s satis faction that the inputs
were acquired while the business was being establis hed and were used
for its establishment, and that even if the tax inv oice, the import entry or
the other document approved by the Director under s ection 38(a) was
not issued in the dealer’s name.

Input used for tax exempt transaction
41. Input tax shall not be deducted, unless the in put is to be used in a
transaction liable to tax.

42. Repealed

Reduction by reason of cancellation or change
43. If a transaction is canceled after the purchas er has deducted the tax on
it as input tax, or if its conditions are changed i n a manner that reduces
the tax, then the purchaser shall reduce the input tax in his next
periodic return by the amount of difference, or pay the difference as the
Minister of Finance may prescribe.

Deduction upon the sale of real estate
43A.(a) When real estate is sold by an exempt deale r or when real estate
is sold in an occasional transaction, the person li able to tax is
entitled to deduct from the tax to which he is liab le that tax which
he paid in respect of the acquisition of the real e state and its
improvement (in this section: the acquisition), if he has a tax
invoice or other document approved by the Director in respect of
that acquisition to attest payment of the tax, and if the tax has not
been deducted.
(b) The provisions of subsection (a) shall not appl y to a sale of real
estate said in section 30(a)(16), but a financial i nstitution or a
financial institution that is a merged company in a merger, or a
new company in a split, as the case may be, shall b e entitled to
deduct from the tax to which it will be liable – wh en it sells the real
estate – the tax paid in respect of the acquisition of the real estate
by the merged company or the split company, as the case may
be, if it has an invoice for the tax paid and if th e tax was not
deducted.

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(c) The total deduction from tax under subsections (a) or (b) shall not
exceed the tax to which the person liable to tax is liable in respect
of the real estate sale.
(d) In this section –
“the tax paid ” – the amount of tax included in the tax invoice o r in
the other document, as the case may be, multiplied by the index
last published before the day on which real estate was sold and
divided by the index last published before the day on which the
tax was paid, less amounts of tax that may be deduc ted as
depreciation under section 21 of the Income Tax Ord inance and
under any other statute; ” improvement ” – all expenditures incurred by the seller from th e
day of acquisition until the day of the sale for im provement of the
real estate, which are not deductible under the Inc ome Tax
Ordinance; ” index ” – as defined in section 93.

Tax refund to tourists
43B. (a) When a tourist leaves Israel, he is entitl ed to the refund of tax he
paid when he acquired goods in stores approved for this purpose
under the provisions of subsection (c), on conditio n that, when he
leaves Israel, the tourist proved the following to the Director’s
satisfaction:
(1) he leaves Israel with the goods;
(2) he has a lawfully issued tax invoice, as well a s another
document with particulars connected to the sale of the
goods, as the Minister of Finance will prescribe.
(b) The Minister of Finance may prescribe condition s in addition to
those specified in subsection (a) for tax refunds t o tourists,
including a payment by the tourist to the person, t hrough whom
the Director refunds the tax to the tourist.
(c) The Minister of Tourism may, in consultation wi th the Director,
approve businesses for the purposes of this section , in
accordance with rules he shall prescribe; once a ye ar the Minister
of Tourism shall publish the list of businesses who were approved
in that year and also the list of businesses whose approval for this
purpose was cancelled during that year.
(d) For the purposes of this section, crossing into an area or into the
Gaza and Jericho territories shall not be deemed de parture from
Israel.

Regulations on the deduction of input tax
44. The Minister of Finance may, generally or for particular categories of
dealers or of transactions, prescribe provisions on –
(1) assets and services, in respect of which input tax paid on
transactions or imports shall not be deductible, or in respect of

25
which the right to deduct is restricted, as he may prescribe;
(2) rules for the deduction of input tax when the a ssets or services,
on the importation or transaction with which the ta x was paid, are
used both in transactions on which the tax is deduc tible and in
those, on which it is not deductible;
(3) the manner in which a balance of input tax in excess of the value
added tax shall be refunded, including crediting it to the dealer’s
account;
(4) rules and conditions for the deduction of tax p aid under the Law
that corresponds to this Law in an area or in the G aza and Jericho
territories.

CHAPTER NINE: INVOICES

Must issue transaction invoice
45. A dealer must issue a transaction invoice to a purchaser for each
transaction or part thereof, even if they are exemp t of tax.

Time for issue of invoice
46. (a) An invoice shall be issued within 14 days after the time when tax
liability arises, but – in cases to which section 2 9 applies – the
invoice for the paid amount said in that section sh all be issued not
later than seven days after the day on which the am ount was
received.
(b) If a transaction is tax exempt, then an invoice shall be issued
when it would have to be issued under subregulation (a), had the
transaction been liable to tax.

Right to issue tax invoice
47. (a) For a transaction liable to tax, an author ized dealer may issue a
tax invoice instead of a transaction invoice, and h e must do so at
the purchaser’s request.
(b) (1) A tax invoice shall include particulars pre scribed by the
Minister of Finance, on condition that the tax is s tated in it
separately; however, the Director may, in general o r in
respect of categories of dealers or of transactions , permit
use of the words “including tax”, instead of a sepa rate
statement of the tax.
(2) A tax issued to be issued by an authorized deal er to a
dealer, to a financial institution or to a non-prof it organization
registered by the Palestinian Authority shall be in the form
prescribed by the Director, shall include the parti culars
prescribed by him and shall be printed in a printin g press
approved by the Director.

26
(c) If a tax invoice relates both to transactions liable to tax and to
transactions exempt of tax, or if it relates to tra nsactions liable to
tax and transactions liable at the nil rate, then t he invoice shall
state the particulars of the account in respect of each category
separately.

Obligation of dealer at time of an acquisition
47A. If a purchaser is liable to tax and if he acqu ired assets or services for
the needs or use in his business or for his activit y, then he must do as
follows:
(a) if the value of the goods or services exceeds N S 249, but does
not amount to NS 20,000, then he must demand a tax invoice
from the seller who is an approved dealer, or else pay by bank
transfer, by credit card or by a check on which he signs as drawer
and which states that payment is to the seller only ;
(b) if the value of the goods or services amounts t o or exceeds NS
20,000, then he must demand a tax invoice from the seller who is
an approved dealer, and he shall not pay him with b anknotes and
if he paid him with an endorsed check, then he shal l write his
name, signature and Vat registration number on its reverse;
(c) whoever claims that he complied with the condit ions of this
section shall bear the burden of proof.

Overstatement and understatement
48. If an invoice was issued, either overstating o r understating the price of
the transaction or the part thereof payable at that time, or the value
added tax, then the following provisions shall appl y:
(1) in the case of an overstatement, tax shall be p aid according to the
stated price or the stated amount of tax, whichever is higher, as
long as the invoice has not been corrected in the m anner
prescribed by the Minister of Finance;
(2) in the case of an understatement, the dealer sh all issue a
supplementary invoice.

Transaction not carried out or canceled
49. If an invoice was issued in respect of a transa ction liable to tax and if
the transaction or part thereof was not carried out or was canceled or
the invoice was in error, then tax shall be paid ac cording to the invoice,
as long as it has not been canceled or corrected as prescribed by the
Minister of Finance.

Tax invoice issued unlawfully
50. (a) If a person, who is not authorized under s ection 47 to issue a tax
invoice, issues a tax invoice or issues a document that purports to
be a tax invoice – even if it lacks particulars req uired for purposes
of a tax invoice – then he shall pay double the amo unt of tax

27
specified in the invoice or implied by it.
(a1) If a dealer deducts input tax included in an u nlawfully issued tax
invoice, then the director may impose on him double the tax
stated or implicit in the invoice, unless he proves to the Director=s
satisfaction that he did not know that the invoice was issued
unlawfully.
(b) A demand to pay double the amount of tax under subsections (a)
or (a1) may be appealed to the District Court; fili ng the appeal
shall not stay payment of double the tax, unless th e Court directed
otherwise.

Regulations on invoices
51. The Minister of Finance may prescribe supplemen tary provisions for the
implementation of this Chapter in respect of catego ries of dealers or of
transactions, including, inter alia –
(1) the form of the invoice, the particulars to be entered on it and
making of copies of it;
(2) provisions on safekeeping the invoice and its copies;
(3) exemptions for dealers, categories of dealers o r categories of
transactions from the obligation to issue invoices, or from
conditions of keeping records or issuing documents instead of
invoices.

CHAPTER TEN: REGISTRATION

Obligation to register
52. (a) Dealers, non-profit organizations and fina ncial institutions must
register at the time and in the manner prescribed.
(b) If a person proves to the Director’s satisfacti on that he establishes
a business, then he may register as a dealer and wh en he has
registered, then he shall for all intents and purpo ses be treated
like a dealer.
(c) The Director may refrain from registering a dea ler, a non-profit
organization and a financial institution, if he has reasonable
grounds to suspect that they will engage in illegal activity.
(d) The Director may demand surety that satisfies h im from a person
who asks to be registered as a dealer, non-profit o rganization or
financial institution, as the4 case may be, as a co ndition for his
said registration, if – during the five years befor e he submits the
application for registration – that person was conv icted by a final
judgment of an offense under sections 117(a)(3), (5 ) or (6) and
did not pay the tax debt that was the subject of th e indictment, or
if he was convicted by a final judgment of an offen se under

28
sections 117(b); for the purposes of this subsection –
” person ” includes a body of persons with an active manager ,
substantial shareholder or partner who was convicte d of a said
offense; ” substantial shareholder ” – as defined in the Companies Law
5759-1999.
Authorized dealer’s certificate; confirmation of re gistration
53. (a) A dealer, other than an exempt dealer, shal l receive an authorized
dealer’s certificate upon his registration under se ction 52.
(b) A person other than an authorized dealer shall, upon registration,
receive confirmation of his registration and of his classification.

Registration by Director
54. If a person is liable to registration and has n ot registered, then the
Director may register him provisionally; this regis tration does not
release from the obligation to register under secti on 52.

Registration of several businesses of a dealer
55. If a person has several businesses or if his bu siness consists of several
business units, then he shall be registered as one dealer in respect of
all of them; however, he may be registered separate ly in respect of
each business or each unit of his business; the Min ister of Finance may
prescribe conditions for such registration.

Joint registration of several dealers
56. If several dealers, who are Israel citizens as defined in section 1A(b)
and whose continuous and permanent places of busine ss are in Israel,
apply to be registered jointly, then the Director m ay so register them,
and when so registered, they shall be deemed partne rs for the
purposes of this Law; the Minister of Finance may p rescribe conditions
for the joint registration of dealers.

57. Repealed

R eclassification
58. The Director may – on application by a person w ho belongs to a
particular category of persons liable to tax or at his own initiative –
register him as belonging to a different category, either in respect of all
or of some of his business or activities, if he con cludes that they are
essentially closer to the other category.

Registration of authorized dealer as exempt dealer
59. (a) If the turnover of an authorized dealer dec reased and during two
consecutive years was below the amount that requ ires registration
as an authorized dealer, then the Director shall – at his initiative or

29
on application by the dealer – register him as an exempt dealer;
this provision shall not apply to a person in respe ct of whom it is
prescribed that he shall be an authorized dealer ev en if his
turnover is below the said amount.
(b) If the business turnover of an authorized deale r in the first year of
his activity was lower than the amount that require s his
registration as an authorized dealer, then the Dire ctor may – at his
initiative – register him as an exempt dealer.

Foreign resident with business or activity in Israe l
60. (a) A person liable to tax, whose businesses o r activity is mainly
abroad and who has business or activity also in Isr ael shall –
within thirty days after he began to carry on busin ess or activity in
Israel – appoint a representative whose permanent p lace of
residence is in Israel, and he shall so inform the Director,
attaching the representative’s written consent.
(b) A representative appointed under this section s hall, for purposes
of this Law, be treated like the person liable to t ax.
(c) When a representative ceased to represent the p erson liable to
tax, then the person liable to tax or the represent ative shall inform
the Director in writing of that fact not later than 14 days after the
representation ended; the person liable to tax shal l, within the
same period, appoint a new representative in the ma nner
specified in subsection (a), and he shall inform of the name of the
new representative and attach his written consent t o the
notification.
(d) As long as the representative has not notified the Director that he
ceased to represent, the obligations under subsecti on (b) shall
continue to apply to him; and if he gave advance no tice of the end
of the representation, then the said obligations sh all apply to him
until the date on which the representation ends.
(e) In this section, ” foreign resident” – as defined in section 1,
including –
(1) in respect of an individual – an individual who stays in Israel
under a visa or permit for residence that is not pe rmanent
residence, as the Director shall order;
(2) in respect of a body of persons – if one of the following
holds true:
(a) it is a body corporate, over which control and management are carried out from abroad;
(b) it is a company registered in Israel as a forei gn
company; for this purpose, ” foreign company” – as
defined in section 1 of the Companies Law 5759-1999 .

Non-registration of resident of an area or of the G aza
and Jericho territories

30
60A. The Director may refrain from registering dealers, non-profit
organizations or financial institutions, which are residents of an area or
of the Gaza and Jericho territories and are not Isr ael citizens as defined
in section 1A(b), or which are registered under an statute that
corresponds to this Law in an area or in the Gaza a nd Jericho
territories, all if they do not have continuous and permanent businesses
or carry on continuous and permanent activity in Is rael.

Change or cancellation of registration
61. (a) If the Director finds that a person is re gistered, even though he is
not one of those liable to registration, or that hi s registration in a
particular category of persons liable to registrati on is not in
accordance with Law, then he may cancel or correct the
registration.
(b) A registration made on any person’s application under sections 55
or 56 or a registration under section 58 may be can celed or
changed, if the Director concludes that the circums tances so
justify.
(c) If the person liable to tax did not appoint a r epresentative under
the provisions of section 60 or did not inform the Director of the
appointment of a new representative under the provi sions of that
section, then the Director may cancel the registrat ion of the
person liable to tax.
(a) The Director may demand of a person registered under sections
52, 55, 56 or 58, who was convicted by a final judg ment of an
offense under section 117(b), surety to his satisfa ction to secure
payment of the tax to which that person will become liable after
the demand to produce the surety; if that person di d not produce
the said sureties, then the Director may cancel his registration; for
the purposes of this subsection – ” person ” – as defined in section 52(d);
” substantial shareholder ” – as defined in the Companies Law
5759-1999.

Opportunity to be heard
62. If the Director proposes to act under sections 52(c) or (d), 54, 58, 59,
61, 77B(a) or (b) or 106B(a) otherwise than on appl ication by the
person concerned, then he shall give him an opportu nity to state his
arguments before him.

Effect
63. A cancellation or change under section 61, as w ell as a classification
under section 58, shall come into effect 30 days af ter the month in
which notification under section 64 was made, or at another time
prescribed by the Director.

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Appeal against acts of Director
64. (a) When the Director acts under section 52(b) to (d), 54, 55, 56, 57,
58, 59, 61 or 106B(a), he shall so inform the perso n concerned,
and any person who deems himself aggrieved may appe al to the
District Court within thirty days after the notific ation was served on
him.
(b) If application was made to the Director that he act under any of
the sections said in subsection (a), and if he did not respond to
the application within 90 days, then he shall – for the purposes of
subsection (a) – be deemed to have rejected the app lication.
(c) Filing an appeal shall stay implementation of t he Director’s
decision, unless the Court decides otherwise.

Regulations on registration
65. The Minister of Finance may prescribe compleme ntary provisions for
the implementation of this Chapter, including provi sions on the
obligations of a person whose registration was canc elled or changed
and on the ways of deducting input tax which he has not yet deducted,
as well as provisions on the exemption of categorie s of dealers from the
obligation to register.

CHAPTER ELEVEN: BOOKS AND RETURNS

Keeping books and records
66. A person liable to tax shall keep books and rec ords in the form and
manner prescribed by the Minister of Finance, eithe r in general or for
categories of dealers or of persons liable to tax.

Periodic return
67. (a) A person liable to tax shall submit to the Director, in a manner
prescribed by the Minister of Finance, a return for every period
designated by the Minister of Finance as a return p eriod for
persons liable to tax in general or in respect of c ategories
(hereafter: periodic return), but a financial insti tution shall file
separate returns of the wages paid and of the profi t earned, and
the return period in respect of profit shall be the tax year.
(a1) If a non-profit organization acquired goods or received services
from a dealer registered by the Palestine Authority , then it shall
submit a special report thereof to the Director whe n it submits the
periodic return, as the Minister of Finance prescri bed by
regulations.
(b) A periodic return shall be filed within 15 days after the return
period to which it relates, even if no business or activity requiring

32
payment of tax was carried on in that period, unless business or
activity has ceased altogether and the person liabl e to tax so
informed the Director in the manner prescribed by t he Minister of
Finance.
(b1) The last date for the for the submission of a periodic return shall
be postponed, if there were at least three days of rest during the
five days that preceded the said date, and it shall be on the fourth
working day after the end of the consecutive days o f rest; for this
purpose, ” days of rest ” – the days of rest prescribed in the State
of Israel within their meaning in section 18A(a) of the Law and
Administration Ordinance 5708-1948, as well as inte rim festival
days.
(c) The Director may temporarily exempt a person li able to tax from
filing a return, for a period and on conditions whi ch he may
prescribe.
(d) The Minister of Finance may exempt categories o f dealers, whose
business consists exclusively of tax exempt transac tions or of
transactions liable to tax at the nil rate, from fi ling periodic returns.
(e) The Minister of Finance may, with approval by t he Knesset
Finance Committee, designate acts that shall be dee med tax
planning that must be reported; acts designates as aforesaid shall
be specified in periodic reports.

Provisional return
68. (a) If a person liable to tax does not know th e data which he must
specify in the return, then he may instead file a p rovisional return,
in which he shall state as estimates the data not k nown to him.
(b) A provisional return shall not be filed, if at least two provisional
returns were filed during the year that preceded th e beginning of
the period in question, but the Director may approv e the filing of
provisional returns by categories of dealers or by a particular
dealer, either generally or for specific return per iods, and he may
set the date or dates on which they shall be filed and he may set
conditions for his approval.
(c) When a provisional return has been filed, the p eriodic return shall
be filed within 30 days thereafter.

Particulars of a dealer’s return
69. (a) A dealer’s periodic return shall include t he total amount of
transactions, for which the issue dates of invoices were in the
return period, even if the dealer was exempted from issuing
invoices, as well as the total amount of transactio ns for which tax
invoices were issued, even if the date for their is sue had not yet
arrived, on condition that they were not included i n a previous
periodic return.
(b) If a dealer carried out transactions liable to tax and transactions
chargeable at the nil rate or exempt from tax, then he shall specify

33
separately the total amount of transactions in each category and
the tax thereon.
(c) A periodic return shall indicate separately the total amount of the
dealer’s acquisitions, including imports, and the t otal amount of
services received by him, the amount of deductible input tax
included in the documents said in section 38 validl y issued to him
before the end of the return period, and any other particular
prescribed by the Minister of Finance.

Returns by non-profit organizations and financial i nstitutions
70. A periodic return by a non-profit organization shall include the total
amount of wages paid by it in the return period, an d the periodic returns
of a financial institution shall include, first – t he total amount of wages
paid by it and second – the aggregate amount of pro fit which it earned.

Supplementary return
71. If any data required to be included in a period ic return were omitted
from it, then the person liable to tax shall file a supplementary return for
the period in question and he shall not add those d ata to another
return.

Demand for additional particulars, additional retur ns
and auditor’s certification
72. (a) The Director may – generally, specifically or in respect of
categories – demand that returns in addition to the periodic
returns be filed for periods and at times prescribe d by him, and
also a summary annual return and a return of stock on hand.
(b) The Director may demand from an authorized deal er that is a
body of persons – generally, specifically or in res pect of
categories – that it file balance sheets and tax ad justment
accounts; he may also demand of an aforesaid body o f persons
that the summary annual return, any periodic return in which a tax
refund is requested under section 39, and a return of any other
category designated by the Minister of Finance, be certified and
adjusted for tax purposes by an auditor.
(c) In the case of a body of persons, which is a co operative society
affiliated with an audit union, an official of the audit union, who is
duly registered with the Registrar of Cooperative S ocieties, may
take the place of the auditor said in subsection (b ).
(d) The Director may require a person who certified a return under
subsections (b) or (c) to provide information on th e extent and
findings of the audit which he carried out.

Deferment of date for filing return
73. The Director may defer the dates for the filing of returns – generally,
specifically or in respect of categories – but defe rment in respect of a

34
particular person liable to tax shall only be made for special reasons
which shall be recorded; if a date for filing a per iodic return has been
deferred, then the person liable to tax may file a provisional return and
section 68 shall apply, mutatis mutandis.

Refusal to accept return
74. (a) If a person liable to tax failed to keep a ccount books during any
period or if he kept them in deviation from the pro visions of this
Law or of the regulations thereunder, which was sub stantive for
the determination of his business turnover or of th e tax, or if the
documents on which the books are based have not bee n kept in
accordance with the provisions, then the Director m ay refuse to
accept any return that relates to the tax year whic h includes the
return period in respect of which the said faults a ppeared; if the
Director refused to accept a return, then the perso n liable to tax
shall, for purposes of section 76, be treated as if he had not filed a
return.
(b) The Director shall inform the person liable to tax of the refusal,
specifying the reasons therefor.
(c) The person liable to tax may appeal against a r efusal to the
District Court, or he may object to it before the B ooks
Acceptability Committee established under section 1 72 (hereafter:
Books Acceptability Committee) within 15 days after he received
the notification under subsection (b); however, in respect of a
refusal for reasons enumerated in subsection (a) on the unlawful
issue of tax invoices or the deduction of input tax included in
unlawfully issued tax invoices the person liable to tax may appeal
only to the District Court .
(d) When an appeal or objection has been filed, the Director shall
treat the return as validly filed, as long as the C ourt or the
Committee did not decide otherwise.
(e) The submission of an appeal or objection under this section shall
not take the place of a contestation under section 82; if the appeal
or objection was rejected, then the account books s hall be
deemed unacceptable for purposes of the appeal agai nst the
assessment.
(f) If a person liable to tax did not submit an app eal or objection
under this section, then he may appeal against the refusal
together with the appeal under section 83.

Preservation of books and documents
75. Account books of a person liable to tax that ar e required to be kept
under this Law, the documents on which they are bas ed and his
purchase invoices shall be kept by him for seven ye ars, and for a
shorter period prescribed – either generally or for categories – after the
date of the last entry in the book or after the dat e on which the

35
purchase invoice was issued, whichever was later.

CHAPTER TWELVE: TAX DETERMINATION, ASSESSMENT, CONTESTATION AND APPEAL

Tax determination
76. (a) If a person liable to tax did not file a p eriodic return, then the tax
payable by him shall be determined, having regard t o the extent of
his transactions or activity or, in the absence of data, by estimate
(hereafter: tax determination).
(b) A tax determination shall not be open to contes tation or appeal,
and it shall be canceled automatically when the per iodic return is
filed; however, in respect of a person who argues t hat he is not
liable to tax the determination shall – for purpose s of contestation
or appeal – be deemed an assessment.

Assessment to best of judgment
77. (a) If a person liable to tax filed a periodic return, and if the Director
believes that it is not complete or not correct, or if it is not
supported by documents or account books as prescrib ed, then the
Director may assess the tax due or the input tax of the person
liable to tax to the best of his judgment (hereafte r: assessment).
(b) The assessment shall be made within five years after the return
was filed or – if the person liable to tax has been convicted or
composition was made for an offense of giving false information in
the said return or for any other act designed to ev ade payment of
the tax due for the period of the said return – wit hin ten years after
the return was filed.
(c) Notification of the assessment shall specify th e reasons for the
assessment.

Failure to record intake or to keep cash record
77A. (a) If a dealer records his receipts on a cash register tape, on
receipts, on invoices, in a daily sales book or in some other
documentation which he is bound to keep under provi sions by
virtue of section 66, and if he failed to record th ere some intake
which he was bound to record under those provisions , then his
books shall be deemed unacceptable in that tax year , unless the
Director is convinced that there was sufficient rea son for his
failure to record.
(b) If a dealer records the issue of goods in deliv ery notes, in invoices
or in some other documentation which he must keep u nder
provisions by virtue of section 66, and if he faile d to record there
the issue of goods which he was obligated to record under those
provisions, then his books shall be deemed unaccept able in that
tax year, unless the Director is convinced that the re was sufficient

36
reason for his failure to record.
(c) If a dealer, twice in one tax year or in 12 con secutive months in
two tax years, failed to record a receipt or the is sue of goods, as
said in subsections (a) and (b), and if at least on e of those times
was after the Director warned him in writing, then it is assumed
that his books were also unacceptable in the two ta x years that
preceded the tax year in which he twice failed to r ecord an
aforesaid receipt or issue, or also in the tax year that preceded
the first year of the 12 month period in which he t wice failed to
record an aforesaid receipt or issue, as the case m ay be, even if
his returns were accepted and assessments were draw n up
accordingly, unless the Director was satisfied that there was
sufficient reason for his failure to record.
(d) A decision by the Director under subsections (a ) to (c) may be
appealed – within 60 days after the day on which no tification was
delivered – under section 83, as if it were a decis ion on a
contestation.
(e) If a dealer was under obligation – under this L aw or under
regulations under it – to keep a cash register tape , and if he failed
to do so, then his books shall be deemed to be unac ceptable.

Unlawful issue of a tax invoice and unlawful deduct ion of input tax
77B. (a) If a dealer issued a tax invoice unlawfull y, then his account books
shall be deemed unacceptable in that tax year.
(b) If deducted input tax included in an unlawfully issued tax invoice,
then his account books shall be deemed unacceptable in that tax
year, unless – when he presented his arguments unde r section 62
– he proved to the Director =s satisfaction that he did not know
that the invoice had been issued unlawfully.
(c) Within sixty days after a decision by the Direc tor under
subsections (a) and (b) , it may be appealed under section 83, as
if it were an decision on a contestation.

Determination and assessment for several periods
78. Tax determination or assessment may also be mad e for several return
periods, even if they are not consecutive.

Amendment of assessment or of tax determination
79. (a) When the Director concludes that a tax det ermination or an
assessment is not correct, then he may – on his own initiative or
on the assessee’s application – amend it within fiv e years after
the day on which it was made.
(b) A determination or assessment shall not be amen ded as said in
subsection (a) if seven years passed since the retu rn was filed,
unless the person liable to tax was convicted of an act committed
with intent to evade payment of tax due for the sai d period or if he
made composition for such an offense.

37
(c) An amended determination shall be treated like a tax
determination, and an amended assessment shall, for purposes
of contestation and appeal, be treated like an asse ssment.
Service of notification
80. Notification of a tax determination, of an asse ssment or of an
amendment shall be served on the person liable to t ax, either by hand
or by registered mail.

Saving of responsibility
81. A tax determination or an assessment does not d erogate from the
obligations or criminal responsibility of the perso n liable to tax.

Determination of turnover
81A. If the Director decided that the total price o f a dealer’s transactions in
the current tax year will exceed the total price of his transactions in the
preceding tax year, then his decision shall – for p urposes of
contestation and appeal – be deemed an assessment.

Contestation
82. (a) If a person disputes an assessment, he may submit a reasoned
written contestation to the Director within 30 days after the notice
of assessment was served on him, or within a longer period
allowed by the Director for special reasons.
(b) If the person liable to tax and the Director re ached agreement on
the tax due, then the assessment shall be amended a ccordingly; if
no agreement is reached, then the Director shall de cide on the
contestation, and he may confirm, increase or reduc e the
assessment.
(c) Notification of the Director’s agreement or dec ision on the
contestation and of his reasons for it shall be ser ved on the
person liable to tax.
(d) If, within one year after the date on which the contestation was
filed, the Director made no decision, such as is sa id in subsection
(b), the contestation shall be deemed to have been allowed.
(e) The person who drew up an assessment shall not decide a
contestation against it.
(f) Submitting a contestation shall not derogate fr om the Director’s
powers under other provisions of this Law.

Appeal
83. (a) If a person considers himself aggrieved by the Director’s decision
on a contestation, then he may appeal against it be fore the
District Court.
(b) The appeal shall be heard by a single judge, wh o may appoint
advisers for himself from a list of advisers compil ed by the
Minister of Justice in consultation with the Minist er of Finance; an

38
adviser shall assist the judge in clarifying the appeal when it is
heard, but shall not participate in the judgment.

(c) The appeal shall be heard in camera, unless the Court decides
otherwise on the appellant’s application.
(d) If the return is not supported by lawfully kept account books, then
the burden of proof shall be on the appellant.
(e) The Court shall confirm, reduce, increase or se t aside the
assessment, or make any other decision, as it sees fit.

Law procedure regulations
84. The Minister of Justice may make regulations on the manner of filing
appeal and on the procedure on it, and also on fees , costs, loss of
working time allowance for witnesses and the remune ration of advisers.
Payment of tax not in dispute
85. There shall be no contestation or appeal under this Chapter, unless the
tax not in dispute has been paid.

Dispute as to tax on import
86. If a person disputes liability to tax on the im portation of goods, then the
provisions of section 154(a) and (b) of the Customs Ordinance shall
apply, mutatis mutandis.

Refund of excess tax
87. (a) When proceedings under this Chapter lead to the conclusion that
tax was paid in excess, then the excess shall be re funded within
30 days after the proceedings are concluded, in so far as it has
not been deducted as input tax; however, if the Dir ector ordered
the books of the person liable to tax to be examine d, an
investigation was begun or an indictment was filed against him,
then the provisions of section 39 shall apply to th e excess, as the
case may be, as if the excess tax were excess input tax.

CHAPTER THIRTEEN: DATE FOR PAYMENT

Payment according to return
88. (a) A person liable to tax shall, when filing a return, pay the tax due in
respect of the return period, whether according to the periodic or
the provisional return.
(b) If the amount of tax paid under a provisional r eturn exceeded the
amount of tax due under the subsequently filed peri odic return,
then the excess shall be refunded within 30 days af ter the date on
which the periodic return is filed; however, if the Director ordered

39
the books of the person liable to tax to be examined, an
investigation was begun or an indictment was filed against him,
then the provisions of section 39 shall apply to th e excess, as the
case may be, as if the excess tax were excess input tax.
Payment in case of imports
89. The tax on the importation of goods shall be pa id when the import entry
is released for consumption in Israel.

Payment in case of determination or assessment
90. The tax due according to a tax determination, a n assessment or an
amendment thereof shall be paid within one month af ter the day on
which notification of them was served on the person liable to tax; the
same shall apply to the balance of tax in consequen ce of a decision on
a contestation or of a judgment.

Payment in case of contestation or appeal
91. (a) If a contestation or appeal was filed, then the contestor or
appellant may refrain from paying the tax in disput e and the
Director may refrain from refunding the excess tax or excess input
tax in dispute and he may also retain any amount du e to the
contestor or appellant, as the case may be, under t he provisions
of this Law, as specified below:
(1) when a contestation was submitted – up to half the amount
in dispute;
(2) when an appeal was submitted – up to the amount in
dispute, unless the Appeal Court rules differently.
(b) Money retained as said in this section shall be retained until it
becomes possible to collect the tax debt under the Taxes
(Collection) Ordinance, but in the case of retentio n under
subsection (a)(1), if no decision was made on the c ontestation
within 90 days after the money was retained, then t he retention
shall be canceled.

Advance payments
92. The Minister of Finance may prescribe the oblig ation to pay advances
on account of the tax to which a financial institut ion is liable on its
profits.

CHAPTER FOURTEEN: COLLECTION, FINES AND INTEREST

Definitions
93. In this Chapter –
“linkage differentials and interest ” – the amount added to a given
amount, which is equal to that amount multiplied by the index increase

40
during the given period, plus interest on the given amount, after the
said linkage differentials were added to it, at the rate of 4% per annum
or at another rate prescribed by the Minister of Fi nance with approval
by the Knesset Finance Committee; for this purpose –
” index ” – the consumer price index published by the Centr al Bureau of
Statistics; ” index increase “, for any period – the difference between the inde x last
published before the end of the period and the inde x last published
before its beginning (hereafter: basic index), divi ded by the basic index.

Fine for delay in filing return
94.. If a person liable to tax did not file a perio dic return when it must be
filed under this Law, then he shall be liable to an arrears fine of NS 193
(as of July 1, 2008, under Value Added Tax Notice ( Increase of Amount
of Fines) 5768-2008, KT 5768, p. 1132 – Tr.) in respect of every two
weeks or part thereof.

Fine for not keeping books
95. (a) If a person liable to tax did not keep acc ount books or records as
prescribed, or if he kept them in substantive devia tion from the
provisions of this Law or of the regulations thereu nder, then the
Director may impose a fine equal to 1% of the total price of his
transactions or of the total amount of his wages an d profits, as the
case may be, for the tax year in which books or rec ords were not
kept as prescribed, but the fine shall not be less than NS 283 (as
of July 1, 2008, under Value Added Tax Notice (Incr ease of
Amount of Fines) 5768-2008, KT 5768, p. 1132 – Tr.) per month.
(b) The person liable to tax may, within 30 days af ter the day on
which he was given notification of the Director >s decision under
subsection (a), appeal against it before the Distri ct Court or object
to it before the Books Acceptability Committee esta blished under
section 127; however, if the said decision was made because
account books or records were kept in substantive d eviation by
issuing a tax invoice unlawfully or by deducting in put tax included
in an unlawfully issued tax invoice, under section 77B(a) or (b), as
the case may be, then the person liable to tax may bring the
appeal during the said period only before the Distr ict Court.
(c) Filing an appeal or objection shall not stay pa yment of the fine,
unless the Court or the Committee decided otherwise .
(d) Filing an objection or appeal under this sectio n shall not take the
place of filing a contestation under section 82; if the objection or
appeal were rejected, then the account books shall be deemed
unacceptable, for purposes of the appeal against th e assessment.
(e) If a person liable to tax did not file an objec tion or appeal under
subsection (b), then he may appeal against the Dire ctor’s decision
under this section together with his appeal under s ection 83.

41

Fine for failure to pay on time
96. If tax was not paid at the prescribed time, the n – in addition to linkage
differentials and interest under section 97 – an ar rears fine of 0.25% of
the overdue amount shall be added to it in respect of every week or
part thereof in a period of delay of up to six mont hs, and of 0.5% in
respect of every week or fraction thereof in the pe riod of delay after six
months.

Shortfall fine
96A. If a final assessment, which no longer is subj ect to appeal, includes the
determination that an act, which under section 67(e ) was designated as
tax planning that must be reported, shall be ignore d under the
provisions of section 138, then a fine at the rate of 30% of the shortfall
caused by the said tax planning shall be imposed; f or this purpose,
” shortfall ” – the amount by which the tax that person owes un der the
said assessment exceeds the tax he owes under the r eturns submitted
under Chapter Eleven.

Linkage differentials and interest and interest
97. If tax or double the tax was not paid at the pr escribed time, or if the
Director deferred its payment, then linkage differe ntials and interest
shall be added to it in respect of the period of de lay or deferment, from
the end of the time for payment.

Adjustment of linkage differentials and interest
97A. Linkage differentials and interest and fines f or the late payment of tax,
which were not paid at the time the tax was paid, s hall – for purposes of
collection and of the addition to them of linkage d ifferentials and
interest – be deemed a tax debt, the time for the p ayment of which was
the day on which the tax was paid.

Excessively refunded input tax
97B. For purposes of collection and for purposes of the addition of linkage
differentials and interest or fine for failure to p ay on time, input tax
excessively refunded to a dealer shall be deemed ta x due from the
dealer from the day on which the excess refund was made.

Linkage differentials and interest in special cases
98. (a) Linkage differentials and interest, as said in section 97, shall be
added to tax due under a periodic return that was f iled as said in
section 68(c), beginning fifteen days after the end of the return
period.
(b) If tax is due under the circumstances said in s ection 90, then a
fine and linkage differentials and interest as said in sections 96
and 97 shall be added to it, from the end of the ti me for filing the

42
periodic return to which the tax relates.

Liability for costs of collection
99. If collection proceedings are taken, then the c osts incidental to the
demand for payment, its collection, the attachment and safekeeping of
goods and the like shall be added to the debt, all in amounts prescribed
by the Minister of Finance.

Waiver of fine, interest or costs
100. The Director may, for special reasons that sha ll be recorded, waive or
reduce any double tax, fine, linkage differentials and interest and costs,
and he may commute a fine under sections 96 and 98( b) to linkage
differentials and interest as said in section 97.

Time for payment
101. A fine, linkage differentials and interest, do uble tax or costs under this
Chapter shall be paid within one month after notice of liability to them
has been served.

Ways of collection
102. The Taxes (Collection) Ordinance shall apply t o the collection of debts
to the State Treasury under this Law, and they may also be collected by
way of civil action.

Crediting payment against prior debt
103. (a) If a person liable to tax pays any amount on account of various
amounts owed by him under this Law, or under the Ta xes Law
(Fine for Late Payment) 5741-1981, and if he does n ot specify
which of his various said debts the amount paid is meant to settle,
then the payment shall be credited to the various c ategories of
debt in the following order, and within each catego ry of debt the
payment shall be credited in the order of its creat ion:
(1) tax;
(2) fine or double tax under this Law, or fines und er the Taxes
Law (Fine for Late Payment) 5741-1981;
(3) linkage differentials and interest, including s uch as were
adjusted under section 97A.
(b) For purposes of subsection (a), a refund of exc ess input tax and
any other tax refund which was set off against any debt under this
Law or under the Taxes Set-Off Law 5740-1980, and a ny amount
collected under the Taxes (Collection) Ordinance or in any other
manner, shall be treated like an amount that was pa id.

Saving of criminal responsibility
104. The provisions of this Chapter shall not derog ate from the criminal
responsibility of a person liable to tax.

43

Interest on delayed refund
105. (a) If a person is entitled to the refund of a balance under the opening
passage of section 39(a) and it is not refunded wit hin 30 days as
specified hereafter, or within a longer period pres cribed as said
there, then he shall be paid linkage differentials and interest as
said in section 97 from the day on which he filed t he return:
(1) if the return was filed within the time set the refor, 30 days
are counted from the day on which it was filed;
(2) if the return was filed late, between the first and the 16th of
the month, 30 days are counted from the day on whic h it
was filed;
(3) in any other case 30 days are counted from the first of the
month after the day on which the return was filed.
(b) (1) If a person is entitled to the refund of a n excess amount
under section 39(a)(1), (2) or (3) and it was not r efunded
during the period there prescribed therefor, then h e shall be
paid linkage differentials and interest as said in section 97
from the 31st day after the day on which the return was filed;
(2) if, 30 days after the day on which the return w as filed, the
Director orders that a withheld excess be refunded, then
linkage differentials and interest shall be paid fr om the
aforesaid 31st day; if the Director so ordered befo re 30 days
passed, then the provisions of subsection (a) shall be
complied with.
(c) (1) If any amount whatsoever paid for purposes of this Law is to
be refunded, and if the provisions of subsections ( a) and (b)
do not apply to it – including tax as said in secti ons 87 or
88(b) – then linkage differentials and interest sha ll be added
to that amount from the day on which it was paid, i f it is
refunded later than 30 days after it was paid;
(2) a claim for the refund of an amount said in par agraph (1)
may be submitted to the Director in writing, within two years
after it was paid.
(d) If linkage differentials and interest payable u nder subsections (a)
or (b) were not paid within 30 days after the exces s was repaid,
then they shall be deemed an excess amount on which linkage
differentials and interest as said in section 97A a re due from the
end of the said period.

Collecting a debt from a third party
106. (a) In this section – Acontrolling member @ – as defined in section 119A of the Income
Tax Ordinance; ” relative ” – as defined in section 105K of the Income Tax
Ordinance;

44
“final debt ” – a debt under this Law, which may be collected
under the provisions of the Taxes (Collection) Ordi nance;
” special relationship ” – a relationship said in paragraphs (1) to
(3) of the definition of “special relationship” in section 129 of the
Customs Ordinance, which applies to parties to a tr ansfer said in
this section, but for the purposes of paragraph (2) of the said
definition a minority shareholder in a company shal l not be
deemed a controlling party only because he has a ve to right in the
company, the purpose of which is to protect his min ority rights in
the company; ” asset ” – including rights in a body corporate, securitie s,
negotiable instruments and rights to them; ” value of asset ” – the price that would have been obtained for it
in a sale by a willing seller to a willing buyer.
(b) If the person liable to tax has a final debt an d he transfers his
assets without consideration or transfers them to a person with
whom he has a special relationship for no considera tion or for
partial consideration, without having any assets le ft in Israel for
payment of the debt (hereafter: the transferor), th en the final debt
may be collected –
(1) if the transferor is a body of persons – from w hoever
received the assets from that body of persons under the said
circumstances;
(2) if the transferor is an individual – from whoev er received the
assets from that individual under the said circumst ances, as
long as three years have not passed since the end o f the
year in which the assets were transferred as afores aid, or
since the year in which the debt became final, whic hever is
later.
(b1) If a body of person has a final debt and it tr ansfers its activity for
no consideration or for partial consideration, to a body of persons
which has – directly or indirectly – the same contr olling members
or their relatives (in this section: the other body ), without having
any assets left in Israel for payment of the debt , then the debt
which the body owes can be collected from the other body.
(b2) Without derogating from the provisions of subs ections (b)(1) or
(b1), if the body of persons has a final debt and i t is liquidated or
stops its activity without having paid the said deb t, then the assets
that belonged to the body shall be deemed to have b een
transferred for no consideration to the controlling members and
the debt may be collected from them, unless proven differently to
the Director =s satisfaction.
(c) No more shall be collected from a person who re ceived the assets
or the activity, as said in subsections (b), (b1) o r (b2), than the
value of the assets or activity he received for no consideration or
the differential between the value of the asset and activity and the

45
partial consideration, which he paid, and if he paid tax in
connection with the transfer of the said assets and activity, then
no more than the said differential, less the amount of tax which he
paid.
(d) The Taxes (Collection) Ordinance shall apply to the collection of a
debt from a person who received an asset as said in this section
(hereafter: transferee).
(e) If the Director decided to take action accordin g to this section,
then he shall so inform the transferor and the tran sferee and give
them an opportunity to present their arguments.
(f) The Director’s decision under this section may be appealed
before the District Court within 30 days after the decision was
delivered; if an application for liquidation or an application for
receivership, as the case may be, was brought again st the
transferor or the transferee, then the Court before which that
application was brought shall hear the appeal.
(g) If an asset was transferred as said in this sec tion and for that
transfer an obligation was cleared or an obligation was
transferred, then the Court may declare – on applic ation by the
Director – that clearing or transferring the obliga tion does not
constitute a consideration.

Collection after dealer’s death
106A. Upon the death of a dealer who, if not for hi s death, would have been
liable in respect of any return period – that death having occurred within
three years after that return period – his legal re presentative shall be
under obligation to pay the tax which that dealer w ould have had to pay,
if not for his death, and he shall also be responsi ble for the
performance of any act for which the deceased would have been
responsible under this Law, if not for his death; h owever, the amount of
tax to which he shall be liable under this section shall not exceed the
value of the estate of the deceased, after those de bts of the deceased
which have preference over the tax have been deduct ed; for this
purpose – ” legal representative ” – estate manager, the heirs or another person
who takes the place of the deceased; ” value ” – as defined in section 106.

Collecting the tax under special circumstances
106B. (a) If a body of persons performed one of the acts specified in section
117(a)(3), (6) or (b) and an assessment, tax determ ination or
demand to pay double tax was consequently issued to it, and if
the appeal against it was rejected by the Court, th en the Director
may determine that an officer of the body of person s (in this
section: officer) shall also have to pay the tax or double tax, as the
case may be; however, in respect of the acts specif ied in section

46
117(a)(3) or (6) the officer shall only be obligated to pay if he was
convicted by a final judgment.
(a) If the Director determined that the officer mus t pay the tax or the
double tax, as the case may be, under the provision s of
subsection (a), then that officer shall pay it with in 30 days after
notice of the obligation was served on him.
(b) In this section, ” officer” – the person who, when the act said in
subsection (a) was performed, was an active manager , partner or
controlling member of that body of persons, if the Director has a
priori evidence to prove that the act was performed with the
officer =s knowledge, unless that officer proves that he too k all
reasonable steps to prevent the act; for this purpo se, “controlling
member ” – as defined in section 119A of the Income Tax
Ordinance.
(c) The provisions of this section shall also apply to an assessment,
determination or notice of double tax, which were n ot contested or
appealed at the time prescribed therefor in this La w.

CHAPTER FIFTEEN: POWERS OF IMPLEMENTATION

Tax administration and delegation of powers
107. (a) The tax shall be administered by the Direc tor, and he may
delegate his powers, other than the powers under se ctions 30,
109, 112(a)(b) and 140.
(b) The Minister of Finance may charge the Income T ax
Commissioner with the administration of the tax in respect of
financial institutions and non-profit organizations , and when he
has done so the Commissioner shall in that respect have the
powers of the Director, other than the powers under section 58
and 61.
(c) A delegation of powers under sections 61, 77, 7 9, 82, 91, 95,
108(b), 112(a)(2), 113, 114, or 115 shall require p ublication in
Reshumot.

Demand for documents, samples and information
108. (a) In order to assure the implementation of t his Law or of regulations
thereunder, the Director may –
(1) require any person to deliver to him relevant i nformation and
to enable him to examine and to photograph relevant
documents and samples;
(2) require a person liable to tax to deliver to hi m relevant
books, documents, samples and information, includin g
identification marks given to him by the Director, on
condition that anything delivered as aforesaid be r eturned

47
within three months after the date of its receipt, if no
complaint of a violation of this Law was brought be fore then.
(b) If the photograph of an aforesaid document or a sample bears
certification by the Director and by the person lia ble to tax or by
his authorized agent that it conforms to the origin al, shall for all
intents and purposes be treated like the original.

Obtaining information from the National Insurance I nstitute
108A. (a) Notwithstanding the provisions of any sta tute, the Director may
obtain from the National Insurance Institute all th e information
determined under subsection (b), which reached the National
Insurance Institute in the course of its work, and which the
Director needs for the performance of his task unde r any statute.
(b) The Minister of Finance shall – in consultation with the Minister of
Welfare, with the consent of the Minister of Justic e and with
approval by the Knesset Finance Committee – determi ne the
categories of information which the Director may ob tain under the
provisions of subsection (a).

Powers of search and seizure
109. (a) In order to assure the implementation of t his Law or of regulations
thereunder, a person so authorized by the Director may –
(1) enter any place which is not only a dwelling an d, for
purposes of a real estate transaction, also a dwell ing which
is the subject of the transaction, on condition tha t – if the
dwelling is inhabited – he enter it only with the D irector’s
written approval and after 24 hours’ advance notice has
been given, but entry to an installation which the Minister of
Defense designated as a defense installation requir es
approval by the Minister of Defense or by a person
authorized by him;
(2) seize goods from a dealer (hereafter in this Ch apter:
including their means of transport, books and other
documents) if it is suspected that an offense was c ommitted
with them or in their respect, or that they are lik ely to serve
as evidence of its commission; however, a vehicle u sed for
the transportation of aforesaid goods shall not be seized,
unless the owner of the vehicle or the person by wh om the
vehicle is regularly used is suspected of having co mmitted
the offense or of having had advance knowledge of i ts
commission;
(3) interrogate any person;
(4) require a person to appear before him in person or by his
representative, to deliver to him all the particula rs required
for purposes of the tax to which he is liable or of its
assessment, and to submit for examination books and

48
documents which the person who makes the request deems
necessary.
(b) A person authorized for purposes of subsection (a) shall have the
powers of a police officer for the prevention or de tection of
offenses and the powers of a commissioned officer o f police of
the rank of inspector, under section 2 of the Crimi nal Procedure
(Evidence) Ordinance, and section 3 of the said Ord inance shall
apply to a statement taken by him.

Restriction on the interrogation of relatives
110. Notwithstanding the provisions of section 109( a)(3) and without
derogating from the provisions of any statute on pr ivileged evidence,
the Director or the person empowered by him shall n ot, on his own
initiative, interrogate the spouse, children or par ents of the person liable
to tax.

How to deal with seized goods
111. (a) When goods have been seized under section 109, the Director
may transfer them to any place he may prescribe or, with the
consent of the person who has them in his possessio n, detain
them in the possession of the person who holds them , either
against surety to the Director’s satisfaction or wi thout surety.
(b) When goods have been detained in the possession of the person
who holds them, as said in subsection (a), then he shall produce
them on the Director’s demand; if he does not do so or if he
produces them in damaged condition, he shall be cha rged with an
offense under this Law, unless he proved that the g oods
disappeared or were damaged due to causes over whic h he had
no control.
(c) When goods, which are animals or a perishable c ommodity, have
been seized, the Magistrate’s Court may – on the Di rector’s
application – order them to be sold by public aucti on or at their
current market price, and the proceeds of the sale shall, for
purposes of the other provisions of this section, b e deemed to be
the goods seized.
(d) When goods have been seized and the Director do es not know
who owns them or the address of the person from who m they
were seized, then the Director shall publish notice to that effect in
Reshumot, and if nobody claims them within three mo nths after
publication of the notice they shall be confiscated .
(e) If goods were seized under section 109 and if – within six months
after the date of seizure – no complaint was filed for an offense
against this Law for which they were seized, and if no composition
was made for the offense, then they shall be return ed to the
person from whom they were seized; the Magistrate’s Court may
– on the Director’s application – extend the period by another six
months.

49
(f) If composition was made for a person’s offense in respect of
goods seized under section 109, then the Director m ay confiscate
them.
(g) If a person is convicted of the offense for whi ch the goods were
seized, then the goods shall be confiscated, unless the Court
directs otherwise; if the person was acquitted, the n the goods
shall be returned to the person from whom they were seized or to
another person, as the Court may direct, but the Co urt may direct
that the goods be confiscated notwithstanding the a cquittal.
(h) If goods were confiscated, then the Director ma y return them – to
the person from whom they were seized or to their o wner –
against payment of their value.
(i) If a document or book was seized and is needed by the person
from whom it was seized or by some other person for the
fulfillment of a lawful obligation, then they may i nspect or
photocopy them, and the Director may – on their app lication –
return them to them and he may make the return cond itional upon
delivery of photocopies of them to the Director; th e provisions of
section 108(b) shall apply to the photocopies.

Administrative means of compulsion
112. (a) If the Director concludes that a dealer do es not make a proper
return of all his transactions, that he has not pai d the tax due
under a return filed by him, that he failed to file more than two
returns under section 67 during the past year, or t hat he
committed an offense with intent to evade the payme nt of tax,
then he may –
(1) demand that the dealer provide surety to the Di rector’s
satisfaction for the payment of any debt and for co mpliance
with the provisions of this Law and, if he does not provide
surety by the time set by the Director, then he may prohibit
him from continuing in business until the surety ha s been
provided;
(2) prohibit him to transfer goods or to render ser vices in the
course of his business before the Director has mark ed the
invoice, the delivery note or other document, as th e Director
may prescribe.
(b) An aforesaid decision by the Director to prohib it the continuation
of business, the transfer of goods or the rendering of services
shall go into effect 15 days after the day on which it was served
on the dealer.
(c) An aforesaid decision by the Director may be ap pealed before the
District Court; filing the appeal shall stay implem entation of the
decision, as long as the Court has not decided othe rwise.

Tax collection in special cases

50
112A.(a) If the Director has reason to suspect that the tax on transactions
or the improperly deducted input tax will not be pa id, because the
dealer plans to leave Israel or because of some oth er reason,
then he may –
(1) if an assessment under section 77 was made for the dealer
– demand by written notice that the dealer immediat ely
provide surety to the Director’s satisfaction for p ayment of
the tax stated in the assessment, including the lin kage
differentials and interest stated in it;
(2) if no assessment was made for the dealer – asse ss the tax
which the Director believes that the dealer owes, i n an
amount that appears reasonable to him, also includi ng in it
linkage differentials, interest and fines owed by h im.
(b) When an assessment has been made under subsecti on (a)(2),
the Director shall give written notice thereof, and any amount said
there shall be paid immediately after the notice wa s served.
(c) If the said amount was not paid or no surety p rovided, as the
case may be, then the Magistrate’s Court may, on th e Director’s
application, make an order even in the dealer’s abs ence –
(1) to prevent his leaving Israel;
(2) to attach his property.
(d) After an aforesaid amount has been paid or afte r surety has been
provided, the dealer may contest it or appeal again st it, in the
manner of a contestation or appeal against an asses sment under
section 77.
(e) The provisions of this section shall also apply to double tax, as
said in section 50 and to a tax determination, as s aid in section
76, mutatis mutandis.

Prohibition on issue of tax invoice
113. (a) If a person does not keep account books or records as
prescribed, or if he keeps them in substantive devi ation from the
provisions of this Law and of the regulations under it, then the
Director shall warn him, specifying the defect in h is warning; if the
defect is not corrected within one month after the day on which
the warning was served, then the Director may prohi bit him from
issuing tax invoices.
(b) The person liable to tax may, at his option, ap peal to the District
Court or object before the Books Acceptability Comm ittee against
the Director’s warning or against the decision to p rohibit the issue
of tax invoices.
(c) The appeal or objection shall be submitted with in 30 days after
the day on which the warning or notice of the prohi bition was
served, and its submission shall not stay the imple mentation of
the Director’s decision, unless the Court or Commit tee decided

51
otherwise.
(d) Submission of an objection or appeal under subs ection (b) shall
not take the place of a contestation under section 82; if the
objection or appeal were rejected, then the account books shall
be deemed unacceptable, for purposes of the appeal against the
assessment.
(e) If a person liable to tax did not submit an ap peal or objection
under subsection (b), then he may appeal against th e Director’s
warning or decision under this section together wit h his appeal
under section 83.

Detention of goods under control of Customs
114. The Director may delay the removal of any good s of a person liable to
tax from the control of Customs until any debt due from him under this
Law has been paid or until the returns he is requir ed to make have
been submitted.

Preventing departure from Israel
115. (a) If a person liable to tax was required to pay the tax due from him,
to give surety for its payment or to file a return which he was
under obligation to file, and if he did not do so, then the
Magistrate’s Court at his place of residence or pla ce of business
may – on the Director’s application – make an order , even in his
absence, to prevent him from leaving Israel or to a ttach his
property until he has fulfilled the conditions set by it.
(b) If the person liable to tax is a small company, as said in section 76
of the Income Tax Ordinance, then an order under su bsection (a)
to prevent departure from Israel may be issued agai nst every
active director of the company, or business manager , or member
who holds shares that confer on him at least 26% of the voting
power in the company or at least 26% of its capital upon winding
up.
(c) If a person liable to tax, which is a body of p ersons, was required
to pay the tax due from it, and if the Director rea sonably suspects
that the tax will not be paid, then the Court said in subsection (a)
may – on application by the Director – issue an ord er that the
active manager, chairman of the board of directors or business
manager of that body of persons not leave the count ry, for
purposes of his interrogation or for the acts requi red to assure that
the tax will be paid, on condition that the Court i s satisfied that his
departure from Israel would be liable to interfere with the said
interrogation or acts and that it is not possible t o impose a suitable
surety to ascertain that they will be carried out.

Deferment of dates
116. (a) The Director may extend every time prescri bed by this Law or by

52
regulations thereunder for any act, other than the time for filing an
appeal or objection, and he may prescribe that a de bt be paid in
installments; if he has so permitted and the person liable to tax
failed to pay an installment at the prescribed time , then the
Director may demand that the balance of the debt be paid
immediately.
(a1) Notwithstanding the provisions of subsection ( a), the Director may
extend the time for the deduction of input tax stat ed in section
38(a) (hereafter: the original time) for a period o f not more than
eighteen months after the original time, but if the Director is
concludes that non-deduction of input tax at the or iginal time was
not due to the dealer =s negligence, then he may – for special
reasons that shall be recorded – extend the time fo r deduction of
input tax for a period of not more than five years after the original
time.
(d) The Director may make the extension of time und er subsection (a)
conditional upon the provision of surety to his sat isfaction for the
payment of any debt and for the performance of any act, the time
for which has been deferred.
CHAPTER SIXTEEN: PENALTIES

Offenses
117. (a) If a person violated any provision of this Law or of the regulations
thereunder, as specified below, then he shall be li able to one year
imprisonment:
(1) he refused or abstained from delivering any not ice,
document, book or sample which he must deliver, aft er he
was required to do so;
(2) he refused or abstained from appearing for an i nterrogation
after he was required to do so;
(3) he gave an incorrect or inaccurate information without
reasonable explanation, or delivered a return or ot her
document that includes said information;
(4) he did not do what he was supposed to do for pu rposes of
his registration;
(5) he issued a tax invoice without being entitled to do so or
after he was forbidden from doing so;
(6) he did not submit on tine a return that must be submitted
under this Law or regulations thereunder, including a return
he must submit in accordance with the Director =s demand;
(6a) in his periodic report he did not specify an a ct that – under
the provisions of section 67(e) – is designated tax planning
that must be reported, in violation of the provisio ns of that

53
section;
(7) he did not keep account books or other records which he
was obligated to keep, or a final determination was made
under sections 74, 95 or 113 that he kept them in
substantive digression from the provisions; for thi s purpose:
” final determination ” – a determination under the said
sections against which no appeal was brought or the appeal
or objection that were submitted were rejected;
(8) he kept identification marks, which he did not receive from
the Director, or used them after he was forbidden t o use
them;
(9) while he was a dealer, he unlawfully gave anoth er person
goods, the import or sale of which is exempt, on co ndition
that he alone use them;
(10) he transported goods in violation of section 1 29;
(11) he had possession of goods with which he deals , and their
acquisition was not entered in the account books, a s
required;
(12) he records his intake on a cash register tape, on receipts, on
invoices, in a daily intake book or on other docume ntation
under provisions by virtue of section 66, and did n ot record
an intake which he was obligated to record under th ose
provisions;
(13) he did not issue a tax invoice, even though he was obligated
to issue it;
(14) he issued a tax invoice and did not pay the ta x included in it
on time;
(15) he did not demand a tax invoice, which he was obligated to
demand;
(16) he interfered with a person in the performance of his duty by
virtue of this Law, or prevented him from doing so.
(a1) If an acquisition or an amount received, as sa id in subsection
(a)(11) or (12), was not recorded by a dealer’s emp loyee or by a
dealer’s agent who is not an employee, then that em ployee or
agent shall be accused of the violation, and the de aler shall also
be accused of it unless he proves that the violatio n was
committed without his knowledge and that he took al l reasonable
steps to prevent the violation.
(b) If a person committed any of the offenses speci fied below with the
intent to dodge or to evade payment of tax, then he shall be liable
to five years imprisonment or to double the penalty prescribed in
section 61(a)(4) of the Penal Law 5737-1977 (hereaf ter: Penal
Law):
(1) he gave false information or delivered a return or other
document that includes said information;
(2) he continued to conduct transactions after he w as prohibited

54
from doing so or before he fulfilled the conditions for
continuing his business;
(3) he issued a tax invoice or a document that appe ars to be a
tax invoice, without having effected or having unde rtaken to
effect the transaction in respect of which he issue d the said
invoice or document;
(4) he issued a credit note or a document that appe ars to be a
credit note without being entitled to do so;
(5) he deducted input tax without having a document in respect
thereof, as said in section 38;
(6) he prepared, kept or allowed another to prepare or to keep
false account books or other false records;
(7) he falsified, concealed, destroyed or altered a ny book or
other document which he was required to keep or to deliver,
or he allowed another or didn’t prevent another fro m doing
as aforesaid;
(8) he used any deceit or trick or allowed another to use them or
committed any other act in order to dodge or to eva de the
tax.
(b1) If a person acted with the purpose of causing another person to
dodge or to evade payment of tax, to which that per son is liable,
then he shall be liable to five years imprisonment.
(b2) If an offense under subsections (b) or (b1) wa s committed under
aggravating circumstances, then the person who comm itted it
shall be liable to seven years imprisonment or to a fine five times
the fine prescribed in section 61(a)(4) of the Pena l Law; in this
section, “aggravating circumstances ” – one of the following:
(1) the offender was convicted of an offense under subsections
(b) or (b1), and three years have not yet passed si nce he
was found guilty;
(2) more than six indictments were brought against the offender
during a three year period for offenses under subse ctions (b)
or (b1);
(3) by his action the offender caused the dodging o r evasion of
the payment of tax in an amount greater than double the
amount of the fine prescribed in section 61(a)(4) o f the
Penal Law.
(c) If a person was convicted of an offense under s ubsection (b)
within three years after he was convicted of a said offense, then
the Court may – in addition to any other penalty – prohibit him
from continuing his business for a period which it may prescribe.

Transfer of assets with intent to prevent payment o f tax
117A.(a) If a person transferred his assets to anot her without transferring
control over them, with the intent to prevent the c ollection of tax to
which he was liable or was likely to become liable in the future,

55
and – when the transferor is a body of persons – he is the person
who caused such a transfer, then he shall be liable to two years
imprisonment.
(b) If a person distributed assets of a company amo ng its members
with the intent to prevent the collection of tax to which it was or
was likely to become liable in the future – then he shall be liable to
two years imprisonment; however, if a fine is impos ed, then that
fine shall not exceed the amount of the debt.

Offense for which no penalty is prescribed
118. If a person violated any provision of this Law , and if no penalty is set for
that offense, or if he violated a provision of a re gulation thereunder, that
violation being defined in the regulations to be an offense, then he shall
be liable to three months imprisonment or to a fine of NS 5,000.

Offense by body of persons
119. If an offense under this Law or under regulati ons thereunder was
committed by an incorporated or unincorporated body of persons, then
every person who at the time of its commission was an active director,
secretary, trustee, authorized representative, acti ve partner,
accountant, bookkeeper or otherwise a responsible o fficial of it, shall
also be guilty, unless he proves that the offense w as committed without
his knowledge or that he took all appropriate steps to ensure
compliance with the provisions of the Law.

Responsibility for acts of employee
120. If an offense under this Law or under any regu lation thereunder was
committed – in the course of the business or activi ty of a person liable
to tax – by a clerk, worker or agent, then the pers on liable to tax shall
also be accused of the offense unless he proves tha t the offense was
committed without his knowledge or that he took all appropriate steps to
ensure compliance with the provisions of the Law.

Monetary composition
121. (a) If a person committed or is suspected of a n offense under this
Law or under the regulations thereunder, then the D irector may –
with that person’s consent – accept from him moneta ry
composition in an amount no greater than the larges t fine which
can be imposed for that offense, and when he has do ne so every
legal proceeding in respect of the offense shall be discontinued;
however, if an indictment has been filed, then mone tary
composition shall be accepted only with the consent of the
Attorney General or of a person empowered by him fo r that
purpose.
(b) The Director may make a monetary composition co nditional upon
an undertaking to refrain from committing an offens e for a period

56
of not more than three years prescribed by him; the undertaking
shall be a surety in an amount that does not exceed the largest
fine which could be imposed for the offense, with o r without the
guaranty of a third party, as the Director may pres cribe.
(c) When a person has been convicted of an offense from which he
has undertaken to refrain under subsection (b), the n the surety
shall be collected as a debt under this Law.

122. Repealed
Conviction does not release from obligations
123. If a person was convicted or if he paid compos ition or an administrative
fine, that shall not release him from his obligatio ns under this Law and
under the regulations thereunder.

Forfeiture in addition to other penalties
124. Confiscation under this Law shall be in additi on to and not in lieu of any
penalty, fine or composition.

CHAPTER SEVENTEEN: MISCELLANEOUS PROVISIONS

Power to change amounts
125. The Minister of Finance may change the amounts stated in sections 94
and 95.

Linkage
126. (a) The amounts prescribed in section 1, in th e definition of “exempt
dealer”, and in section 35 or thereunder, shall be adjusted on
January 1 of every year according to the increase o f the
consumer price index published on behalf of the Cen tral Bureau
of Statistics (hereafter in this section: index) on the preceding
December 15; the amounts adjusted as aforesaid shal l be
rounded off to the nearest new shekel.
(b) The amount prescribed in section 47A shall be a djusted on
January 1 and July 1 of each year according to the increase of the
index published on the 15th of the preceding month.
(c) If the Minister of Finance exercised his power under subsection
(a) within the six months before January 1 of a par ticular year,
then the adjustment said in subsection (a) shall no t be made for
that year.

Books Acceptability Committee
127. (a) The Minister of Finance shall, in consulta tion with the Minister of
Justice, appoint persons from whom the Director sha ll form

57
committees on the acceptability of account books.
(b) Every aforesaid committee shall consist of thre e members: its
chairman shall be a public personality and an exper t in
accountancy, and the two other members shall be aud itors, on
condition that not more than one of them is a state employee or
employee of a state institution.
(c) Notice of aforesaid appointments shall be publi shed in Reshumot.
(d) When it hears an objection, the committee may –
(1) determine that the person liable to tax does no t keep books
or keeps them in substantive deviation from the pro visions of
this Law and of the regulations thereunder;
(2) determine that the person liable to tax keeps b ooks or that
the deviation in them is not substantive.
(e) A committee’s decision on an objection shall be final, but it may
refer a legal question to the District Court for it s opinion.
(f) The committee is competent to gather evidence f or the exercise
of its powers under this Law.
(g) The committee may adjudge the costs of objectio n proceedings,
including remuneration of the representative of the person liable
to tax, and traveling expenses and loss of working time allowance
for witnesses.
(h) The Minister of Justice may make regulations o n –
(1) procedures for convening the committees;
(2) procedure before committees;
(3) fees payable in respect of proceedings before c ommittees;
(4) remuneration of committee members.

Partnership and joint transaction
128. (a) If a transaction was carried out by a part ner in a registered
partnership or by persons deemed partners under sec tion 56 in
the course of the partners’ business, then it shall be deemed to
have been carried out by the partnership, unless th e contrary is
proven to the Director’s satisfaction.
(b) If a transaction was carried out by an unregist ered partnership or
by a partnership formed for the performance of a pa rticular
transaction, or if a transaction was carried out jo intly by several
dealers, then the transaction shall not be deemed t hat of a
partnership, but that of each partner or dealer sep arately in
accordance with his share, unless the partners appl ied to be
registered as one dealer; having so applied, they s hall be deemed
jointly and severally responsible for every obligat ion, debt, act or
omission connected to that matter.
(c) The Minister of Finance may prescribe provision s on registration,
the filing of returns, excess tax refunds, excess i nput tax and the
responsibility of partners, deductions and the issu e of invoices in
transactions said in subsections (a) and (b), even in deviation

58
from the provisions of this Law.
(d) If the Director did not accept any evidence sub mitted to him for
purposes of subsection (a), then the partner or par tnership may
appeal to the District Court.

Delivery note
129. (a) A person’s goods for use in his business s hall not be transported
in a vehicle without an invoice or a delivery note, unless that
person was exempted from this obligation by regulat ions or by
direction of the Director, subject to conditions pr escribed by him.
(b) For purposes of this section, ” invoice or delivery note” – any
one of the following:
(1) an invoice or delivery note lawfully issued by a dealer
registered under this Law;
(2) an invoice lawfully issued in an area or in the Gaza and
Jericho territories by a dealer registered under th e statute
that corresponds to this Law, on condition that it include
particulars prescribed by the Director.

Supervision over the movement of goods into and out of an area of
the Gaza and Jericho territories
129A. For supervision of the implementation of the provisions under this Law
the Minister of Finance may, in consultation with t he Minister of
Defense, prescribe places where the movement of goo ds into and out
of areas and the Gaza and Jericho territories shall be permitted and he
may designate the days and hours when said movement shall be
permitted, and also order that certification shall be required from the
Director, in the manner he shall prescribe, that th e goods were moved
in or out according to the said provisions; provisi ons under this section
may be general or for categories of goods.

Identification marks
130. The Minister of Finance may make it an obligat ion to mark goods of
particular categories with identification marks tha t he will prescribe, and
he may prescribe the manner of using those marks, a nd he may
exempt a dealer from the obligation to mark goods i n the course of his
business.

Display of price to include information on tax
131. When a dealer publicly displays or in any mann er publicizes the price of
an asset or service, to which the Commodities and S ervices (Control)
Law 5718-1957 does not apply, then he shall state w hether the price
does or does not include tax.

Evidence
132. If a person claims that he has paid tax or fil ed a return or that tax was

59
deducted on the basis of a tax invoice, then he shall bear the burden of
proof.

Presumption of sale
133. If a dealer delivered any property of his busi ness to another in the
course of his business, other than for sale on cons ignment, then he
shall be deemed to have sold it, unless the contrar y is proven; for this
purpose, ” delivery” – within its meaning in section 8 of the Sale Law
5728-1968.

Exemption from requirement of signature
134. Any notification, demand, tax determination, a ssessment or other
document issued under this Law, on which the name o r title of the
person who issued it is stated, does not require hi s signature.

Defect does not invalidate act
135. The validity of any act under this Law shall n ot be impaired by any want
of form, error or omission therein, unless that aff ects its substance or is
liable to mislead.

Registration in Land Register
136. The Director may require that a sale of real e state, which requires
registration in the Land Register, or a category of aforesaid sales shall
not be registered, unless the purchaser holds a tax invoice in respect of
that sale, or unless a certificate from the Directo r is produced that the
tax due on the sale was paid or that he was given s urety for its payment
on time.

Notification of changes
137. Persons liable to tax shall notify the Directo r, in the manner and at the
times prescribed, of every change that occurred in the ownership of the
business or institution, in its business and activi ty and in any other
particular prescribed by the Minister.

Business assets after cessation of activity
137A.(a) If it is proven to the Director’s satisfac tion that a dealer has
completely ceased his business activity or that he has transferred
ownership of his business to another, and that he h as retained an
asset, then – two years after the date of the cessa tion or transfer
– that asset shall be treated like an asset used fo r personal
purposes.
(b) The provisions of subsection (a) shall not app ly to business
assets, the total price of which is smaller than th e amount set in
respect of an exempt dealer.
(c) If an asset that is real estate remains in the possession of a
dealer as said in subsection (a), then the Director may – on

60
application by the dealer and notwithstanding the provisions of
that subsection – postpone the date on which tax fa lls due to the
day on which the real estate asset will be transfer red to another or
to some other date prescribed by him and on conditi ons he shall
prescribe; if the Director postponed the date on wh ich tax falls due
as aforesaid, then the tax shall be paid even if th e said dealer is
not liable to tax at the time of the sale.

Business assets when dealer’s registration is chang ed to non-profit
organization or financial institution
137B. When an asset is acquired by a dealer and he deducted input tax on
its acquisition or import, and if the dealer’s regi stration was thereafter
changed to that of a non-profit organization or fin ancial institution and
the asset remained in its possession, then it shall be treated like an
asset used for personal purposes at the time of the change of
registration.

Artificial or fictitious transaction
138. (a) The Director may disregard a transaction o r act, if he believes that
it is artificial or fictitious or that one of its p rincipal purposes was
the improper avoidance or reduction of tax.
(b) The Director’s decision under subsection (a) ma y be appealed
before the District Court.

Rounding off of amounts
139. Any amount stated in a return under this Law s hall be rounded off to
the nearest whole new shekel, and an amount of half a new shekel
shall be rounded off upwards.

Forms
140. The Director may prescribe the forms necessary for the implementation
of this Law and the form of account books and other records required to
be kept by a person liable to tax, and he may direc t that aforesaid
forms, books or records shall be used.

Service of documents
141. (a) Without derogating from the provisions of section 80, documents
for purposes of this Law shall be served in the man ner prescribed
by regulations.
(b) When a document is sent by mail, it shall be de emed to have
been served on the addressee on the fifth day after its dispatch,
even if the addressee refused to accept it.
(c) If a document intended for a partnership, other than a partnership
said in section 128(b), was served on one of the pa rtners, then it
shall be deemed to have been served on all the part ners.

Confidentiality

61
142. (a) No person shall disclose any information that reached him in the
implementation of this Law, unless –
(1) the Minister of Finance permitted him to disclo se it;
(2) he is required to disclose it in legal proceedi ngs under this
Law or under a tax law, within its meaning in the T ax Law
Amendment (Exchange of Information Between Tax
Authorities) Law 5727-1967;
(3) the information is required by the National Ins urance
Institute for the performance of its responsibiliti es, as said in
section 384A of the National Insurance Law [Consoli dated
Version] 5755-1995/
(a1) For the purposes of subsection (a)(1) the Mini ster of Finance may
also give permission to disclose categories of info rmation, on
condition that said permission be given to official s specified in it
for the lawful performance of their duties and for reasons that
shall be recorded.
(b) If information reached a person under subsectio n (a), then he
shall be deemed to have received it in the implemen tation of this
Law.
(c) If a person unlawfully discloses any informatio n that reached him
in the implementation of this Law, then he shall be liable to one
year imprisonment or to a fine of NS 20,000 (under section
61(a)(2) of the Penal Law 5737-1977 the maximum amo unt of this
fine now stands at NS 26,100 – Tr.)

Applicability of provisions of the Income Tax Ordin ance
143. The provisions of sections 117, 119, 143, 144 and 235A to 235D of the
Income Tax Ordinance shall apply, mutatis mutandis, for purposes of
the tax.

Right to represent person liable to tax
143A.(a) Any person entitled to represent an assess ee as said in section
236 of the Income Tax Ordinance is entitled to repr esent a person
liable to tax under this Law, except for representa tion in
connection with the provisions in Chapter Sixteen, other than for
purposes of the provisions of section 121.
(b) The provisions of the Regulation of Representat ion by Tax
Consultants Law 5765-2005 shall apply to the repres entation of a
person liable to tax.

Application of provisions of Customs Ordinance
144. The provisions of sections 39(b), 63, 64, 81 t o 89, 92, 93, 104, 122,
128, 140 to 145, 149, 150, 152, 156, 162 to 162 B, 170, 171, 198, 204
and 231C of the Customs Ordinance shall apply for p urposes of the tax
on the importation of goods, and the provisions of section 156 of the
Customs Ordinance shall apply to the importation of goods exported by

62
a person who is not a dealer.

144A. Repealed
The State
144B. The provisions of this Law shall also apply t o the State.

Implementation and regulations
145. (a) The Minister of Finance is charged with th e implementation of this
Law and he may make regulations on anything related to its
implementation.
(b) The Minister of Finance may prescribe that the provisions of the
Income Tax Ordinance on assessment, contestation, o bjection,
collection, interest and fines – or on some of thes e matters – shall
apply to the collection of the tax, the administrat ion of which was
entrusted to the Income Tax Commissioner under sect ion 107.
(c) Regulations by the Minister of Finance, other t han regulations
under sections 2, 4, 48, 49, 127 and 142, require a pproval by the
Knesset Finance Committee, and regulations under se ction 140
shall be brought to its knowledge.

Procedural regulations
146. The Minister of Justice may make law procedure regulations for
proceedings under this Law, as well as regulations on fees, costs and
loss of working time allowances for witnesses in su ch proceedings.

CHAPTER EIGHTEEN: EFFECT AND TRANSITIONAL PROVISIONS

Effect
147. (a) This Law shall go into effect on a day to be set by the Minister of
Finance, and he may set different times – not later than one year
after the publication of this Law in Reshumot – for different
categories of persons liable to tax; in respect of persons liable to
tax for whom the Minister of Finance did not set a date on which
the tax goes into effect, that date shall be one ye ar after the
publication of this Law in Reshumot. (Date of publication: January
6, 1976 – Tr.)
(b) Notwithstanding the provisions of subsection (a ), the provisions on
the registration of persons liable to tax and of th eir representatives
shall go into effect on the day of this Law’s publi cation.

Transitional provisions on the sale of goods

63
148. The following provisions shall apply to a sale of goods, which was
agreed upon before this Law went into effect:
(1) if the goods were delivered to the purchaser be fore this Law went
into effect, they shall be exempt of tax;
(2) if the goods were not delivered to the purchase r before this Law
went into effect, the obligation to pay tax, the ob ligation to issue
an invoice and all the other obligations shall appl y.

Transitional provisions on the sale of real estate and the rendering
of services
149. (a) If a transaction in real estate or the ren dering of any service was
begun, but not completed before this Law went into effect, then
every part of the consideration which is paid after this Law goes
into effect shall be liable to tax, but a residenti al dwelling shall be
charged at the nil rate, if the following two condi tions are met:
(1) the sale agreement was signed before June 1, 19 75, and
duly stamped within thirty days after it was signed ;
(2) not less than 15% of the price stated in the ag reement when
it was signed was paid before June 1, 1975.
(b) For purposes of subsection (a), a real estate t ransaction which is
a rental that was signed before this Law went into effect and also
continues thereafter, shall be deemed a transaction that has not
yet been completed.

Transitional provisions on imports
150. If goods were imported before this Law went in to effect, and if the entry
for them for domestic consumption has not yet been passed, then they
shall be charged with tax as if they had been impor ted after this Law
went into effect.
Regulations on refund of purchase tax
151. If purchase tax was canceled or reduced, in wh ole or in part, in
consequence of the introduction of the value added tax, then the
Minister of Finance may make provision, by regulati ons, on the refund
of all or part of the purchase tax paid before this Law went into effect.

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