https://www.internationaltaxreview.com/article/2be9xh7znwgb1nmauuccg/sponsored/israel-also-boards-the-digital-and-crypto-tax-bandwagon?utm_source=substack&utm_medium=email
Israel’s proposed Budget Law 2023–24 shows the new government is rolling up its sleeves to get to work on the tax front.
The tax proposals, inter alia:
Other significant proposals seek to cut a tax slice from, and to regulate, digital business; create a VAT charge on certain digital services offered by foreign providers; and find ways to tax income from, and regulate, digital asset dealings.
The Israeli government has proposed an amendment to the Value Added Tax Law, 1975, in an effort to facilitate the collection of VAT on digital services purchased by Israel residents from foreign suppliers.
Today, the responsibility for the payment of the 17% VAT, on incoming services from non-resident businesses, rests on the Israeli resident recipient. The amendment seeks – in line with the OECD’s developing plans and recommendations – to obligate those non-resident service providers to register in Israel and charge, collect and pay VAT. The creation of a VAT registration obligation for non-residents was first proposed in 2016, and appeared in several other legislative proposals, none of which made it to the finish line.
The creation of a VAT charge on incoming digital transactions should first and foremost neutralise the perceived ‘economic discrimination’ of local businesses providing similar services and that charge VAT to their local customers. But an expected income of $100 million in 2023 – and then of about $140 million each following year – is an interesting forecast for the treasury in Jerusalem.
The memorandum of the proposal of law explains that a digital service is a “service provided through the internet or by other electronic means, allowing brokerage for service providers and the sale of intangible goods, including visual or audio content, remote teaching, entry and use of applications, authors content, games etc”. Television, broadcasting services and services provided by the transfer or receipt of signals, words, sounds, images, etc. through a fibre optic cable, radio transmission or other electromagnetic system would also fit the bill.
VAT on services to VAT-registered businesses, NGOs and financial institutions can already be self-reported (by reverse charge) and paid by these entities. The disadvantage for the last two types of organisations is that they are not eligible to offset the input VAT they charged themselves and it becomes a hefty cost.
The bill does not yet specify the manner of registration or reporting. The Minister of Finance shall set out, in new regulations, how foreign VAT-registered businesses registered in the special foreign providers registry should act, manage records and retain documentation for at least seven years (including data regarding the service provided, presentable within 30 days upon demand by the tax assessor).
The plans shall come into effect the moment that legislation is accepted and published as law by Israel’s parliament, unless the law indicates a specific date and any grandfathering rule. The draft will definitely incur some changes in the last legislative phase now before us.