Beginning on January 1, 2025, VAT will go back up to 18% after being set at 17% in 2015. The extra taxation is a way for the government to increase revenue and help pay for the expenses of the ongoing war and the rehabilitation of the periphery. How will this affect you?
Charging VAT to Israeli customers
If you provide services to Israeli clients as an Osek Murshe, you need to start charging them 18% VAT instead of 17% as of January. If you have been quoting them a price that includes VAT, consider raising that price slightly so you don’t have to take the tax off your bottom line.
As a favor to your clients, you can bill them for December’s work before the end of the year and raise prices only in the next month. Let them know that if they pay before January 1, they can still enjoy the lower VAT rate. This is a good incentive for them to pay you quicker!
When selling a product, the percent of VAT goes according to the time the product is given to the buyer. For small businesses (revenue of 2M or less) the percent of VAT is according to the date of payment.
Large purchases
If you’re planning a large purchase like a car or appliance, the VAT hike will significantly increase the final price. Consider making your purchase before the end of 2024, in order to take advantage of the lower prices. Even if the item is only delivered in 2025, as long as you paid for it in 2024, you will be charged 17% VAT.
Buying an apartment? Whatever amount you pay in 2024 is taxed at 17% but the rest will be taxed at 18%.
Price of services
Services are often paid for only once the service has been provided. When providing services the percent of VAT goes according to the date of payment. However, for businesses over 15M, the percent of VAT is according to the date the services were provided. So if you put down a deposit on a wedding hall already, that amount is taxed at 17%. But when you pay the rest after the wedding has taken place in 2025, you will need to add 18% tax.
What won’t be affected
Unfortunately, the list of items not affected by the VAT hike is very short. Fruits and vegetables will stay the same price. Since VAT is not paid in Eilat, prices of vacationing or living there will stay the same. Everything else you purchase will now be more expensive.
On the bright side
We are lucky to be living in a country which can defend its borders and protect its citizens. The price hike will mostly be felt in large purchases, which we don’t make regularly. At the end of the day, it’s a small price to pay in order to live securely in the Jewish state.