Section 2 of the VAT Law, 5736-1975 (the "Vat Law") imposes value added tax (VAT) in Israel on any transaction executed in Israel, on import of goods and on provision of services, in a single rate from the sum of the transaction or the price of the goods, as prescribed in a decree issued by the Minister of Finance. Accordingly, the current rate of the VAT is 17% since October 1, 2015.

“Transaction” is defined in Section 1 of the Vat Law as following:

"transaction" – any of the following: (1) the sale of an asset or the performance of a service by a dealer in the course of his business, including the sale of equipment; (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 deducted; (3) an occasional transaction;

The term "Service" is defined as "Any act in return for the benefit of another person, that is not deemed as a "sale"".

The term "Dealer" is defined as "A person who sells an asset or provides service in the due course of his business".

Section 14 of the Vat Law determines that sale of an asset shall be deemed to be taken Place in Israel if the delivery of the goods to the buyer is in Israel or with respect to intellectual property if the seller is an Israeli dealer.

Similarly, Section 15 of the Vat Law determines the source rules with respect to the place of service, as following:

A service shall be deemed to be provided in Israel if one of the following occurs: (1) It was given by a person who runs a business in Israel; A person who has an agent or a branch in Israel shall, for this purpose, be deemed to be running a business in Israel; (2) it was given to an Israeli resident, to a partnership in which the majority of the rights are owned by partners who are Israeli resident or by a company which, in respect of the Income Tax Ordinance, is considered as an Israeli resident; (3) It was given in respect of assets located in Israel.

As can be inferred from the above, it seems that any services which are rendered by an Israeli business are subject to VAT in Israel.