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The entitlement of Zero Vat

However, to encourage Israeli businesses to export goods, intellectual property, and services to foreign residents and to intensify their ability to compete with foreign service providers, Section 30 of the Vat Law applies zero VAT for certain transactions.

Section 30(b) adds that not only that the business is not liable to VAT on the said transactions, but it also has the right to deduct the relevant imputed VAT tax that was applied on it.

The Conditions Set for Zero VAT

Section 30(a)(5) of the Vat Law, states for the provision of service to a foreign resident, as follows:

Provision of service to a foreign resident, except for a service determined by the Minister of Finance for this purpose; A service shall not be deemed to be provided to a foreign resident when the subject of the agreement is the provision of the service, in addition to the foreign resident, to an Israeli resident in Israel, to a partnership in which the majority of the rights are owned by partners who are Israeli residents or for a company, which in respect of the Income Tax Ordinance is regarded as an Israeli resident, unless it is a service for which it constitutes part of the value of the goods set forth in sections 129 to 133T of the Customs Ordinance, the matter;

As can be drawn from the above, Section 30(a)(5) of the Vat Law states that a business that provides services to a foreign resident shall be entitled to zero VAT. However, to be entitled to that benefit, the business should meet several conditions as specified hereby.

Section 30(a)(5) of the VAT Law, as well as the VAT Regulations, 5736-1976 set the following conditions to zero VAT:

  1. First condition: The business provides "services".

  2. Second condition: The recipient of the service is a "foreign resident" for the Vat Law purposes.

  3. Third condition: The services are not also provided to an Israeli resident in Israel.

  4. Fourth condition: The price of the transaction, the payment for the service and the currency in which the payment was done, were specified in the business' books.

  5. Fifth condition: The business has an agreement or other document confirming the details of the transaction.

  6. Sixth condition: The services are not connected to an asset in Israel unless the consideration for the services constitute a part of the value of the goods in accordance with the Customs Ordinance.


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