As mentioned before, Section 30(a)(5) of the VAT Law requires that the services are not also provided to an Israeli resident in Israel, but only to a foreign resident. The emphasis should be given to the word "also". According to a numerous court rulings, if an Israeli resident also benefits from the provision of the services, zero VAT shall not apply, even if the Israeli resident's benefit is indirect and non-substantial.

We should mention though, that there may be cases of assisting Israeli residents incidentally, while rendering service to a foreign resident, and still being entitled to zero VAT. For example, if an Israeli business acts for a foreign resident who wishes to market or sell products outside Israel, and an Israeli resident is subordinately assisted by it. However, if the assistance is not incidental or subordinate, and has substantial independent value for the Israeli resident, then this is probably a case of "providing service to an Israeli resident" and the Israeli service provider shall not be entitled to a zero VAT.

Court rulings also state that there may be cases in which an Israeli business serves the interests of the foreign resident only, and any contact with Israeli residents is made as a promotion for the foreign resident interests outside of Israel. In such cases the Zero VAT shall be applied. Moreover, there may be situations in which a foreign resident must use the services of an Israeli business because of the nature of the service, and nevertheless a zero VAT will apply. For example, if a foreign resident hires an Israeli private investigator to follow another Israeli resident in Israel, the Israeli resident, who is the target of the investigation, is certainly not a "service recipient" in addition to a foreign resident.