Israel court says no VAT on foreign e-retailers

Fri 14th Mar 2014

Non-resident retailers of goods and digital services to Israeli consumers will remain outside of the Israeli VAT net.

Non-resident e-commerce sellers VAT exempt

The decision comes this week as the High Court struck down a petition from local online retailers that e-retailers based outside of Israeli were benefiting from the tax loop hole and not having to charge 18% VAT.  The Israeli VAT rate rose to 18% in 2013.  The companies also argued that the Israeli state was missing out on extra revenues – the EU non-resident e-retailers must charge VAT on goods and services to consumers.

The Israeli VAT office claimed that under current VAT code the foreign e-retailers were outside of the scope of VAT based on their residency, and the mere use of local services did not trigger a liability to VAT or permanent establishment for direct tax purposes.

However, the tax Commissioner is expected to change this position shortly.  There will be a public consultation on the issue.

Australia recently reviewed GST on e-commerce, but will not lower the current high GST-free import threshold of AUS$1,000.  Canada GST e-commerce and Japan digital services consumption tax are similarly reviewing their consumption tax position on foreign retailers.