Overview of VAT and Customs Updates Effective in 2026

Published on Jan 14, 2026

We are pleased to bring to your attention a number of updates in the fields of VAT and customs, effective as of the beginning of 2026:

1. Publication of Reportable Positions for the 2025 Tax Year, Including Two New VAT Positions

The Israel Tax Authority has published the reportable positions for the 2025 tax year, including two new VAT‑related reportable positions.

Section 67D of the Value Added Tax Law, 5736–1975 (the "VAT Law”), requires any person obligated to file an annual report with the Israel Tax Authority to disclose whether they have adopted a "reportable position,” namely, a position that is contrary to a position published by the Israel Tax Authority by the end of the tax year to which the report relates.

The reporting obligation applies to a position where the tax benefit derived therefrom exceeds NIS 2 million in a single tax year, or NIS 5 million over a period of up to four years.

In addition to the reportable positions published during the years 2016–2024, which are also required to be reported for the 2025 tax year, two new reportable positions have been added for the 2025 tax year, as detailed below:

 

  • Input VAT in Cases of Change in the Designation of Use of Real Estate

 A real estate dealer who deducted input VAT in connection with the acquisition of real estate and the construction of residential units, with the intention of selling them in VAT‑taxable transactions, will be required to refund the input VAT deducted in respect of the acquisition of the real estate and the construction of the residential units, in cases where, at a later stage, approval is obtained to lease the residential units pursuant to the Law for the Encouragement of Capital Investments, 5719–1959, such that the sale of the residential units becomes a VAT‑exempt transaction.

The refund of the input VAT deducted by the dealer in respect of the acquisition of the real estate and the construction of the residential units shall be made as part of the regular periodical VAT return that the dealer is required to file shortly after receiving such approval.

 

  • VAT Liability in Respect of Construction Services Provided for the Performance of Public Functions for a Local Authority

The provision of construction services for the performance of public functions for a local authority (such as the construction of a kindergarten, parking facility, synagogue, or the development of public areas), in consideration for the local authority’s waiver of payment for construction works to which it was entitled from the contractor, constitutes a "transaction” for the purposes of the VAT Law and is subject to value added tax. The consideration for such transaction shall be determined in accordance with Section 10 of the VAT Law.

This treatment is similar to the performance of public infrastructure and development works by a contractor in consideration for the local authority’s waiver of development levies and building permit fees.

  • To view the list of the new VAT reportable positions for the 2025 tax year only – click here
  • To view the complete list of VAT reportable positions, including positions from prior years – click here

 

2. Update Regarding the Requirement to Obtain Allocation Numbers for Tax Invoices – Reduction of Threshold Amounts

As part of the "Invoice Israel” reform, which is intended to combat the black economy and the use of fictitious tax invoices, Section 38(a1) of the VAT Law was enacted, providing that the deduction of input VAT is conditional upon the tax invoice being assigned an allocation number by the Israel Tax Authority.

In 2025, taxable persons who issued a tax invoice in an amount exceeding NIS 20,000 (before VAT) were required to obtain an allocation number from the Israel Tax Authority, in order to enable the recipients of such invoices to deduct the VAT charged.

With respect to 2026, it has been decided to reduce the monetary threshold above which obtaining an allocation number from the Israel Tax Authority is mandatory.

  • As of January 1, 2026, the transaction amount above which an allocation number is required will be reduced to NIS 10,000 (before VAT).
  • As of June 1, 2026, the transaction amount above which an allocation number is required will be further reduced to NIS 5,000 (before VAT).
  • To view the implementation directive published in advance of 2026 – click here

 

3. Increase in the Personal Import Tax Exemption to USD 150

On December 23, 2025, an amendment was published to the Customs Tariff and Exemptions and Purchase Tax Order on Goods, 5777–2017, pursuant to which the transaction value exempt from import taxes on goods intended for personal use was increased from USD 75 to USD 150 (excluding shipping and insurance costs, where calculated separately).

It should be noted that there is a list of excluded goods to which the exemption does not apply, including tobacco products, electronic cigarettes, alcohol, and alcoholic beverages.

It is further noted that the Federation of Israeli Chambers of Commerce filed a petition with the High Court of Justice against the increase of the tax exemption threshold; however, the Court declined to issue an interim injunction, and the exemption has therefore entered into force. In addition, the Knesset plenum is expected to deliberate on the order in the near future and holds the authority to revoke it. Accordingly, it is necessary to continue monitoring developments on this matter.

 

We remain at your disposal throughout 2026 for any questions or clarifications and would be pleased to provide assistance in any matter as needed.