Israel’s CTC system

Joanna Hysi
March 14, 2023

Update: 3 May 2024 by Dilara İnal

Israel Postpones CTC Rollout

The Israeli Tax Authority (ITA) has postponed the rollout of the continuous transactions controls (CTC) mandate.

The deduction of input tax is allowed with this second postponement, even in the absence of an allocation number, until 4 May 2024. The previous cut-off date was 31 March.

Starting 5 May 2024, businesses engaged in B2B transactions exceeding 25,000 NIS (approx. EUR 6,500) are required to obtain an allocation number assigned by the ITA.

Contact our expert team for more information on Israel’s CTC changes.

 

Update: 2 November 2023 by Dilara İnal

Israel Extends CTC Implementation Timeline

On 23 October 2023, the Israeli Tax Authority (ITA) announced that it had extended the continuous transaction controls (CTC) implementation timeline to offer businesses more time to complete their technological development. According to the announcement, the ITA will allow the deduction of input tax from a tax invoice, even in the absence of an allocation number, until 31 March 2024.

The new Israeli invoicing framework will require businesses engaged in B2B transactions that exceed a specific threshold to obtain an allocation number. The first phase starts on 1 January 2024 for invoices exceeding 25,000 NIS. Businesses must ensure that their invoices include the allocation number to be eligible for input VAT deduction as of this date. In light of this recent announcement, buyers will receive an additional three-month period to comply.

It is important to emphasise that although the ITA has extended the time for input tax deductions, the clearance platform will be fully operational as originally planned from 1 January 2024. From this date, invoice issuers who will request allocation numbers will receive them.

Looking for more information on Israel’s invoicing developments? Find out more.

 

Update: 6 July 2023 by Enis Gencer

Israel Announces CTC Implementation Timeline and Guidelines

The Israel Tax Authority has released a set of guidelines encompassing technical details and other relevant information regarding the implementation of the Israeli Invoice model.

The guidelines state the new model will be a phased implementation that begins with a pilot program in 2024. A key objective of this new model is to address and mitigate the long-standing issue of fictitious invoices in Israel.

Israel invoicing model

Under the newly introduced Israeli Invoice model, taxpayers involved in B2B transactions which exceed a specific threshold will be required to obtain an invoice number. This will be done by contacting the designated tax authority service via APIs and sending the invoice information prescribed by the tax authority.

The guidelines define the set of information that must be reported to the tax authority, including:

  • Invoice ID
  • VAT number
  • Invoice date
  • Invoice amount
  • Accounting software number

Once acquired, the invoice number must be included on the tax invoice. Without this number, taxpayers will not be eligible to deduct input VAT. It is important to note that the tax authority reserves the right to not assign the invoice number if there is reasonable suspicion of any legal inconsistencies concerning the invoice.

Buyers can use the invoice number to access invoice details through the tax authority service. This feature is designed to optimise the process of incorporating the invoice into the taxpayer’s accounting system.

Implementation phases

The Israeli Invoice model will be a phased implementation, beginning with a pilot program in January 2024 for invoices exceeding 25,000 NIS (approximately 6,500 euros). During this phase, the tax authority can only reject the request for invoice numbers in cases of technical errors.

As implementation progresses, the threshold will be gradually reduced as follows:

  • 2025: The threshold will be reduced to 20,000 NIS (appx. 5200 euros) pre-VAT. Note that the Finance Committee may extend the pilot program through 2025.
  • 2026: The threshold will further decrease to 15,000 NIS (appx. 3900 euros) pre-VAT.
  • 2027: The threshold will be 10,000 NIS (appx. 2600 euros) pre-VAT.
  • 2028: The threshold will be set at 5,000 NIS (appx. 1300 euros) pre-VAT.

Israel is quickly taking steps towards the introducton of its invoicing system by publishing technical details and its implementation timeline soon after introducing the system formally in February 2023. Taxpayers should now prepare their systems according to the legal and technical guidelines that the tax authority has recently published.

Looking for more information on Israel’s upcoming regulations? Contact our team of experts.

Israel: Progress on Implementing Continuous Transaction Controls (CTCs)

Update: 26 May by Enis Gencer

More details have emerged regarding the implementation of the continuous transaction control (CTC) model in Israel, which was announced to be introduced in the country in February 2023.

As we reported earlier, Israel’s government approved the 2023-2024 budget on 24 February 2023, setting the stage for the adoption of the CTC model. Since then, the proposal has gone through the standard legislative process and it has recently received approval from the Finance Committee, with some modifications.

New scope and timeline of CTC system

According to the latest announcement, the modified plan introduces a CTC e-invoice clearance model for invoices exceeding NIS 25,000 (approximately 6,500 Euros) in business-to-business (B2B) transactions. Under this model, invoices must be issued through the tax authority’s system and obtain real-time approval. Taxpayers will not be allowed to use unvalidated invoices for deducting input tax.

The implementation of the CTC e-invoicing model is scheduled to start in January 2024, and by 2028, the threshold will be reduced to NIS 5,000, thus covering smaller amount transactions.

Despite the short implementation timeline, it is important that the authorities publish regulatory and technical specifications in time for taxpayers to prepare their invoicing systems to fully comply with the new requirements by January 2024.

Find more information about Israel’s current e-invoicing system here.

 

Update: 14 March 2023 by Enis Gencer

Israel Closer to Introducing Continuous Transaction Control (CTC) in Tax System

Israel’s government approved the 2023-2024 budget on 24 February 2023 to introduce a continuous transaction control (CTC) model in its tax system.

This long-awaited move will have significant implications for businesses operating within the country. It is essential to know the changes that may impact your company.

Proposal for e-invoice clearance model

The new plan, prepared by the Ministry of Finance and approved by the government, envisages an e-invoice clearance model for invoices over NIS 5,000 (appx. 1300 Euros) issued between businesses. Under this model, invoices must be issued through a tax authority system and receive real-time approval.

The tax authority system will issue a unique number as proof of clearance for each invoice, which businesses can then use to deduct input VAT. The government has also proposed that the tax authority be entitled to refuse a request to assign a number and not clear the invoice if there is a reasonable doubt that the invoice is not issued legally.

While this plan is an exciting development, it is only the beginning of a long journey towards implementing a CTC model. The above proposal is currently only outlined in a budget document, which will be subject to further readings and approvals before the government can implement it.

Additionally, an amendment to VAT Law and the publication of technical details will be necessary to make it legally and technically enforceable.

For further information on the digitization of tax in Israel, speak to a member of our team.

 

Update: 9 April 2020 by Joanna Hysi

Israel on the Road to Continuous Transaction Controls (CTCs)

With the long-lasting problem of fictitious invoices in Israel, a move towards some form of mandatory e-invoice clearance might be the answer. After having been withdrawn once due to failing support, the idea of a continuous transaction control (CTC) model is being revived by the Israeli tax authority. The proposed model, similar to Chile’s e-invoicing system (clearance), would include a direct connection between the tax authority and businesses in real time for each transaction. The proposal, which is currently being reviewed with interested stakeholders, will be presented to the Knesset Finance Committee, with the hope of promoting legislation for implementing the planned reform measures as soon as a new government is formed.

Subject to final adoption in law, the core points of the reform are:

  • B2B Invoices over NIS 5,000 must be reported in real-time to and approved by the tax authority.
  • The reporting will occur through an accounting software or a government web portal.
  • Information required to be reported includes the date of the transaction, invoice number, business numbers of the transacting parties and the amount of the invoice, excluding VAT.
  • An authentication by the buyer of the invoice on the government portal is envisaged.
  • Pre-population of the VAT return is also envisaged.

It’s an interesting observation that for years Israel appeared to be heading towards the EU approach of a post-audit system, yet recently they seem to have pivoted and be heading towards the more Latin American style of continuous transaction controls.

Either way, the Israeli tax authorities are now taking firm measures to combat VAT fraud, as to whether they go for a model similar to Chile, or something close to home in India or Turkey, we will have to wait and see.

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Author

Joanna Hysi

Joanna is a Senior Regulatory Counsel at Sovos. Based in Stockholm and originally from Greece, Joanna’s background is in commercial and corporate law with research focus on EU law and financial innovation. Joanna earned her degree in Law in Greece and her masters in Commercial and Corporate from London School of Economics and Political Science (LSE) in London.
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