Why Do You Need a VAT File?
VAT (Value Added Tax) is a tax imposed on the consumption of goods and services in Israel. Every business is required to pay VAT, unless it is an Osek Patur (exempt dealer). Opening a VAT file allows you to collect VAT from your customers and deduct VAT on business expenses.
This is essentially your "contract" with the Israel Tax Authority, and it is essential for the proper and legal operation of your business. Without an active VAT file, you cannot legally issue tax invoices and collect VAT.
When to Open a VAT File
The obligation to open a VAT file applies to every licensed dealer who has crossed the annual income threshold qualifying for VAT exemption. This threshold is updated annually, so it's recommended to check the Israel Tax Authority website for the latest figures.
Even if you haven't crossed the exemption threshold, you may be required to open a VAT file in the following cases:
- You operate in a field that requires VAT registration regardless of income.
- You import goods from abroad.
- You provide services to customers outside of Israel.
Required Documents
Before opening a VAT file, make sure you have the following documents:
- ID card - Original and photocopy.
- Bank account confirmation - Proof of business bank account management.
- Lease agreement or ownership proof - If your business operates from a physical location.
- Business license - If required for your type of business.
- Form 821 - Tax file opening form.
Step-by-Step Process
1. Fill Out Form 821
Form 821 is an online form that allows you to open files with Income Tax, VAT, and National Insurance simultaneously. It can be filled out on the Israel Tax Authority website. Be sure to fill it out carefully and attach all required documents.
2. Submit the Application
After completing the form and attaching documents, you can submit the application online through the Israel Tax Authority website (the fastest method) or by mail to your regional VAT office.
3. Receive Confirmation
After submitting the application, you'll receive a VAT file opening confirmation by mail or email. This confirmation will include your VAT file number, which you'll need to include on all official business documents.
After Opening the File
Issuing Tax Invoices
As a licensed dealer, you're required to issue tax invoices for every transaction. The invoice must include: business name and VAT number, customer name, transaction date, description of service/product, amount before VAT, VAT rate, and total amount.
Filing Periodic Reports
Licensed dealers are required to file periodic VAT reports, usually monthly or bi-monthly. Reports include details of income and expenses and calculation of VAT payable or refundable.
VAT Payment
If VAT payable exceeds VAT deductible, you must pay the difference to the Tax Authority. Payment can be made via bank transfer, standing order, credit card, or check. It's important to pay on time to avoid fines and interest.
Types of VAT Files
- Osek Murshe (Licensed Dealer) - An individual self-employed in providing services or selling products.
- Partnership - An association of two or more people for running a joint business.
- Ltd. Company - A separate legal entity from its owners, considered an independent legal personality.
- Non-profit organization - An association operating for a public purpose without profit intention.
When opening a VAT file, make sure to choose the correct file type for your business.
Keep - The Perfect Solution for Managing Your VAT File
At Keep, we understand the challenges involved in managing a VAT file and offer a comprehensive, user-friendly solution:
- Digital tax invoice generation - Easily and quickly, fully compliant with legal requirements.
- Income and expense management - Simple and convenient.
- Automatic VAT report generation - No accounting knowledge required.
- Professional support - From an experienced team of accountants.
Frequently Asked Questions
Do I need to open a VAT file if I'm an Osek Patur?
No. Osek Patur (exempt dealers) are not required to open a VAT file, but they are not allowed to collect VAT from their customers.
What happens if I cross the exemption threshold during the year?
If you cross the VAT exemption threshold during the year, you must open a VAT file immediately.
Can I open a VAT file independently?
Yes, you can open a VAT file independently using Form 821. However, it's recommended to seek professional assistance from an accountant.
Can I receive a VAT refund?
Yes, if VAT deductible exceeds VAT payable, you're entitled to receive a VAT refund from the Tax Authority.
