Opening a VAT File: Keep's Guide for Your Business

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 must charge and pay VAT unless it is an Osek Patur (exempt dealer). Non-profits and financial institutions are taxed under a separate regime. Registering as an Osek Murshe (licensed dealer) allows you to collect VAT from your customers and deduct VAT on business expenses. An Osek Patur also opens a VAT file, but as a rule it neither charges nor deducts VAT.

Your VAT registration 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 Osek Murshe registration, you cannot legally issue tax invoices and collect VAT.

In practice, as an Osek Murshe you add 18% VAT (as of 2026) to your prices and pay the Tax Authority the difference between the VAT you charged and the VAT you paid on business purchases. For example, if you charged customers 1,800 NIS in VAT and paid 500 NIS in VAT on expenses, you pay 1,300 NIS. To deduct VAT on a business expense, you need a valid tax invoice in the business's name, and you must claim it in a report filed within 6 months of the invoice date.

When to Open a VAT File

Every dealer must register with VAT, including an Osek Patur. A dealer whose annual turnover exceeds the exemption ceiling (122,833 NIS as of 2026) must register as an Osek Murshe (licensed dealer). The ceiling is linked to the Consumer Price Index and is normally updated on 1 January each year, so it's recommended to check the Israel Tax Authority website for the current figure.

Even if you haven't crossed the exemption ceiling, you must register as an Osek Murshe in the following cases:

• You work in a field that requires Osek Murshe registration regardless of turnover, for example law, accounting, medicine, engineering or architecture, or dealing in or brokering real estate or vehicles.
• Your business is a limited company (Ltd.).

Importing goods or serving customers outside Israel does not, by itself, require Osek Murshe registration under VAT law. For food or cosmetics imports, the Ministry of Health may require it, so it's worth checking before you start.

Below the ceiling you can also ask to register as an Osek Murshe voluntarily, and the VAT office must approve the request. This pays off mainly when you have significant expenses carrying VAT, such as imported goods. It also pays off when your clients are abroad, since services to a foreign resident are generally zero-rated and you can reclaim the VAT paid on your expenses. If you sell mostly to private customers, you would have to add VAT to your prices or absorb it, so it's worth running the numbers before deciding.

Required Documents

Before opening a VAT file, make sure you have the following documents:

• ID card - A scan when you apply online, or the card itself at the VAT office.
• Bank account confirmation - A bank confirmation for the account the business will use. A sole trader does not need a separate business account.
• Lease agreement or ownership proof - If your business operates from a physical location.
• Proof of expected activity - For example, invoices for equipment bought for the business, an agreement with a client, or a license or professional certificate where one is required.
• Form 821 - The VAT file registration form, completed and signed.

Partnerships and companies file Form 821 together with Form 821A and need more documents. A partnership adds every partner's ID, confirmation of the partnership's bank account, and its certificate from the Registrar of Partnerships if it is registered. A limited company adds its certificate of incorporation from the Registrar of Companies, a resolution naming the authorized signatories, and the directors' IDs.

Step-by-Step Process

1. Fill Out Form 821

Form 821 is the registration form that opens your VAT file. The Income Tax file is opened with Form 5329, and National Insurance registration is a separate step. An Osek Patur can apply online on the Israel Tax Authority website instead; that application opens the VAT and Income Tax files together, and you can tick the option in it to open a National Insurance file too. Be sure to fill it out carefully and attach all required documents.

2. Submit the Application

After completing the form and attaching documents, an Osek Murshe submits the application at the regional VAT office or through a representative such as an accountant or tax adviser. An Osek Patur can also apply online on the Israel Tax Authority website, without visiting an office.

3. Receive Confirmation

Once you're registered, you'll receive a confirmation that your VAT file is open. An Osek Murshe later receives an Osek Murshe certificate by post, which must be displayed prominently at the business. Your dealer number is normally your ID number (for a company, the company number), and you'll need to include it on your invoices, receipts and VAT filings.

The registration form asks for your expected annual turnover, and that figure is checked against the exemption ceiling: if it is above the ceiling, you cannot register as an Osek Patur. It's worth basing the estimate on the clients and prices you already know rather than on an optimistic or pessimistic scenario.

After Opening the File

Issuing Tax Invoices

As a licensed dealer, you must issue a document for every transaction, and a tax invoice whenever the customer asks for one. Business customers usually do, because only a tax invoice lets them deduct the VAT. A tax invoice includes, among other details: your business name, address and dealer number, a serial number, the date, the customer's name (and dealer number, when the customer is a business), a description of the service or product, the amount before VAT, the VAT amount shown separately (18% as of 2026), and the total. A tax invoice to a business customer for more than 5,000 NIS before VAT also needs an allocation number from the Tax Authority, or the customer cannot deduct the VAT (as of September 2026).

Filing Periodic Reports

Licensed dealers are required to file periodic VAT reports, monthly or bi-monthly. The Tax Authority sets the frequency by annual turnover: a business with turnover up to 1,775,000 NIS reports every two months, and a larger one reports monthly (as of 2026). Reports show your turnover, the VAT you charged customers and the VAT you can deduct, and calculate the VAT payable or refundable.

VAT Payment

If VAT payable exceeds VAT deductible, you must pay the difference to the Tax Authority. You can pay by credit card on the Israel Tax Authority website, by online bank debit, with a payment voucher at the Postal Bank, or through a representative who holds a debit authorization on your account. It's important to pay on time, because late payment adds linkage differentials, interest and a late-payment penalty.

The periodic report and payment are due by the 15th of the month after the reporting period. If you report and pay online and are not required to file a detailed (invoice-by-invoice) report, the deadline for both is the 19th. A zero report is required even for a period with no activity, because a report filed late draws a fine even when no VAT is due.

Types of VAT Files

• Osek Patur (Exempt Dealer) - A dealer whose annual turnover does not exceed the exemption ceiling (122,833 NIS as of 2026) and who is not in a field that requires Osek Murshe registration. As a rule, it neither charges nor deducts VAT.
• Osek Murshe (Licensed Dealer) - An individual self-employed in providing services or selling products, who charges VAT to customers and deducts VAT on business expenses.
• Partnership - An association of two or more people for running a joint business. Usually registered as an Osek Murshe.
• Ltd. Company - A separate legal entity from its owners, considered an independent legal personality. Always registered as an Osek Murshe.
• Non-profit organization - An association operating for a public purpose without profit intention. Usually registered with VAT as a malkar (non-profit institution): it does not charge VAT and instead pays wage tax on its payroll.

The list above mixes registration types and legal forms. Israel's VAT Law has four registration types: Osek Murshe, Osek Patur, malkar (non-profit institution) and financial institution (mosad kaspi, for example a bank or an insurance company). A partnership, a Ltd. company and a non-profit organization are legal forms, and each one registers under one of these types. Your file type follows from your legal form, turnover and field of business. Beyond that, you can ask to register as an Osek Murshe voluntarily below the ceiling.

The file types also differ in the documents you issue: an Osek Patur issues receipts or transaction invoices only, never a tax invoice, while an Osek Murshe can issue tax invoices. A non-profit that also runs a business activity may be classified as a dealer for that activity, so it's worth checking with the VAT office or an accountant.

Managing Your VAT File with Keep

At Keep, we understand the challenges involved in managing a VAT file and offer digital bookkeeping:

• Unlimited document issuing - Receipts, invoices and other income documents according to your dealer type, as digitally signed PDFs, on every plan.
• Income and expenses in one place - On every plan, you see income, expenses and profit for a date range you choose. On the recommended plan, you can also upload business expenses in a click, as a photo or file.
• VAT and tax authority reports - On the recommended plan, including payments to the tax authorities. The annual income tax report is not included in the monthly price; it is offered at a special price.
• Personal accountant - On the recommended plan, professional guidance and personal representation before the tax authorities.

Opening a file with the authorities through Keep costs a one-time fee of 99 NIS + VAT. The basic plan costs 39 NIS a month + VAT, and the recommended plan costs 105 NIS a month + VAT. These are Osek Patur prices; an Osek Murshe pays an extra 123 NIS a month including VAT (as of September 2026). An Osek Patur generally files no periodic VAT reports, only an annual turnover declaration. There is no commitment, and you can switch plans at any time at no cost.

Frequently Asked Questions About Opening a VAT File