Briefing Document & Podcast: E-Invoicing and E-Reporting in Israel

• Transactions in scope: Israel’s electronic invoicing regime (branded the “Israeli Invoices” model) currently applies only to domestic B2B transactions above certain value thresholds. Specifically, VAT-registered businesses (“authorized dealers”) must obtain an official allocation number from the Tax Authority for qualifying B2B tax invoices, as a precondition for the buyer to deduct input VAT. Initially, this requirement applied to high-value B2B invoices (≥ ₪25,000 in 2024) and is being phased in for lower amounts over time (see Timeline below). Domestic B2C transactions are not included – consumer sales do not require clearance or e-invoice issuance under the mandate. Likewise, B2G invoices (business-to-government) are not mandated to be electronic or cleared at this stage. [avalara.com], [theinvoicinghub.com] [hcat.co], [snitechnology.net] [theinvoicinghub.com]
• Cross-border transactions: The mandate focuses on domestic VAT invoices. Exports (zero-rated sales out of Israel) are excluded, since 0% VAT transactions are explicitly exempted from the allocation number rule. Similarly, imports and inbound cross-border B2B purchases from foreign suppliers fall outside this system – if no Israeli VAT is charged on the invoice (e.g. an import under reverse-charge or customs VAT), no allocation number is required. In practice, foreign companies without an Israeli VAT registration cannot issue Israeli tax invoices and thus are not part of the clearance process. (Instead, import VAT is handled via customs or self-accounting.) Foreign businesses that are VAT-registered in Israel (through a fiscal rep) are treated as authorized dealers and must comply for their Israel-issued invoices just like local companies. [hcat.co], [taxathand.com] [taxathand.com] [grantthornton.global], [grantthornton.global]
• Included vs. excluded transactions: During the initial pilot, only standard tax invoices required clearance. The FAQ guidance confirms that pro-forma invoices, customs documentation, and other non-tax documents do not need allocation numbers. Self-billing arrangements (where the buyer issues the invoice) are not broadly part of the system by default, except in a contingency scenario (described below). Triangulation and chain transactions have no special rules under the Israeli model – each taxable sale is treated on its own. If a domestic Israeli-to-Israeli leg occurs in a chain and exceeds the threshold, it needs clearance; purely foreign legs or out-of-scope transfers do not. Special VAT regimes (e.g. margin schemes for used goods, travel agent VAT) are not explicitly addressed in the e-invoice rules. In general, if a particular transaction type does not result in a normal VAT invoice that allows input credit, the clearance mandate does not apply. For example, sales under exemption or special scheme (no VAT charged) don’t require an allocation number because there’s no input VAT at stake. [avalara.com] [gov.il] [hcat.co], [taxathand.com] [taxathand.com]
• Summary: In essence, domestic B2B taxable supplies are the focus. The mandate does not presently cover B2C or B2G invoicing. Cross-border transactions remain subject to existing VAT processes (import/export rules) rather than this clearance system. The law’s aim is to plug a fraud gap in domestic VAT credits, so it carves out invoices that don’t implicate input VAT recovery (exports, exempt sales, etc.). [theinvoicinghub.com] [taxathand.com]

2. Taxable Persons in Scope

• Covered persons: The obligation applies to all “authorized dealers” (VAT-registered businesses) issuing in-scope invoices. This includes Israeli-established entities as well as non-resident companies registered for VAT in Israel (typically via a local tax representative). In other words, any business that is registered and allowed to issue Israeli tax invoices must comply with the e-invoicing requirements for its B2B sales above the threshold, regardless of size or residence. There is no separate threshold for registration – even small businesses must register if they make taxable supplies (although very small ones may register as “exempt dealers”). [taxathand.com], [flick.network] [grantthornton.global], [grantthornton.global] [grantthornton.global]
• Exclusions and special cases: Businesses not registered for VAT (e.g. very small “exempt dealers” with turnover under ~₪120,000) are outside the regime, since they do not charge VAT nor issue input-creditable invoices. Likewise, financial institutions and non-profits (which generally cannot issue regular VAT invoices or can’t reclaim VAT) are mostly outside the mandate, except in certain cases where they do engage in a taxable transaction. (The 2023 law amendments explicitly extended the input VAT control to occasional transactions by non-dealers such as real-estate purchases by banks or NGOs, ensuring those also require clearance if applicable). Government bodies and private individuals are not “authorized dealers,” so they don’t issue invoices that need clearance. However, if they purchase from a dealer, they could request an allocation number on the invoice (even though not strictly required) – the system will provide one even if the customer is not a VAT-registered business, according to official guidance. [hcat.co], [grantthornton.global] [taxathand.com] [gov.il]
• Foreign businesses: A foreign company with no Israeli VAT number (no fixed establishment or registration) simply cannot participate – their invoices are foreign and outside Israeli VAT scope. Instead, the Israeli buyer self-accounts for VAT via import mechanisms. By contrast, a foreign company that voluntarily or mandatorily registered for Israeli VAT (usually via a local representative) is an “authorized dealer” and must comply for any invoices it issues locally. Israel does require non-established taxable persons to appoint a local representative to register, and once registered they have the same compliance duties as local firms. There is no separate “non-resident threshold” or exclusion in the e-invoicing mandate – it’s uniform for all registered dealers. [grantthornton.global], [grantthornton.global]
• Optional participation: The law and system allow voluntary use of the e-invoice clearance for any transaction. Even when not required (e.g. B2B below the threshold, or B2C sales), a supplier may request an allocation number and include it on the invoice. In fact, the Tax Authority has indicated allocation numbers can be obtained for any invoice, any amount, and any customer on a voluntary basis. Some businesses might opt in for consistency or as an added integrity measure. However, outside the mandatory scope, this is optional. [avalara.com]
• Sector-specific rules: Aside from the high-level exclusions noted (small exempt businesses, etc.), no sector-specific exemptions or staggered onboarding by industry are provided – the phasing is by invoice value, not by business type. All businesses, large or small, must comply once their invoice falls over the set amount. That said, the model inherently spares many small enterprises because their typical invoices are below the thresholds (until those thresholds drop to their final level). There is currently no provision for voluntary “opt-out” or alternate reporting for any sector; you either comply when required or you cannot legally claim the VAT. The mandate is effectively universal for B2B invoices above the thresholds, regardless of who issues them. [kpmg.com] [kpmg.com], [theinvoicinghub.com]
• Summary: Any VAT-registered supplier in Israel is within scope for their B2B invoicing. Exceptions: very small unregistered traders, transactions not subject to VAT, or buyers who are consumers (non-business). Foreign companies must comply if they operate under an Israeli VAT number. There are no special sector carve-outs, ensuring broad coverage of taxable businesses. The system does permit voluntary compliance beyond the minimum requirements, but does not require it. [taxathand.com], [flick.network]

3. Implementation Timeline

• Legislative adoption: Israel’s e-invoicing mandate was enacted as part of the Economic Efficiency Law (Budget Amendments) for 2023–2024, passed on May 31, 2023. This law amended the Israeli VAT Law 1975 with temporary provisions to introduce the clearance system in stages over five years. The law took effect January 1, 2024, marking the official start of the mandate’s “pilot” phase. The Ministry of Finance was empowered to extend the regime beyond the initial period, and indeed the expectation was a phased rollout through 2028. [hcat.co], [taxathand.com] [taxathand.com] [avalara.com]
• Pilot phase (2024): The year 2024 was designated a pilot period. Initially, the mandate was scheduled for Jan 1, 2024, but due to the security situation (October 2023 conflict) the go-live was postponed a few months. The Tax Authority allowed Q1 2024 as a grace period: until March 31, 2024, input VAT could still be deducted without an allocation number (treating such invoices as “other documents” in reports). This concession recognized businesses needed extra time to implement technology amidst the crisis. Mandatory clearance began on May 5, 2024 for large invoices. During the pilot year, the system was technically mandatory (businesses above threshold had to use it), but the ITA adopted a lenient approach: every valid request received an allocation number automatically (no rejections for content reasons in 2024). The law even specified that in 2024 the Tax Authority could not refuse to issue a number, and the hearing/self-invoicing provisions were suspended for the pilot year. Essentially, 2024 served as a live pilot – compliance was required, but enforcement was soft (no denials or penalties if you attempted to comply). [avalara.com], [taxathand.com] [vatcalc.com], [gov.il] [gov.il] [avalara.com], [vatcalc.com] [taxathand.com], [taxathand.com]
• Phased thresholds: The mandate is being rolled out in phases based on invoice value thresholds (exclusive of VAT). The originally legislated schedule was: ₪25,000+ in 2024; ₪20,000+ in 2025; ₪15,000+ in 2026; ₪10,000+ in 2027; and ₪5,000+ in 2028. This would gradually broaden the scope to smaller transactions each year. Initial launch: From May 5, 2024, invoices over ₪25,000 require clearance (Phase 1). Phase 2: As of Jan 1, 2025, the threshold lowered to ₪20,000. The first phase’s grace period also effectively ended in 2025 – from 2025 onward the tax authority gained the right to scrutinize and even refuse allocations in suspicious cases. [avalara.com], [vatcalc.com] [taxathand.com] [vatcalc.com], [theinvoicinghub.com] [theinvoicinghub.com] [avalara.com], [taxathand.com]
• However, in 2025 the government accelerated the timeline. In December 2025, the ITA published new regulations (VAT Implementation Order 01/2025) to bring forward the later phases. Under the updated plan, Phase 3 occurs January 1, 2026 with the threshold dropping straight to ₪10,000 (skipping the previously expected 15k step). Then the final phase is on June 1, 2026, when the threshold further falls to ₪5,000. At that point, all B2B invoices above ₪5,000 will need clearance, and no further reduction is scheduled (₪5k is the permanent floor). This revised schedule compressed the rollout to just two years (2024–Mid 2026) instead of five, effectively reaching full scope 18 months earlier than originally legislated. [vatcalc.com] [kpmg.com], [kpmg.com] [kpmg.com], [theinvoicinghub.com] [theinvoicinghub.com], [theinvoicinghub.com] [vatcalc.com], [vatcalc.com]
• Key dates summary:
  • May 5, 2024 – Mandate begins (Pilot): Clearance required for invoices >₪25,000. All such invoices get automatic approval during pilot. [vatcalc.com], [theinvoicinghub.com]
  • Jan 1, 2025 – Phase 2: Threshold >₪20,000. Full enforcement powers start (end of “automatic” grace). [theinvoicinghub.com]
  • Jan 1, 2026 – Accelerated Phase 3: Threshold >₪10,000. (Superseding the originally planned 15k step) [kpmg.com]
  • June 1, 2026 – Accelerated Phase 4 (Final): Threshold >₪5,000. This is the end-state; invoices above ₪5k require clearance, and this minimum will not drop further. [kpmg.com], [theinvoicinghub.com]

• Differentiated timelines: The phasing is uniformly by invoice value – not by sector or taxpayer category. All industries followed the same schedule. One exception: a voluntary integration period in late 2023. Before the mandate kicked in, businesses could register and test the system. Some early adopters began requesting allocation numbers in late 2023 (even though not required) to pilot their integrations. The Tax Authority provided a sandbox for software providers in 2023 and urged companies to prepare ahead of time. Aside from this, there were no separate “pilot groups” by sector – the law applied broadly from day one of each phase. [kpmg.com] [gov.il] [gov.il], [theinvoicinghub.com]
• Grace periods and transitions: As noted, Q1 2024 was effectively a grace period due to the war emergency (no input denial even if no number). After May 2024, there was no formal grace period for non-compliance, but the pilot year’s rules ensured no rejections of invoices in 2024. This gave businesses time to adapt without fearing a refused invoice. Starting 2025, the system became fully operational, meaning a non-compliant invoice could be rejected or lead to denied credits. The accelerated timeline announced in late 2025 gave only a few months’ notice for the jump to 10k and then 5k, reflecting urgency to combat fraud more quickly. [gov.il] [taxathand.com] [vatcalc.com], [kpmg.com]
• Going forward, the clearance regime is expected to continue indefinitely, although the enabling law was written as a temporary provision through end of 2028. It will likely be renewed or incorporated permanently, given the success in enforcement. Critical upcoming dates already passed include the June 2026 final rollout; as of early 2026 we are on the cusp of that final phase. Businesses should now be fully compliant as the thresholds tighten. [hcat.co]

4. Technical & Functional Requirements

• E-invoice format: Israel’s system does not mandate a specific standardized invoice format like UBL/PEPPOL for exchanging with customers; instead it requires a standard data submission to the tax authority via API. The clearance platform (SHAAM) accepts invoice data in a structured JSON format through its API. Taxpayers must transmit a set of required fields (invoice metadata) to the ITA system. The official API specifications published by the ITA detail these fields. Key mandatory data elements include: the supplier’s VAT number, the customer’s VAT number (for B2B), invoice date, invoice type, a unique internal invoice ID/number, the total amount before VAT, the VAT amount, and the total with VAT. Additional fields capture details like any discount, the accounting software ID used, etc.. [theinvoicinghub.com], [theinvoicinghub.com] [avalara.com], [avalara.com]
• At present, the line-item details (individual goods/services, quantities, VAT rates per item) are not required in the clearance submission – only summary invoice-level totals are mandatory. The initial phase keeps line data optional to simplify implementation. However, the Tax Authority has indicated future phases may expand the data model to include more granular info (potentially even delivery details like vehicle number or address for certain sectors). The invoice is identified by the combination of the supplier, invoice date/number, etc., and once approved, the system returns an allocation number associated with that invoice’s data. [avalara.com] [avalara.com], [flick.network]
• E-reporting format: The clearance submission itself is effectively a form of real-time e-reporting of invoice data. The data model is defined by the ITA’s API specification (often referred to as the “Israel Invoice Model”). It’s a JSON payload with specific fields and validation rules. For instance, certain fields are conditional – e.g. Customer VAT number is required (for B2B) if the customer is a dealer, but not needed for B2C. The system performs validations on the data: all mandatory fields must be present and correctly formatted (dates in YYYY-MM-DD, numeric fields for amounts, etc.), and values must make sense (e.g. total with VAT should equal total before VAT plus VAT amount). If the JSON submission fails validation (missing data or incorrect structure), the allocation number is not issued. Beyond format checks, the Tax Authority also runs substantive validations: for example, verifying the supplier’s software is registered (hence the “Accounting_Software_Number” field is mandatory to ensure the invoicing software is known to the ITA). The ITA issued guidelines for software developers and requires software systems to register and pass certain tests (including security tests) before they can interact via API. [avalara.com], [avalara.com] [avalara.com] [theinvoicinghub.com], [theinvoicinghub.com]
• Digital signature / integrity: Interestingly, Israel’s mandate does not currently require a digital signature on the invoice data sent to the authority – the transmission is secured via the system’s authentication. However, if the final invoice delivered to the buyer is in electronic form (PDF, etc.) rather than paper, Israeli regulations call for ensuring its authenticity and integrity. In practice this means companies often digitally sign the PDF or maintain a secure audit trail in their accounting system. The SNI guidance confirms that archives must be kept for 7 years and a digital signature is required for compliance when using electronic invoices. The allocation number itself provides an additional integrity check: the buyer can verify with the tax system that the number on the invoice matches an approved record. Thus, while Israel does not impose a specific e-invoice file format on trading partners, any electronic invoice must remain unaltered and authentic – typically achieved via digital signatures or robust internal controls. [snitechnology.net] [avalara.com], [theinvoicinghub.com]
• Mandatory data elements: To summarize the minimum data that must be reported to obtain an allocation number: it covers the core invoice particulars – issuer and recipient tax IDs, invoice date, invoice number, invoice type, amounts (before VAT, VAT amount, total) – as well as system info (software ID). The allocation service does not initially require itemized descriptions or VAT breakdowns by rate, simplifying the payload. The response from the service is the Allocation Number (a 9-digit code) which must then be included on the actual invoice document. The law also added that this allocation number must be reported in the periodic detailed VAT return (Form PCN874) for cross-verification. [avalara.com], [avalara.com] [kpmg.com], [theinvoicinghub.com] [taxathand.com]
• Validation and controls: The system operates in real-time or near-real-time. In standard cases, the supplier’s system will call the API and get a response almost immediately (within seconds). Real-time clearance means an invoice can only be issued once the platform approves it. During 2024, validation was automatic (no vetting), but from 2025 the ITA may scrutinize submissions and reject those deemed irregular. If an invoice triggers suspicion – for example, a known fraudulent supplier or an invalid VAT number – the tax authority can deny issuing an allocation number in real-time, effectively blocking that invoice. In such a case, the ITA will initiate a formal review process (including inviting the supplier to a hearing within 2 business days). This ensures due process before outright refusal. During the review period, the invoice cannot be validated normally. This immediate check is a core control to stop fictitious invoices at source. [kpmg.com], [flick.network] [kpmg.com] [hcat.co], [kpmg.com] [vatcalc.com]
• Near-real-time elements: The system does allow some post-issuance reporting in exceptional cases. For instance, if a dealer somehow issued an invoice without a number (e.g. due to system downtime), they can request an allocation number retroactively within 6 months. The number can be assigned after the fact, but until it is, the buyer cannot deduct that invoice’s VAT. Also, if the ITA’s system is down and cannot issue numbers, the law permits the VAT credit to be allowed later once the number is obtained (Section 40B addresses technical failures). These are contingency measures. The normal workflow is strictly real-time, integrated into the issuance process. [theinvoicinghub.com] [taxathand.com]
• In terms of output format to customers, after clearance is done, suppliers may deliver the invoice to the buyer in any format (paper, PDF, EDI, etc.) so long as the allocation number is included [theinvoicinghub.com]