New Invoice Validation Threshold and VAT Reportable Positions

Israel continues its rapid transition toward a Clearance-based e‑invoicing regime (“Invoice Israel”), intended to combat fictitious invoicing and improve VAT compliance. Recent regulatory updates significantly lower the transaction thresholds requiring real‑time validation and expand reportable VAT positions for 2025. Together, these changes create tighter controls over VAT deduction and reporting.

2. New Invoice Validation Thresholds (Allocation Number Requirement)

Israel’s e‑invoicing model requires suppliers issuing B2B tax invoices above certain values to obtain an Allocation Number from the Israel Tax Authority (ITA) before issuing the invoice. Customers cannot deduct input VAT without this number.

2.1 Accelerated Threshold Reductions for 2026

The ITA has accelerated the rollout of the mandatory validation thresholds, skipping the previously planned intermediate NIS 15,000 step. The updated requirements are:

These thresholds align with the broader Invoice Israel reform aimed at progressively lowering invoice clearance limits.

2.2 How the Validation Model Works

• The supplier submits invoice data via API or the ITA portal for real‑time validation.
• The ITA reviews and, if acceptable, issues a unique Allocation Number.
• The invoice becomes valid only after receiving this number.
• Customers may claim input VAT only when the allocation number appears on the invoice.
  [kpmg.com]

This clearance requirement applies only to B2B invoices; B2G and B2C invoicing are currently outside the scope. [theinvoicinghub.com]

3. VAT Reportable Positions for the 2025 Tax Year

Alongside the invoice validation reforms, the ITA published its annual list of reportable tax positions, including those relevant to VAT. A “reportable position” is one contrary to an ITA‑published position and must be disclosed if the tax benefit exceeds:

• NIS 2 million in a single year, or
• NIS 5 million across four years. [lexology.com]

3.1 Number of VAT Positions

For 2025, Israel has 15 VAT reportable positions in force (16 published in total, net of one cancellation). [gov.il] 

3.2 Newly Added VAT Reportable Positions (2025)

Two new VAT reportable positions were introduced:

Position 1: Input VAT on Real Estate – Change of Use

If a real estate dealer originally deducted input VAT on property intended for VAT‑taxable sale but later obtains approval to lease the units in a VAT‑exempt manner, the dealer must refund the input VAT via the periodic return following the change in designation. [lexology.com], [vatupdate.com]

Position 2: VAT Liability on Construction Services for Public Tasks

Construction services rendered for public purposes (e.g., to a local authority) in exchange for the authority waiving payment are still subject to VAT.
[vatupdate.com], [taxand.com]

4. Practical Implications for Businesses

4.1 System and Process Adjustments

Companies must:

• Integrate API connectivity between ERP systems and the ITA validation platform.
• Update A/R processes to request allocation numbers for invoices above the thresholds.
• Update A/P processes to verify allocation numbers before input VAT deduction. [kpmg.com]

4.2 Heightened Reporting Obligations

Taxpayers adopting positions contradicting ITA‑published VAT positions must disclose them annually if thresholds are met. Penalties for non‑compliance may apply under Israel’s VAT Law Section 67D.
[lexology.com]

5. Conclusion

Israel’s e‑invoicing reforms and expanded VAT reportable positions reflect a broader tightening of its indirect tax framework. With invoice validation thresholds dropping to NIS 10,000 in January 2026 and NIS 5,000 in June 2026, businesses must ensure their invoicing systems and internal VAT controls are ready. Additionally, the 2025 VAT reportable positions—particularly regarding real estate and construction services—introduce new disclosure obligations requiring careful tax planning and documentation.