Fictitious Invoices Below the Threshold: What the Israel Tax Authority's Study Found

Fictitious invoices that were split to fall below the threshold of the Israel Invoice System cost the state approximately NIS 2.2 to 3 billion in VAT in 2025. This is according to a study published by the Israel Tax Authority on June 2, 2026. According to the study, transactions totaling approximately NIS 12.2 to 16.4 billion were shifted below the threshold, and roughly 45% of the tax loss originated in the construction industry. Since June 1, 2026, the threshold stands at NIS 5,000 before VAT, and the Authority clarifies that artificially splitting a transaction is a violation of the law.

• Source: Study by the Planning and Economics Division of the Israel Tax Authority, published on June 2, 2026

• Comparison: 2025 versus the 2021–2023 average, based on detailed VAT report data

• Scope of shifting: approximately NIS 12.2 to 16.4 billion in transactions

• VAT loss: approximately NIS 2.2 to 3 billion, excluding income tax and other taxes

• Construction industry: approximately 45% of the tax loss, roughly NIS 1 to 1.3 billion

• Current threshold: invoices exceeding NIS 5,000 before VAT, effective June 1, 2026

• Authority's position: artificially splitting a transaction is a violation of the law

The Israel Invoice System threshold was lowered four times within two years, and the study shows that distributors of fictitious invoices adjusted their amounts to each new threshold. An allocation number is a real-time approval the Authority grants to an invoice; without it, the buyer cannot deduct the input VAT stated on the invoice.

1. May 2024: The system goes live with a threshold of NIS 25,000. Through the end of 2024, invoices were approved automatically.

2. January 1, 2025: The threshold drops to NIS 20,000, and the Authority begins blocking suspicious invoices by withholding allocation numbers.

3. January 1, 2026: The threshold drops to NIS 10,000.

4. June 1, 2026: The threshold drops to NIS 5,000. The study was published the following day.

What the Study Measured

The researchers examined invoices that buyers reported as input expenses. In 2025, the total input amount on invoices ranging from NIS 19,500 to NIS 19,999—just below the threshold—jumped from NIS 3.4 billion to NIS 13.4 billion. In the NIS 15,000 to NIS 20,000 range, the share of invoices with no cross-referencing (only one party to the transaction reported it) also rose from approximately 25% to approximately 35%, while in the ranges above and below it remained around 23%. Invoices without cross-referencing account for roughly 75% of the shifting. According to the study, this figure reinforces the assessment that most of the shifting does not originate from law-abiding businesses. Below NIS 15,000, the study found no significant shifting.

Expected Enforcement Measures

The study recommends considering a mandatory allocation number from the Israel Invoice System for every invoice starting from the first shekel. According to press reports, the Ministry of Finance is examining the inclusion of such a measure in the next Arrangements Law. As of October 20, 2026, it has not been enacted, and the threshold remains NIS 5,000.

In parallel, investigations are being opened. On June 9, 2026, the Authority announced an investigation by the Jerusalem Customs and VAT Investigations Division against a dealer suspected of deducting fictitious invoices totaling approximately NIS 6.5 million between 2024 and 2026. According to the announcement, most of the invoices were issued in amounts below NIS 20,000 to avoid triggering the allocation requirement.

The allocation number requirement applies to a tax invoice in a business-to-business transaction where the buyer seeks to deduct the VAT and the pre-VAT transaction amount exceeds NIS 5,000. Sales to private consumers are not subject to this mechanism.

An invoice of NIS 5,000 or less does not require an allocation number, and its VAT may be deducted as long as the transaction is genuine. However, the study is based precisely on buyers' reports, so the risk lies on the deducting party: a business that received a series of small invoices from a supplier with no real activity behind it may lose its input tax deduction and face an assessment or investigation.

Even a business that did nothing wrong may be harmed. In the State Comptroller's Report on the Israel Invoice System cases were found of identity theft of legitimate businesses, issuance of invoices in their name, and obtaining allocation numbers for those invoices. According to the report, in the cases examined the Authority acted only retroactively, after complaints were filed.

It is advisable to review your supplier invoices for 2025 and 2026 before the Authority does. Here are the steps:

1. Look for sequences of small invoices from the same supplier issued on the same dates, in amounts close to the threshold in effect at the time (below NIS 20,000 in 2025; below NIS 10,000 or NIS 5,000 in 2026).

2. For invoices exceeding NIS 5,000, verify the allocation number using the "Supplier Invoice Verification" service on the Israel Tax Authority website.

3. If you issue invoices, do not split a single transaction into multiple invoices to avoid requesting an allocation number.

4. Check who is authorized to request allocation numbers on behalf of your business, and if invoices you did not issue appear, contact the Authority immediately.

5. If the Authority refused to issue an allocation number, you may request a hearing within 2 business days and file an objection within 30 days of the hearing. The procedure is detailed in the article on allocation numbers for invoices exceeding NIS 5,000.

When an invoice you deducted turns out to be fictitious and an audit or investigation is opened, representation in VAT investigations is handled at the firm by Adv. and CPA Shlomi Vaknin, who served for approximately a decade as a national supervisor in the Professional Division of VAT at the Israel Tax Authority.