The Tax Authority Enters the Deal Room: The Era of Real-Time Approval
The "Israel Invoices" model is arguably the most significant VAT reform of the past decade. Until now, issuing an invoice was a technical act between a supplier and a customer. As of 05.05.2024, the rules of the game have changed: the state becomes an active party in every major transaction in the economy. To combat fictitious invoices, the Tax Authority now requires "approval" of the invoice in real time, before it reaches the customer.
Immediate Cash Flow Risk for the Buyer
The dramatic change lies in the transfer of responsibility. Whereas until now the customer could deduct input VAT based on an invoice that appeared valid, from now on the entitlement to deduct input VAT is contingent upon the existence of a unique "allocation number". For CEOs and CFOs, the implication is critical: if you paid the supplier the full amount (including VAT), but the supplier failed to obtain an allocation number from the Authority (due to a technical failure, tax debts, or classification as "suspect"), you are the ones who will lose the 17%. You will not be able to recover the money from the state, and your business expense will inflate in an instant.
The New NIS 25,000 Barrier
Reporting threshold: The obligation now applies to every invoice in the amount of NIS 25,000 or more (before VAT).
The mechanism: The supplier must transmit a request to the Tax Authority and receive a unique serial number (allocation number) that is imprinted on the invoice.
The sanction: An invoice above the threshold that does not bear an allocation number – the VAT thereon is not recognized for deduction. (The expense may still be recognized for income tax purposes, but the VAT is lost.)
The trend: The threshold is expected to decrease gradually in the coming years, until it applies to virtually every invoice in the economy.
No Number – No Payment"
At Shlomi Vaknin & Co. we advise our clients to adopt a "zero tolerance" policy on this matter in order to protect their cash flow. The strategic recommendation:
Update procurement procedures: Instruct your accounting and procurement departments not to accept or process for payment any invoice over NIS 25,000 that does not bear a valid allocation number.
Contractual protection: In new transactions, include a clause explicitly stipulating that payment (and in particular the VAT component) will be made only against a duly issued tax invoice that includes an allocation number.
Information systems: Ensure that your ERP system automatically blocks the intake of high-value invoices if the "allocation number" field is empty.
