2027 VAT Increase: What's Known and How to Prepare Long-Term Contracts

As of 4.11.2026, no decision has been made to raise VAT in 2027. The rate has been 18% since 1.1.2025, and no order changing it has been published. There are reports of staff work at the Ministry of Finance and the Israel Tax Authority ahead of the 2027 budget, intended for the next government. Any change would take effect only by an order of the Minister of Finance, after consultation with the Knesset Finance Committee. For a contract already signed, unless it provides otherwise, the dealer may demand the additional tax from the customer under Section 6 of the Value Added Tax Law.

• Current VAT rate: 18%, since 1.1.2025.

• Rate mentioned in reports: 19% in 2027. Not decided and not published.

• Who decides: the Minister of Finance, by order, after consultation with the Knesset Finance Committee (Section 2 of the Law).

• What determines the rate for a transaction: the tax point, not the date the invoice is issued.

• Existing contract: the dealer may collect the difference from the buyer, unless the agreement provides otherwise (Section 6 of the Law).

• Official source: Israel Tax Authority Interpretive Directive 5/2024, published ahead of the move from 17% to 18%.

So far, statements have been made at conferences and articles have been published, but no official document has been issued. According to an ynet report from August 2026, the Ministry of Finance raised the possibility of increasing VAT to 19% in 2027. In mid-October, the Director of the Israel Tax Authority, Shai Aharonovich, reportedly said he prefers structural changes to the tax system over a further VAT increase. At the Israel Tax Advisors Association conference on 19.10.2026, he reportedly added that if no other solutions are found, it may be necessary to raise VAT and income tax.

According to the reports, the proposals are being prepared for the government to be formed after the elections for the 26th Knesset, held on 27.10.2026. VAT on digital services from abroad has also come up in the context of the 2027 budget, and it too is still only a proposal.

In the previous increase, the order was published on 20.2.2024, and the new rate applied from 1.1.2025, about ten months later. Until a new order is published, every transaction is taxed at 18%.

A transaction is subject to the rate in effect at the tax point. This is what the Israel Tax Authority determined in its 2024 interpretive directive, based on Chapter F of the Law. The invoice date does not change the outcome: a dealer who issued an invoice at the old rate before the tax point arrived must issue a supplementary invoice for the difference.

Tax Point by Type of Transaction

• In a sale of goods, the tax point is delivery to the buyer (Section 22(a)), even if the customer paid in advance. A dealer with a turnover of up to NIS 2 million is taxed on a cash basis, so for that dealer the payment date governs.

• For services, the tax point generally arises upon receipt of consideration (Section 24). Section 29(1a) sets out exceptions, including a dealer with a turnover above NIS 15 million who is subject to the Eleventh Schedule to the Bookkeeping Regulations. For that dealer, the tax point is when the service is rendered.

• In a real estate transaction, the tax point is the earliest of: placing the property at the buyer's disposal, registering it in the buyer's name, and payment on account of the consideration (Sections 28 and 29(1)). A payment made before the change remains at the old rate.

• For property rentals, tax is on a cash basis, according to the date the rent was received.

• For imports of tangible goods, the tax point is release from customs supervision (Section 26(a)).

For example, based on the example in the directive itself: in a contract to buy an apartment from a developer where NIS 1,600,000 of the consideration is paid after the change date, a one-percentage-point difference amounts to an additional NIS 16,000.

Section 6 of the Law sets the default rule: if the tax rate is raised after the transaction was agreed, the dealer may demand the additional tax from the buyer, unless the agreement provides otherwise. Therefore, the way the price is worded in the contract determines who bears the difference.

1. Check how the price is worded. The Israel Tax Authority interprets Section 7 of the Law to mean that a price agreed without specifying whether it includes VAT is deemed to include VAT. Wording such as "plus VAT as required by law" makes clear that the rate in effect at the tax point will apply.

2. Look for a clause that fixes a final price including VAT, or that waives the right under Section 6. Under such a contract, the dealer may have to absorb the difference itself.

3. Map the deliveries and payments expected in 2027 by tax point. In construction contracts, ongoing services and leases, the picture may differ in each case.

4. In a new long-term contract, specify in advance what happens if the rate changes during the term, including price lists and quotes that remain open.

5. Don't issue invoices early to lock in 18%. Under the interpretive directive, an early invoice does not change the rate that applies at the tax point.

Reviewing contracts on issues like these is part of the work of the firm's Value Added Tax practice. The practice is led by Adv. and CPA Shlomi Vaknin, who served for about a decade as a national supervisor in the VAT Professional Department of the Israel Tax Authority.