Customs Classification and Valuation of Goods

Customs classification of goods means selecting the correct tariff heading under the Customs Tariff Order, and it determines the applicable customs duty rate, purchase tax rate, and import requirements. Customs valuation determines the amount on which the tax is calculated. When Customs changes either of these after release, it issues a deficiency assessment notice. Under Customs procedures effective April 2026, the importer may appeal the notice at the Customs House within 30 days of the date of the assessment notice.

Send us the assessment notice and the import declarations, and we will check which deadlines are already running.

Usually after Customs has already audited previous shipments, and sometimes before importing a new product:

• You received a deficiency assessment notice on import declarations from prior years, after Customs reclassified the product under a tariff heading with a higher duty rate.

• Customs rejected the price stated in the supplier's invoice and determined the value using an alternative method.

• The overseas supplier is a related company, and Customs is examining whether the relationship influenced the price.

• You pay the brand owner royalties or license fees, and Customs demands that they be added to the customs value.

• You supplied the overseas manufacturer with molds, components, or design plans, and Customs claims their value is missing from the declaration.

• You received a notice of intent to impose a financial sanction for an incorrect detail in the import declaration.

• You are about to import a new product and want to know in advance under which tariff heading it will be classified.

Classification is governed by the Tariff Order, and valuation by Sections 129 through 134A of the Customs Ordinance. The following rules typically arise in disputes:

Classification Under the Tariff Order

Classification is made under the Customs Tariff, Exemptions and Purchase Tax on Goods Order, 5777-2017. The tariff published on the Israel Tax Authority website is a reference tool only; the binding version is the Order as published in the Official Gazette (Reshumot). Anti-dumping duties and safeguard levies do not appear in the online tariff; information on them is available from the Ministry of Economy. Regarding purchase tax, where goods may be classified under more than one taxable category, the Director may impose the highest applicable rate (Section 14 of the Purchase Tax Law).

Transaction Value and Additions

Section 130 of the Ordinance sets out the hierarchy of valuation methods. The primary method is transaction value, and Section 133 specifies what is added to the price paid to the supplier — and only those items listed therein:

• Commissions and brokerage fees, excluding buying commissions paid to the importer's agent abroad.

• Cost of packing and cost of containers treated as part of the goods.

• Value of materials, tools, molds, and engineering and design work performed outside Israel, where the importer supplied them to the manufacturer free of charge or at a reduced cost.

• Royalties and license fees related to the goods that the importer is required to pay as a condition of their sale.

• Transportation, loading, unloading, and insurance up to the port of import.

Interest under a written financing arrangement, shown separately from the price, is not included in the value, subject to the conditions in Section 132(d).

Related Parties

Between parties with a "special relationship" — for example, where a person holds 5% or more of the shares or voting rights in both parties — the transaction value is accepted only if the relationship did not influence the price. If the Director believes it did, he must notify the importer and give the importer an opportunity to present arguments (Section 132(b)(4)). In any event, the Director provides the importer with written notice of the value determined and the method used, and upon the importer's request, a detailed calculation as well (Section 133H).

Deficiency Assessments and Financial Sanctions

The person liable for customs duty is the owner of the goods (Section 123A). For imported goods, a deficiency may be claimed within 5 years under the Indirect Taxes Law, and under Customs procedures a claim on an older declaration requires the approval of the Director of the Israel Tax Authority. In addition to the duty difference, an importer who filed a declaration with an incorrect detail may face a financial sanction of 10% of the import-tax difference or a minimum amount updated annually, whichever is higher. The sanction will not be imposed if the importer proved that all documents and details were provided to the customs broker (Section 223B). A written objection to the intent to impose a sanction may be filed within 30 days, and the final decision may be appealed to the Magistrates' Court within 30 days (Sections 223D and 223TZ).

The case begins with a timeline, because some deadlines start running from the date the notice was sent:

1. You send us the deficiency assessment notice, the import declarations, the supplier invoices, and any license or royalty agreements. For a classification question, we also need the product's technical specifications: catalog, photographs, and composition.

2. We check the deadlines. Under Customs procedures, if the debt is not paid within 35 days of the assessment notice being sent, Customs may hold your new shipments under Section 4 of the Indirect Taxes Law. After 55 days, a bank guarantee must be deposited or the disputed amount paid to stay collection.

3. Analysis on the merits. For classification, we compare the possible tariff headings against the language of the Order and its interpretive rules. For valuation, we examine which additions under Section 133 actually apply, and if a related party is involved, we gather data on prices charged to unrelated buyers.

4. A reasoned appeal is filed at the Customs House through the Sha'ar Olami system. Under the procedure, the Customs House is expected to conclude its review within 30 days. Where the deficiency did not result from incorrect information you provided, you were unaware of it, and you sold the goods in good faith at a price that did not include it, you may also request a waiver of the deficiency under Section 3 of the Indirect Taxes Law. Such a request is heard by the Indirect Taxes Law Committee.

5. If the appeal is denied, the procedure allows an additional 30 days to file proceedings in court. On subsequent shipments, you may pay the disputed amount under protest and claim a refund within 3 months (Section 154 of the Ordinance).

Classification and valuation cases are handled by Adv. Udi Asa, who heads the firm's Customs practice. From 2011 to 2022 he served in the Legal Department of the Customs and VAT Division at the Israel Tax Authority headquarters, where he authored legal opinions in the field of indirect taxation.