Fictitious Invoice Lawyer

A fictitious invoice lawyer represents anyone whom VAT authorities claim has issued an invoice without an underlying transaction, deducted input tax based on such an invoice, or received an invoice that was issued unlawfully. Issuing a tax invoice without an actual transaction, with the intent to evade tax, is an offense punishable by up to 5 years' imprisonment (Section 117(b)(3) of the VAT Law), and up to 7 years under aggravating circumstances. Concurrently, the VAT authorities may disallow the deduction, impose double tax, and declare the taxpayer's books inadmissible.

Send us the letter you received, and we will check what proceedings are being conducted against you and what the nearest deadline is.

• The VAT authorities notified you that they are considering determining that a supplier issued invoices to you unlawfully, and summoned you to present arguments before the decision is made (Sections 62 and 77B).

• You received a demand to pay double tax on invoices you deducted (Section 50(a1)).

• An assessment was issued disallowing input tax from invoices of a specific supplier.

• The VAT authorities refused to assign an allocation number to an invoice you are issuing, claiming there is a concern it will be issued unlawfully.

• A supplier you worked with is under investigation, and you want to review the invoices you received from them before anyone contacts you.

• You received a letter stating that the case has been referred for prosecution, or that an indictment has been filed against you.

If investigators arrived at your business or you received a summons for questioning, what to do before and during the investigation is explained on the page Representation in VAT Investigations.

The term "fictitious invoice" does not appear in the law. The law refers to an invoice "issued unlawfully," and case law examines it on two levels: whether it meets the requirements of Section 47 of the Law, and whether there was a genuine transaction between the parties named in it. In practice, there are two main scenarios:

• There was no transaction at all. Nothing was sold and no service was provided; the invoice was created solely to generate input tax for deduction.

• The transaction took place, but the invoice was issued by someone other than the party who performed it. Such an invoice is called a "foreign invoice."

The law addresses both sides of the invoice — the party who issued it and the party who deducted from it:

• Issuing a tax invoice, or a document purporting to be an invoice, without having carried out or committed to carry out the transaction (Section 117(b)(3)).

• Deducting input tax without a document as required under Section 38 (Section 117(b)(5)).

• Acting to enable another person to evade tax, for example distributing invoices to other businesses (Section 117(b1)).

The penalty for each of these offenses is up to 5 years' imprisonment. Under aggravating circumstances, the penalty increases to 7 years' imprisonment or a fine of five times the standard amount (Section 117(b2)). Such circumstances include a prior conviction for a similar offense within the preceding three years, more than 6 charges within three years, or evasion of an amount exceeding double the fine specified in Section 61(a)(4) of the Penal Law. A person convicted again within three years may also be subject to an order prohibiting them from continuing their occupation (Section 117(c)).

In all of these offenses, the prosecution must prove intent to evade tax. Courts treat fictitious invoices with severity, and in Supreme Court rulings the phenomenon has been described as a "national plague."

An offense under Section 117(b)(3) or 117(b1) also constitutes a predicate offense for money laundering when one of the conditions in the First Schedule to the Prohibition of Money Laundering Law is met, for example tax exceeding NIS 170,000 within 12 months. Details are on the page Prohibition of Money Laundering.

The civil proceeding does not wait for the criminal proceeding, and sometimes it is the only one initiated:

• Disallowed deduction: Input tax may only be deducted from an invoice "lawfully issued to him" (Section 38(a)). According to case law, a recipient of an unlawfully issued invoice retains the deduction only if they prove they did not know and took reasonable measures to verify that the supplier was legitimate. A person who turned a blind eye will not benefit from claiming lack of knowledge.

• Double tax: A person who issued an invoice without authorization is liable for double the tax stated in it (Section 50(a)). A person who deducted from such an invoice may be required to pay double tax, unless they proved to the Director that they did not know (Section 50(a1)). The demand is appealed to the District Court within 60 days (Section 50(b) and Regulation 2(a) of the Rules of Appellate Procedure).

• Inadmissible books: The books of a person who issued an invoice unlawfully are inadmissible for that tax year. The same applies to the books of a person who deducted from it, unless they proved they did not know — and this must be demonstrated already when presenting arguments before the decision is made (Section 77B). The decision may be appealed within 60 days.

• Penalty: Maintaining books with a material deviation due to such an invoice may lead to a penalty of 1% of the transaction value. This penalty is appealed only to the District Court, within 30 days (Section 95(b)).

Allocation Number

Since 1.6.2026, no deduction is allowed from an invoice exceeding NIS 5,000 before VAT without an allocation number (Section 38(a1)). The Director may refuse to assign a number when there are reasonable grounds to suspect the invoice will be issued unlawfully. A hearing on the refusal is held within two business days, after which an objection may be filed within 30 days (Section 47(a2) and (a4)). Details are in the article Israel Invoices 2026: Allocation Number for Invoices Over NIS 5,000.

1. We determine what proceedings are underway: a pre-decision notice under Section 77B, a double-tax demand, an assessment, an investigation, or an indictment. Each has a different deadline, and sometimes several run concurrently.

2. We reconstruct the transaction from the documents: purchase order, delivery note, completion confirmation, bank transfer, and accounting records. We verify who actually performed the work and who issued the invoice.

3. We gather evidence showing you vetted the supplier before payment — such as an authorized dealer certificate, a bookkeeping approval, and an allocation number. This material supports the argument that you did not know.

4. We present arguments to the Director in writing and at a hearing, before the decision is made. If a decision has been issued, we appeal to the District Court.

5. When criminal proceedings are also involved, we coordinate between both tracks, because statements made in one may be used in the other.

Fictitious invoice cases are handled by Adv. and CPA Shlomi Vaknin and his firm's team. Shlomi served as a national supervisor in the Professional Division of VAT at the Israel Tax Authority. In invoice cases, the dispute hinges on accounting records, and the material is also reviewed through the lens of a certified public accountant.

The team handles both the criminal proceeding and the civil proceeding that accompanies it, including appeals against assessments and double-tax demands.