VAT Refunds and Input Taxation

On the face of it, the equation is simple: you paid VAT on business expenses? You're entitled to get it back. In practice, filing a VAT refund claim is one of the most sensitive actions vis-à-vis the Tax Authority. For the assessing officer, a refund request is often an "invitation for an audit." Many business owners avoid claiming money owed to them out of fear of an audit, or alternatively — file refund claims carelessly and find themselves facing disqualification of books, inflated assessments, and suspicion of fictitious invoices. Your money is sitting in the public coffers, but the path to recovering it is riddled with landmines.

The VAT Law (Sections 38 and 41) enshrines the dealer's right to deduct input tax, but conditions it upon a series of strict rules:

1. Business Expense: The input must serve business purposes or be used in a taxable transaction.

2. Lawful Tax Invoice: An original document, in the dealer's name, containing all required details.

3. Time Limits: As a rule, VAT may be deducted within 6 months from the invoice date. Beyond that — special approval is required. Disqualification of inputs is a common enforcement tool used by the VAT authority, and contesting it requires solid legal and factual proof regarding the nature and authenticity of the expense.

Our firm conducts a "Pre-Audit" of the file before submitting the claim to the VAT authority, in order to neutralize risks in advance. In cases where the authority disqualifies inputs — we fight for every shekel. We have a proven track record of persuading VAT authorities to recognize complex expenses (mixed-use expenses, luxury vehicles, renovations, and more) and releasing "stuck" funds. We don't leave money on the table, but we make sure that whoever picks it up — doesn't get hurt.