VAT Exemption in Eilat (Free Trade Zone)

A VAT exemption in Eilat on the sale of goods applies when the seller is a dealer who qualifies as an "Eilat area resident" and the goods are sold for consumption or use in Eilat. A service is exempt when an Eilat area resident provides it within the Eilat area. This is established by Section 5 of the Eilat Free Trade Zone Law (Tax Exemptions and Reductions), 5745-1985. Private vehicles, cigarettes, jewelry valued over USD 200, and additional items listed in the Second Schedule to the Law are subject to full VAT even in Eilat.

Have you received a demand or assessment from VAT Eilat, or are you planning business activity from the city? Send us the details and we will review your eligibility.

Usually after an audit by the Eilat VAT office, and sometimes before launching a new business activity. These are the most common situations:

• You received an assessment claiming you are not an "Eilat area resident" — for example, because the business is effectively managed from outside the city.

• You sell online from Eilat, and some shipments go to customers outside the city.

• You provide services from Eilat to clients in central Israel — such as consulting, design, or software development — and it is unclear whether the service is rendered "in the Eilat area."

• A supplier from the north sold you goods at zero-rate VAT, and the VAT authority claims the goods were transferred out of Eilat without a document confirming cancellation of the transaction (Section 8A).

• You paid VAT on import at another port for goods destined for Eilat, and the refund from Eilat Customs was delayed or denied.

• A company operating in central Israel is opening a branch in Eilat and wants to know how to separate the activities and the accounting records.

Presenting a zero-rate invoice at the entrance to Eilat without the corresponding goods is a criminal offense (Section 13A). If you have been summoned for investigation, what to do is explained on the Representation in VAT Investigations.

The VAT relief provisions are concentrated in Section 5 of the Law, and the Israel Tax Authority details them in the Eilat Free Trade Zone Guide (updated January 1, 2026).

How VAT Is Calculated in Transactions Involving Eilat

• A sale of goods located in Eilat, by a dealer who is an Eilat area resident, for consumption or use in Eilat, is exempt from VAT (Section 5(c)).

• A service provided by an Eilat area resident within the Eilat area is exempt from VAT. A service related to a sale is exempt only if the property is located in Eilat, and a service related to an event is exempt only if the event takes place in Eilat (Section 5(e)).

• A dealer outside Eilat who sells goods to a dealer who is an Eilat area resident, for the purposes of the latter's business in Eilat, charges VAT at zero rate (Section 5(b)). Full VAT applies to services provided to the Eilat dealer, except for a closed list of services such as transport of goods to Eilat and maintenance of elevators, air-conditioning systems, and vehicles (Regulation 20A).

• Import of goods into Eilat for sale, consumption, or use in the city is exempt from VAT (Section 5(a)). When the goods are released at another port, VAT is paid and a refund is requested after proof that the goods are in Eilat (Regulation 19).

• A sale of real estate located in Eilat is exempt from VAT (Section 5(d)).

• An individual who is not a dealer and purchases goods or services outside Eilat pays full VAT, even if he or she is an Eilat resident.

Who Qualifies as an "Eilat Area Resident"

• An individual whose permanent place of residence is in Eilat and who has resided there for at least three consecutive months before claiming the benefit (Section 1).

• A company or other body of persons, with respect to the business it maintains in Eilat, provided it is registered in Eilat as a dealer for that business and meets additional conditions prescribed in the Regulations.

What Is Subject to Full VAT Even in Eilat

The goods listed in the Second Schedule to the Law are subject to full VAT in every transaction, including sales to consumers in Eilat:

• A private vehicle, including a commercial vehicle with a gross vehicle weight of up to 3,500 kg, except a vehicle used for driving instruction at a driving school for the use of Eilat area residents in the city.

• A motorcycle (except a motorcycle used for driving instruction), as well as a jet ski, ATV, and cargo tractor, except those used in the business of an Eilat area resident in the city.

• Monitors and television sets, except computer screens up to 25 inches and monitors used by a hotel in Eilat.

• Cigarettes and tobacco products, jewelry (including watches) valued over USD 200, and stamps.

The review is conducted transaction by transaction, because the same business may carry out exempt transactions, zero-rate transactions, and fully taxable transactions:

1. You send us the business's VAT registration details in Eilat, a breakdown of transactions by customer location and delivery location, and, if available, the inspector's letter or the assessment.

2. We verify whether the business meets the definition of "Eilat area resident": residence, registration, who represents the company in Eilat, and whether the Eilat business maintains separate books (Regulations 1 and 2).

3. We classify the transactions under Section 5: what is exempt, what is zero-rated, and what is subject to full VAT, including items from the Second Schedule.

4. If there is an assessment, we file an objection within 30 days and handle the proceedings with VAT Eilat. What happens at each stage is explained on the Objection to a VAT Assessment.

5. Before launching a new activity — such as an online store or services to customers outside the city — you can request a tax ruling and know in advance what will apply.

The practice is led by Adv. & CPA Shlomi Vaknin together with his firm's team. He served for nearly a decade as a national supervisor in the Professional Division of the VAT Department at the Israel Tax Authority headquarters. In Eilat cases, VAT and customs issues often intersect — for example, in refunds of VAT paid on imports through another port.