Advance Tax Decision for VAT (Pre-Ruling)

A pre-ruling, or advance tax decision, is a binding response from the Israel Tax Authority on how a specific transaction of yours will be taxed. The procedure is governed by Sections 158B through 158V of the Income Tax Ordinance and applies to VAT as well. For VAT matters, the application must be filed before the transaction is carried out (Section 158D(b)). When time does not permit this, or the amount does not justify a formal application, a professional opinion can substantiate the reporting position.

Describe your transaction to us, and we will recommend the most suitable approach.

When a VAT question arises whose answer affects the transaction price. These are typical cases:

• You provide a service to a foreign resident and intend to report it at zero rate, but the service is also rendered in practice to a party in Israel (Section 30(a)(5) of the VAT Law). The conditions are explained on the page Zero-Rate VAT on Services to Foreign Residents.

• You are a developer in an urban renewal (Pinui-Binui) or TAMA 38 project, and it is unclear how input tax should be allocated between units delivered to existing tenants and units you will sell.

• You are selling a business activity, restructuring, or merging companies, and need to know whether the transfer of assets is subject to VAT.

• Your industry operated under a longstanding position, and the Tax Authority has published a decision that contradicts it.

• Your transaction relies on a position that contradicts a stance published by the Tax Authority, and you may be subject to a reporting obligation (Section 67D of the VAT Law).

• An investor or financing entity requires VAT certainty before signing.

Advance tax decisions are governed by Sections 158B through 158V of the Income Tax Ordinance, added by Amendment 147 and effective as of January 1, 2006. The definition of "tax laws" in Section 158B includes the VAT Law.

• For VAT and land taxation matters, the application must be filed before the transaction is carried out (Section 158D(b)). For income tax purposes, it may also be filed afterward.

• The application must include all material facts and be accompanied by contracts or their drafts, professional opinions, and additional documents, as well as proof of fee payment (Section 158D(c)). The fee is set by the Minister of Finance (Section 158E).

• An application may be filed without the applicant's name and identity number, but the decision will not be issued until those details are provided (Section 158D(e)). Once filed, the application cannot be withdrawn without the Director's approval (Section 158D(f)).

• The Director may issue a decision, issue a decision by agreement, refuse the application, or respond other than by way of an advance tax decision. Before deciding, the Director must give you a reasonable opportunity to present your arguments (Section 158C).

• A taxpayer who acts contrary to an explicit, reasoned decision issued within the three years preceding the return and fails to report this is exposed to a penalty of 30% of the deficiency, where the deficiency exceeds NIS 500,000 per year and half of the tax (Section 96B of the VAT Law).

Professional Opinion or Advance Tax Decision?

A professional opinion is prepared by your advisor and is not binding on the Tax Authority. It substantiates your reporting position and documents that you examined the issue before the transaction. An advance tax decision binds the Director with respect to the facts presented, but it requires disclosing the transaction to the Authority, paying a fee, and waiting; a summary of the decision may be published without your name (Section 158V(c)). In certain cases — for example, where the advisory fee is contingent on tax savings — even a professional opinion must be reported (Section 67C of the VAT Law).

1. You describe the transaction in two paragraphs and send a draft agreement, if available. We check whether the question has already been resolved in case law or in a published tax decision.

2. We recommend the appropriate path: a professional opinion, an advance tax decision application, or an opinion now with an application once the structure is finalized.

3. We draft the application with all the facts and documents required by Section 158D(c). A detail that is omitted may allow the Director to revoke the decision.

4. We manage the discussions with the Professional Division of the Tax Authority and assess whether it is advisable to conclude with a decision by agreement.

5. After the decision is issued, we align the agreements and reporting with the conditions set therein.

Two examples showing how a single classification question changes the tax outcome:

• Tax Decision 8933/25 of February 2025 set the conditions for zero-rate VAT on hospitalization of a tourist in a hospital. Under the decision, the hospital issues the invoice in the tourist's name, and the medical tourism company does not deduct input tax. The decision overrode earlier decisions and positions of the Authority to the extent they provided otherwise. The Calcalist article on Decision 8933/25.

• In the Hagshama case (Tax Appeal 21657-11-19), the court examined whether hostess services provided to foreign companies at duty-free shops qualify for zero-rate VAT. The Tel Aviv District Court applied the proviso of Section 30(a)(5), and the appeal was allowed in a dispute involving approximately NIS 9 million in tax principal. Adv. Shlomi Vaknin represented the company. The Hagshama judgment.

The practice is led by Adv. and CPA Shlomi Vaknin together with his firm's team. He served for nearly a decade as a national supervisor in the Professional Division of VAT at the Tax Authority headquarters. He currently co-chairs the VAT Committee of the Israel Bar Association and is a member of the Indirect Tax Committee of the Institute of Certified Public Accountants in Israel.