Send Invoice in Israel

Israel's e-invoicing system, a significant component of the 2023 Economic Efficiency Law, is designed to enhance tax transparency and combat the shadow economy by implementing stricter control over commercial transactions. This initiative introduces a Continuous Transaction Control (CTC) model, often referred to as a "clearance" system, which mandates real-time validation of business-to-business (B2B) invoices by the Israel Tax Authority (ITA) before they are issued to the buyer. The legal framework aims to modernize tax compliance and streamline VAT reporting processes.

Key compliance requirements revolve around the mandatory submission of specific B2B invoices to the ITA for approval. Businesses must obtain a unique allocation number from the ITA for invoices exceeding certain value thresholds. Without this allocation number, the invoice is not considered valid for VAT deduction purposes by the recipient. The Israel Tax Authority (ITA) plays a central role as the regulatory body, overseeing the e-invoicing regulations and implementation. It provides the SHAAM platform, which is the computer system responsible for receiving, verifying, and assigning these crucial allocation numbers in real-time.

Submitting e-invoices in Israel involves a specific workflow to ensure real-time validation by the Israel Tax Authority (ITA) through its SHAAM platform. The process is designed to integrate seamlessly with business operations, though it requires adherence to defined steps and data formats.

Here’s a practical, step-by-step guide for submitting e-invoices:

• Invoice Issuance: When a supplier generates a B2B invoice that meets the mandatory e-invoicing thresholds, they must prepare the key invoice data.
• Data Transmission: This key data, which includes essential fields like transaction date, invoice number, issuer and recipient details, and the amount excluding VAT, must be transmitted to the ITA in a structured JSON (JavaScript Object Notation) format. This transmission typically occurs in real-time via an API (Application Programming Interface) connection from the business's accounting or ERP system, or through a dedicated web portal.
• Real-time Validation: The ITA's SHAAM platform receives this information and automatically verifies the submitted data.
• Allocation Number Assignment: If the data is correct and passes the ITA's checks, the authority assigns a unique "allocation number" to the invoice. This nine-digit allocation number is crucial for the invoice's validity.
• Invoice Completion and Delivery: Once the allocation number is received, it must be embedded within the invoice document. Only then can the supplier officially issue the invoice to the buyer. The buyer can then verify the authenticity of the invoice using this allocation number.

To navigate Israel's e-invoicing landscape effectively, adopting best practices is crucial for ensuring continuous compliance and avoiding potential issues. One fundamental requirement is digital archiving. Companies are mandated to archive their e-invoices in a digital format for a minimum of seven years. It's vital to ensure these archived documents remain readable, secure, and maintain their integrity throughout this period.

The phased implementation schedule is a key aspect to monitor, as the mandatory thresholds for e-invoicing are progressively decreasing:

• May 5, 2024: Mandatory for invoices with a value above 25,000 NIS (excluding VAT).
• January 1, 2025: Mandatory for invoices with a value above 20,000 NIS (excluding VAT).
• January 1, 2026: Mandatory for invoices with a value above 10,000 NIS (excluding VAT). (This timeline was accelerated from an earlier plan).
• June 1, 2026: Mandatory for invoices with a value above 5,000 NIS (excluding VAT).

Businesses can voluntarily use the e-invoicing system for invoices below these thresholds.

Common pitfalls to avoid include failing to integrate your Enterprise Resource Planning (ERP) or accounting systems with the ITA's API. While a manual web portal exists, it's generally not suitable for businesses with high invoicing volumes. Additionally, businesses acting as buyers must implement a mandatory check to verify the presence and validity of the allocation number on incoming invoices before claiming input VAT. It's also important to note that unlike some other countries, Israel's e-invoicing scheme relies on the ITA's centralized control and allocation number for authenticity, meaning a digital electronic signature on invoices is generally not required for legal validity under this new system.

Failing to comply with Israel's e-invoicing regulations can lead to significant financial and operational consequences for businesses. The primary penalty for non-compliance is directly tied to Value Added Tax (VAT) deductions. If a supplier fails to obtain the mandatory allocation number from the Israel Tax Authority (ITA) for an invoice that exceeds the specified threshold, the customer receiving that invoice will be unable to deduct input VAT from their own VAT liabilities. This directly impacts the buyer's ability to recover tax, potentially leading to disputes and strained business relationships.

Consider a scenario where a business issues a B2B invoice for 12,000 NIS in January 2026 without first obtaining an allocation number. Since the threshold for that period is 10,000 NIS, the buyer of that service or good would be legally prevented from deducting the input VAT associated with that invoice. This could result in the buyer having to pay the full VAT amount without reimbursement, effectively increasing their costs.

Beyond the immediate impact on VAT deductions, the ITA maintains real-time scrutiny over allocation number requests. If an invoice is deemed irregular during this process, the ITA can deny the allocation number. Such a denial can trigger a formal hearing and review process, which can be time-consuming and resource-intensive for the business involved. The broader impact on businesses includes potential financial losses due to irrecoverable VAT, administrative burdens from dealing with non-compliant invoices, and a damaged reputation with trading partners who rely on valid invoices for their own tax compliance.