VAT for payments from abroad

VAT 0% may apply to sales to foreign residents.

According to the law, a foreign resident is defined as an individual who permanently resides outside of Israel or a legal entity registered abroad.

When processing a payment, there is no reliable technical way to determine whether the payer is a foreign resident. Geolocation is unreliable, as an Israeli resident may be abroad at the time of payment.

Since the business is in direct contact with the customer to whom it sells goods or services and reports to the tax authorities, the business is responsible for correctly issuing the tax invoice.

Automatic application of VAT 0%

If a business wants VAT 0% to be automatically applied in invoices, a relatively good method is to rely on the country in which the payer’s card was issued (with the caveat that this method also has exceptions).

Therefore, Allpay provides a function to generate invoices with VAT 0% for payments made with foreign cards. However, for technical reasons, the system can only determine whether a payment was made with a foreign card after the transaction is completed.

Since the tax invoice (heshbonit mas/kabala) is generated after the actual payment, the system will indicate VAT 0% in the invoice, and the service cost will be equal to the final amount.

Example:

Payment with Israeli card:

Service — 100 NIS

VAT — 17 NIS

Total — 117 NIS

Payment with foreign card:‍

Service — 117 NIS

VAT — 0 NIS

Total — 117 NIS

We recommend setting <span class="u-richtext-element">VAT included in price</span> in <span class="u-richtext-element">Settings</span> → <span class="u-richtext-element">Company</span> and displaying prices with VAT already included. This will appear more natural to international customers.

VAT collection for foreign cards

If a business does not want to rely on determining foreign residency based on the card’s country, it is necessary to activate the checkbox <span class="u-richtext-element">Charge VAT on foreign cards</span> in <span class="u-richtext-element">Settings</span> → <span class="u-richtext-element">Company</span>. This will apply VAT to foreign cards the same way as to Israeli cards.