VAT increase to 18%

The expected increase in the rate of VAT (from 17% to 18%) was finally approved into law yesterday. The increase takes effect at midnight between 1 and 2 June 2013. Prices need to be updated at that time.

This is the second increase in just nine months, but you should be aware that the rate on Israel remains one of the lowest in Europe.

How does this affect a business' reporting requirements?

With regards to expenses, ensure that you take the VAT as shown on the tax invoice (חשבונית מס) - there are some situations whereby a single invoice will have both the lower and higher rates of VAT charged. The most likely examples are your electric and telephone bills.

Onto income reporting.

For those businesses reporting on a monthly basis, nothing really changes as your income for the month of June will all be charged at the higher rate. I am assuming that no income will be earned on 1 June (Shabbat).

However, for those reporting every two months, the rate change comes in the very middle of the month, and so you will be reporting income charged at differing rates. The VAT authorities will not be able to do a proper check of your calculations, other than to check that the average rate falls out somewhere between 17% and 18%. From the actual average percentage they can work out (subject to rounding differences) the split between income charged at 17% and that charged at 18%.

Overall, the change is not too difficult to handle, but if in doubt, seek professional help.