Pre-Ruling and Ruling for VAT in Israel: When and How to Apply (updated 2025)

When international companies operate in Israel or plan to engage in business activities, one of the key questions is how their transactions will classified for VAT purposes.
Are services provided to foreign clients subject to VAT? Can a company claim VAT refunds on certain expenses? Is it possible to avoid double taxation on VAT for imported goods and services?

In such cases, submitting a Pre-Ruling request to the Israel Tax Authority (ITA) – a formal advance tax ruling – provides legal certainty and reduces risks. This process allows businesses to obtain an official response before executing a transaction, ensuring compliance with Israeli tax regulations.

What Are Pre-Ruling and Ruling?

• Pre-Ruling: A process in which a company approaches the Israel Tax Authority (ITA) to obtain a binding legal opinion on a specific VAT-related question regarding a particular transaction before performing it.
  Advantage: The company gains tax certainty, preventing unnecessary tax exposure and legal risks.
• Ruling (Binding Tax Decision): A formal decision issued by the ITA that determines the VAT liability for a specific transaction, whether it has already been executed or is still in the planning stage.

Important Note: While a Pre-Ruling is used to obtain clarification in advance, a Ruling is a final decision that may not always be subject to changes.

When Should a Company Apply for a VAT Pre-Ruling?

There are several cases where a Pre-Ruling is crucial for international businesses:

1. A foreign company provides services to Israeli businesses and wants to confirm its eligibility for a 0% VAT rate – for example, consulting, marketing, or technical support services offered abroad to Israeli companies.
2. An international company imports goods into Israel to ensure no double VAT taxation. If you already paid VAT at customs on imported goods, the company can avoid paying VAT again on services related to the product’s value.
3. A company seeks VAT refunds on expenses incurred in Israel – for example, if a foreign company paid VAT on local purchases, can it claim a refund?
4. Complex transactions involving suppliers and distributors in Israel – for instance, does a local distributor need to charge VAT on transactions with a foreign company?
5. Any transaction with legal uncertainty about the correct VAT treatment – to prevent future disputes with the Israel Tax Authority.

How Is the Pre-Ruling Process Conducted?

Step 1: Preparing and Submitting an Official Request

The company submits a formal written request to the Israel Tax Authority, including the following:

• A detailed description of the transaction – who the involved parties are, the transaction terms, and how you will execute it.
• Legal analysis – a professional assessment explaining how VAT laws and regulations apply to the case.
• The company’s position – a justification for the applicable VAT treatment (for example, why the transaction should be subject to 0% VAT).
• Supporting documents – contracts, invoices, import documentation, and other relevant material.

At this stage, the ITA analyzes the request and decides whether to proceed with further discussions.

Step 2: Meetings and Discussions with the Israel Tax Authority

After submitting the request, meetings are held with ITA representatives to clarify tax issues and present additional documentation.

• Typically, 3-4 meetings are required, depending on the case’s complexity.
• Reviewing the facts, evidence, and legal arguments during these meetings.
• Proper preparation is crucial! – submitting an unclear or poorly structured request can result in an immediate rejection.

Step 3: The ITA’s Decision

Once the process is complete, the ITA can reach one of three outcomes:

• Approval of the request – VAT will issue a binding decision in this case, determining the ITA’s position on the transaction.
  Important: The decision is binding only if all business and legal details remain as presented in the request.
• Rejection of the request – if the ITA determines that the transaction does not meet the criteria for a special VAT rate or VAT refund.
• Refusal to discuss the request – in cases where:
  • A previous tax ruling on the same issue already exists.
  • The question presented is not considered significant by the ITA.
  • The request does not meet the Pre-Ruling criteria.

Can a Company Appeal the ITA’s Decision?

• If VAT/ITA rejects the request, the company may appeal to the court.
• We can sometimes initiate further negotiation with the ITA to reach a revised tax agreement.

Why Work With Us?

• Proven experience in handling Pre-Ruling and Ruling applications – we understand the process in depth and know how to present the request to maximize the chances of approval.
• Significant tax savings – a favorable tax ruling can prevent unnecessary tax payments and ensure VAT refunds for international companies.
• Full representation before the ITA – we manage the entire process, including request submission, handling meetings and discussions with tax authorities, and negotiating the final decision.
• Tailored tax advisory services – we evaluate each case individually and provide customized solutions that align with your company’s business model.

Need Business Certainty About Your VAT Status in Israel?

• Contact us today to determine if your transaction qualifies for a Pre-Ruling that could save you time and money!
• Please schedule a consultation with our tax experts now.

Why Is This Important? Obtaining an advance tax ruling for VAT classification ensures that international companies operate with complete legal and financial certainty, avoiding tax disputes and minimizing financial exposure in Israel.

Don’t wait until the last minute – get your VAT status confirmed in advance and confidently run your business!

Yaniv Angel CPA (Adv)

Managing Partner, International Taxation Division

[email protected]