In the tax chapter of the Arrangements Law for 2023-2024, which was approved by the Knesset a few days ago, regulation was added that will affect any business that issues an invoice to another business in an amount exceeding NIS 5,000 (starting at NIS 25,000 and gradually decreasing between 2024-2028).
The reform known as the "invoice allocation model" includes a restriction on the "buyer" in the transaction, who, if he receives an invoice that did not receive a confirmation number from the Tax Authority, will not be able to deduct the VAT according to the invoice he received.
We were assisted by Adv. Roy Cohen, President of Lahav of the Association of Self-Employed and Business Organizations in Israel, in order to put you in order in light of the new obligation.
Why does the Tax Authority need to authorize businesses to issue invoices?
"The stated purpose of the law is to combat the phenomenon of fictitious invoices. When a transaction is made between two businesses (which are not exempt dealers), the "buyer" in the transaction pays the VAT, the "seller" transfers the VAT amount to the Tax Authority, and at the time of the transaction generates a tax invoice through which the buyer can be credited with the VAT amount. An invoice will be considered "fictitious" when the buyer party receives a VAT refund in an amount that the seller did not transfer to the Tax Authority, thus creating damage to the state coffers. The scope of the phenomenon is estimated at a loss of billions of shekels to the state coffers."
Will the self-employed also receive a pension? Photo: Rafael Ben Ari // Will the self-employed also receive a pension?
What does the approved law say?
"In 2024, a pilot will begin in which dealers will be required to approve the production of an invoice starting from a transaction amount (excluding tax) of NIS 25,000. The pilot means that in the first year, the sanction of not allowing the mm offset will not apply, but starting in 2025, the amount will gradually decrease and the sanction will apply to any transaction that does not receive a confirmation number. In 2025, the amount of the transaction will drop to NIS 20,000, in 2026 to NIS 15,000, in 2027 to NIS 10,000, and in 2028 to NIS 5,000."
How will it work?
"This is the most important question and no one has an answer yet. The Tax Authority is in the process of developing a system that is supposed to assign the number at the time of the transaction. How it will look and work and how it will affect dealers when issuing the invoice No one knows yet, because the system has not yet been introduced. During the discussions in the Knesset, there was concern that if the system does not operate effectively, it may interfere with the course of business. We'll probably know that only in a few months, when the pilot begins."
How do I deal with being refused an invoice number?
"The Tax Authority will not assign a number if there is concern that the tax invoice will be issued illegally. The Tax Authority must send the 'seller' the grounds for the decision not to assign an invoice number in an online message, it will allow the 'buyer' to take upon himself the payment of tax for the transaction. If he agrees, then the seller will issue a tax invoice in which the transaction will be reported as if zero rate tax applied to it. Alternatively, the buyer will not be able to offset the input VAT.
"On a decision not to assign an invoice number, the seller can request the Tax Authority to hold a hearing within two business days, and the decision at the hearing will be given within one business day. The dealer may submit an objection to the decision at the hearing within 30 days, and a decision on the objection will be given within 21 days."
How can businesses prepare for change?
"As mentioned, there is still uncertainty regarding the implementation of the law, but what is clear is that businesses that work with online invoices will be able to obtain the approval through a simpler procedure. That's exactly why businesses that still have manual invoice books are advised to switch to an online system."
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