Israel Lowers E-Invoicing Thresholds for B2B VAT Control

The Israeli Tax Authority (TA) expanded the national mandatory e-invoicing framework, further reinforcing its commitment to real-time VAT oversight. The newly introduced regulation lowered the transaction thresholds that trigger mandatory e-invoicing, bringing a much larger share of B2B transactions within the system's scope.

Previous Rules and New Requirements

In 2025, Israel introduced a law requiring suppliers that issue B2B e-invoices exceeding NIS 20,000 (around USD 6,440) to obtain a TA-issued allocation number. Without a unique allocation number, customers could not deduct input VAT. 

With the updated rules, the TA plans to conduct a phased reduction of the threshold. Therefore, as of January 1, 2026, the threshold is NIS 10,000 (approximately USD 3,220). Nonetheless, the threshold will further decrease to NIS 5,000 (around USD 1,610) on June 1, 2026. Both thresholds are calculated on a VAT-exclusive basis.

As a result of the new lowering threshold, for invoices exceeding these amounts, suppliers must obtain an allocation number through the TA’s centralized clearance platform before issuing the tax invoice, effectively embedding the clearance step into the invoicing process. Simultaneously, the TA will conduct a real-time review of allocation requests and may refuse to issue a number if an invoice appears irregular. In that case, the matter will be escalated to a formal hearing and review.

Notably, the regulations require taxable persons engaged in these transactions to make both technical and procedural adjustments to ensure ongoing VAT compliance. From a systems perspective, ERP and accounting platforms must integrate with the TA’s central platform via API to automatically request and receive allocation numbers.

On the other hand, operationally, taxable persons should embed the allocation request as a mandatory step in the invoicing workflow for in-scope transactions. By doing so, taxable persons will ensure that a compliant tax invoice is issued only after the allocation number has been obtained. Additionally, taxable persons must introduce controls to verify the existence and validity of allocation numbers on incoming invoices before claiming input VAT where required.

Finally, taxable persons affected by these changes must register for the TA’s digital services and formally authorize designated personnel to manage allocation requests and related interactions with the TA on their behalf.

Conclusion

In addition to expanding the scope of transactions, the new rules also have significant operational and technical implications for taxable persons. With new rules and requirements in place, taxable persons must take the necessary steps to understand and adjust their systems to remain compliant, which may be particularly challenging for those encountering this type of request for the first time.

Source: KPMG