Enter an amount and choose whether to add VAT to a net price or extract VAT from a gross price. The standard Israeli VAT rate (Mas Erech Musaf) is 17% for 2025.
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How Israeli VAT works in 2025
Value Added Tax (Mas Erech Musaf, MEM) is a consumption tax levied at each stage of the supply chain. In Israel, the standard rate has been 17% since October 2015. Businesses registered for VAT collect it from customers on their sales (output tax) and recover it on their own purchases and expenses (input tax). The net difference is remitted to the Israeli Tax Authority monthly or bimonthly, depending on the business size and category. The VAT is ultimately borne by the final consumer, since businesses at intermediate stages of the supply chain fully offset their input tax. Businesses must register for VAT once annual turnover exceeds 120,000 ILS. Smaller businesses below this threshold may apply for voluntary registration if it benefits their situation, for instance when most customers are VAT-registered businesses that can recover input tax.
Forward calculation: adding VAT to a net price
When a business quotes a price excluding VAT and needs to present the gross price to the customer, the forward calculation applies. Multiply the net amount by 1.17 to get the VAT-inclusive total. The VAT component alone is the net amount multiplied by 0.17. For example, a net price of 10,000 ILS produces a VAT amount of 1,700 ILS and a gross total of 11,700 ILS. Israeli invoices issued to VAT-registered business customers typically show the net amount, the VAT amount separately, and the total gross amount. For retail sales to consumers, the price displayed must include VAT by law, so consumers always see the gross price.
Reverse calculation: extracting VAT from a gross price
When you have a VAT-inclusive price and need to determine the net amount and the VAT component separately, use the reverse calculation. Divide the gross amount by 1.17 to get the net. The VAT is the remainder: gross minus net. This approach is commonly needed when reconciling receipts, computing input VAT for a VAT return, or analyzing the VAT content of a lump-sum payment. A frequent error is to multiply the gross by 17% directly. That overstates the VAT because 17% of the gross is not the same as 17% of the net. On a 11,700 ILS gross, 17% of 11,700 gives 1,989 ILS, which is wrong. The correct VAT content is 11,700 divided by 1.17, giving a net of 10,000 ILS, and a VAT of 1,700 ILS.
Zero-rated and exempt supplies under Israeli VAT law
Not all transactions in Israel carry the 17% rate. Exports of goods and services to foreign recipients are zero-rated, meaning VAT is charged at 0% and the exporter retains the right to recover input VAT on costs. This makes Israeli exporters competitive by ensuring no embedded VAT inflates their prices abroad. Certain supplies are fully exempt, including most residential property transactions, financial intermediation, and insurance. Exempt suppliers cannot recover input VAT on their costs, which increases their cost base and is a structural disadvantage compared to fully taxable businesses. Understanding whether a specific transaction is standard-rated, zero-rated, or exempt has significant cash-flow and pricing implications. When in doubt, the ITA website at misim.gov.il provides the relevant guidance, and a licensed Israeli accountant can advise on borderline cases.
Frequently asked questions
What is the current VAT (Mas Erech Musaf) rate in Israel in 2025?
The standard VAT rate in Israel for 2025 is 17%. This rate is known in Hebrew as Mas Erech Musaf, abbreviated MEM, and has been set at 17% since October 2015 when it was raised from 16%. The Israeli Tax Authority (ITA, misim.gov.il) administers VAT collection, and the legal basis is the Value Added Tax Law of 1975. VAT applies to the supply of goods and services by registered businesses in Israel, to imports of goods, and to self-supply of services. Businesses with annual turnover above the registration threshold (120,000 ILS for 2025) must register for VAT, charge it on their sales, and remit the net amount after offsetting input VAT on their own purchases. The 17% rate applies to the vast majority of commercial transactions in Israel. Some categories, notably exports, are zero-rated (0%), while others such as financial services and certain non-profit activities are exempt. Tourists can in certain circumstances claim a refund of VAT paid on purchases taken out of the country. For any binding tax advice, consult a licensed Israeli accountant (roh hesbon).
Which goods and services are exempt from VAT in Israel?
Israeli VAT law distinguishes between zero-rated supplies and exempt supplies. Zero-rated supplies are technically VAT-able but at a 0% rate, meaning the supplier can still recover input VAT on costs related to those sales. The main zero-rated category is exports of goods and services, including services provided to foreign residents that are consumed outside Israel. Certain tourism-related services and international transport are also zero-rated. Exempt supplies, by contrast, carry no VAT obligation on the output side but also deny the supplier the right to recover input VAT on related costs. Exempt categories in Israel include dealings in residential property (in most cases), lending and financial intermediation services, insurance premiums, and transactions by certain non-profit bodies and religious institutions. Residential rental income is also exempt from VAT in most situations, which is why property developers face restrictions on input VAT recovery. Fruit, vegetables, and basic foods are not separately zero-rated in Israel in the way they are in some European countries; they are subject to the standard 17% rate at the retail level. If you are unsure whether a particular transaction qualifies for an exemption or zero rating, consult the ITA website at misim.gov.il or a licensed Israeli tax adviser.
How do I calculate the VAT-exclusive price from a VAT-inclusive total in Israel?
To extract the net (VAT-exclusive) price from a gross (VAT-inclusive) total in Israel, you divide the gross amount by 1.17, since the standard VAT rate is 17%. For example, if a receipt shows a total of 1,170 ILS including VAT, the net amount is 1,170 divided by 1.17, which equals exactly 1,000 ILS. The VAT component is the difference: 1,170 minus 1,000 equals 170 ILS. Stated as a formula: net = gross divided by (1 + rate), and VAT amount = gross minus net. This is the reverse calculation, sometimes called VAT extraction or back-calculation, as opposed to the forward calculation where you multiply a net price by 1.17 to arrive at the gross. A common mistake is to simply multiply the gross by 17% and treat the result as the VAT. That would give 198.90 ILS on a 1,170 ILS gross, which is incorrect. The correct VAT content of a VAT-inclusive price is always the gross divided by (1 plus the rate), multiplied by the rate, or equivalently gross minus gross divided by (1 plus the rate). This calculator performs both directions so you can verify the split in either scenario.
Do tourists pay VAT in Israel and can they reclaim it on departure?
Tourists visiting Israel pay VAT at 17% on most goods and services they purchase during their stay, just as residents do. However, Israel operates a tourist VAT refund scheme for certain eligible purchases of goods that are physically exported from Israel when the tourist departs. To qualify, the tourist must be a foreign resident (not an Israeli citizen or permanent resident), the purchase must be made at a store displaying the official VAT refund sign, the minimum purchase value per receipt must meet the threshold set by the ITA (periodically updated, check misim.gov.il for the current figure), the goods must be taken out of Israel unused, and the refund claim must be submitted at the approved exit point before departure. The tourist receives a refund form from the shop at the time of purchase. At the border crossing or airport, the tourist presents the goods, the form, the original receipt, and their passport. The VAT refund, less an administrative handling fee charged by the refund operator, is credited to the tourist’s credit card or paid in cash. Hotel accommodation, meals, car rental, and services consumed inside Israel are not eligible for the refund because they are not exported goods. The refund applies only to tangible goods removed from Israel.