The Future of E-Invoicing in Israel: Trends and Predictions

E-invoices are changing the way business is done globally. A correctly implemented e-invoicing system makes it easy to generate and share invoices, brings transparency, and prevents tax evasion.

It's no wonder that electronic invoicing systems are gaining widespread acceptance in several countries.

Israel is one of the latest entrants to the e-invoicing club. The Israeli Tax Authority plans to introduce e-invoicing for certain B2B transactions beginning May 2024. During the initial rollout, businesses will be mandated to issue e-invoices for B2B transactions over 25,000 shekels.

The Tax Authority has decided to implement the e-invoicing mandates in phases. The government plans to achieve a 100% electronic invoicing system by January 2028. Consequently, it is essential for every business, big or small, to start preparing for the shift.

Let’s discuss these mandates in more detail and try to understand how you can prepare your business for the imminent change.

Is e-invoicing mandatory in Israel?

E-invoicing for B2B transactions above NIS 25,000 (approximately $6,211) will be mandatory in Israel starting May 5, 2024. While the mandate was supposed to begin in January 2024, it was delayed to May this year.

Once implemented, you must issue an electronic invoice for all B2B transactions if they exceed the indicated amount.

The national electronic invoicing system will be rolled out in phases based on the invoice's value.

These mandates will affect all registered businesses that deduct input VAT. However, B2G and B2C invoices are not included, and you can issue paper invoices for those transactions for the time being. Cross-border invoices are also excluded from the current rollout.

E-invoicing implementation timeline in Israel

The Tax Authority has opted for a strategic and planned implementation of the electronic invoicing mandate in the country. The timeline for the mandates is as follows:

May 5, 2024: All B2B invoices issued within the country and exceeding NIS 25,000 (approximately $6,211) must be electronic.
January 1, 2025: Invoices exceeding NIS 20,000 must be e-invoices.
January 1, 2026: Invoices over NIS 15,000 must be electronic.
January 1, 2027: All B2B e-invoicing over NIS 10,000 must be electronic.
January 1, 2028: Using the e-invoicing system will be mandatory for all B2B invoices above NIS 5000 sent within Israel.

The progressive reduction in the invoice value threshold indicated that the country is committed to ushering in the digital era of invoicing.

While there is no news on any plans to bring the system to B2G or B2C transactions just yet, the success of this initial phase will determine if and when it is implemented.

The Israeli business community is generally enthusiastic about this step. It will bring transparency to business-to-business transactions, enhance efficiency, and improve fiscal governance.

Requirements for e-Invoicing in Israel

Like most governments that have shifted to electronic invoicing, Israel has also outlined a set of standards that all businesses must meet in order to issue compliant e-invoices.

Here is what you will need to create, share and file e-invoices in the country:

Invoice format

The Israeli Tax Authority will only accept electronic invoices in the correct format.

For now, the approved formats include XML (eXtensible Markup Language) or PDF/A-3 (Portable Document Format/Archive version 3).

These formats ensure that the invoices you issue today will look the same in the future, maintaining the integrity of the records.

Information required on the invoice

To be compliant with the tax authority, all the invoices you generate must contain some specific information, including:

Unique invoice number: To eliminate duplicates and facilitate tracking, every invoice issued must have a unique number assigned to it.
Transaction date: The invoice in electronic format must clearly state the date of its issue and generation.
Description of goods/services: An invoice must include every product or service you provided or delivered. This is to avoid any ambiguity for you and the audit agencies.
Quantity: The quantities of items on your invoices should also be well indicated by the item’s number.
Unit prices: Each e-invoice should also contain the cost of every item or service rendered.
Total amount payable: The final invoice amount payable should contain a breakdown of taxes, discounts and other applicable charges.
VAT details: All VAT-registered businesses must add VAT details to the invoice, including the rate and total input VAT applied.

Any electronic invoice that does not have one or more of these details will not be compliant, and you can’t issue such an invoice.

Allocation number

For every invoice you generate via API or the government's tax portal, you will need to request a unique allocation number from the tax authority.

The number will act as a unique identifier for the invoice. To get this number, your e-invoice must be formatted appropriately and have all the details filled out.

Digital signature

The digital signature is one of the most critical aspects of your compliant electronic invoice. It ensures that the invoice you issue is secure and authentic.

The Tax Authority should authenticate the digital signature attached to electronic invoices. The authenticity of the e-sign will be verifiable, and the digital certificate will be issued in due course.

As a business, you are responsible for integrating e-signature technology into your B2B e-invoicing platform. The digital certificates issued to validate your e-signature have a validity period, after which you must renew them.

Real-time reporting

Another prerequisite for issuing an invoice in Israel is real-time reporting to the tax authorities. You must share the tax invoice you generate with the Tax Authority in real-time. This provision aims to improve tax compliance and keep the transactions as transparent as possible.

The Israeli government plans to implement a Continuous Transaction Control (CTC) with a centralized clearance model to ensure that each invoice generated is approved and assigned a unique allocation number immediately.

These steps will prevent double entries and illegal invoices and streamline the process.

Archiving

The mandates also indicate that you must maintain the records of every electronic invoice you generate for at least seven years in a secure archive.

In case of an audit, you will be responsible for furnishing the details of the tax invoices so the authorities can cross-verify them.

The tax authority is encouraging businesses to upgrade their accounting software and systems to comply with these new requirements.

With the new mandates right around the corner, Storecove can help you set up the infrastructure to become e-invoice-ready. Schedule a consult with one of our e-invoicing experts to get started.

How does e-invoicing work in Israel?

The Israeli Tax Agency regulates B2B e-invoicing in Israel. To send an electronic invoice, here are the steps you must follow:

Create an invoice

The first step is to create an invoice in the proper format (XML or PDF/A-3). You also need to ensure that it has all the necessary information, including a unique invoice number and details of the goods/services.

Apply digital signature

The next step involves applying the digital signature to validate the invoice. You must ensure that your e-signature certificate is in good standing and approved by the Israeli authorities.

Transmit it to the customer

Once you transmit the transaction details to the Tax Authority and the invoice gets the unique identifier (allocation number), you are ready to communicate it to the customer.

You can do it using several secure means, including email, a dedicated B2B e-invoicing platform, or business management software that supports mandatory e-invoicing.

Benefits of e-invoicing in Israel

E-invoicing offers several benefits to businesses and governments. Some of the key benefits that this new system is set to bring to Israel include the following:

Cost savings

One of the most significant advantages of an e-invoicing system is eliminating paper, printing, processing, and postage costs. There is no need to print a hard copy of the invoice, and businesses can save a lot of time, money, and resources with this.

Improved efficiency

Paper invoices often take a long time to process, delaying payments and hampering cash flow. With the new e-invoicing system's real-time reporting, you can process your invoices faster, resulting in quick payments.

Reduced errors

Another huge advantage of an electronic invoicing regime is that it can help you reduce manual errors. The system has several security checkpoints, so the likelihood of a manual error passing through is much lower.

Data entry automation

With e-invoicing, you can set up your system so that most of the data entry becomes automatic, further reducing errors. As every step of the process needs independent validation, the chance of a mistake is significantly low compared to manual data entry using paper invoices.

Tax compliance

As businesses must share their taxable invoices with the tax authority in real time, fictitious invoices and tax evasion will be drastically reduced.

Takeaway: Get ready for the new era of e-invoicing in Israel

The transition toward e-invoicing marks a significant step toward digitizing Israeli businesses. It will simplify financial transactions between companies and improve the ease of doing business in the country.

Businesses must invest time and resources into developing a robust e-invoicing infrastructure as the mandates are set to expand to more transactions over the years. As you adapt to these changes, you will benefit from improved efficiency, reduced paperwork and enhanced security measures.

Stay ahead of your competition and ensure seamless e-invoicing with Storecove. We specialize in optimizing e-invoicing infrastructure and meeting all regulatory requirements. Don’t let compliance worries slow you down; partner with Storecove for tailored electronic invoicing solutions. Contact us today for more information.

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