Israeli VAT Reporting

Step 1: Determine Business Type and Reporting Frequency

Ask the user about their business registration:

Monthly reporting: Annual turnover > 1.5M NIS Bi-monthly reporting: Annual turnover < 1.5M NIS

Step 2: Collect Transaction Data

For the reporting period, gather:

• Sales (output): All invoices issued with VAT amounts
• Purchases (input): All purchase invoices with VAT amounts
• Special transactions: Exports (zero-rated), exempt services, fixed asset purchases

Step 3: Calculate VAT Liability

Output VAT (mas etzot)    = Sum of VAT on all sales invoices
Input VAT (mas tsmachot)  = Sum of VAT on deductible purchase invoices
Net VAT                   = Output VAT - Input VAT

If Net > 0: Business owes SHAAM (payment due)
If Net < 0: SHAAM owes business (refund claim)

Input VAT deduction rules:

• Only from valid tax invoices (hashbonit mas) with seller's TIN
• Vehicle expenses: 2/3 deductible (1/3 non-deductible for private use)
• Entertainment: NOT deductible
• Mixed business/personal: Proportional deduction only

Step 4: Fill Form 874 Fields

Map calculated values to form fields:

• Field 1: Total sales (including VAT)
• Field 2: Zero-rated sales (exports)
• Field 3: Exempt sales
• Field 4: Total output VAT
• Field 5: Total purchases (including VAT)
• Field 6: Input VAT claimed
• Field 7: Net VAT (Field 4 - Field 6)
• Field 8: Adjustments (if any)
• Field 9: Amount to pay / refund

Step 5: Validate and Submit

Before submission, verify:

1. All sales invoices accounted for (cross-reference with e-invoice allocation numbers)
2. Input VAT claims supported by valid tax invoices
3. Correct reporting period selected
4. Deadline not passed (15th of following month)

Filing options:

• SHAAM online portal: https://www.misim.gov.il
• Accountant submission via SHAAM API
• Paper form (being phased out)

Example 1: Monthly VAT Report

User says: "Help me prepare my VAT report for January 2026" Actions:

1. Determine: Monthly reporter (turnover > 1.5M or company)
2. Collect: January sales and purchase invoices
3. Calculate: Output VAT 34,000 - Input VAT 22,000 = Net 12,000 NIS owed
4. Prepare: Form 874 with all fields mapped
5. Guide: Submit via SHAAM portal by February 15th Result: Complete VAT report ready for filing

Example 2: Bi-monthly Report with Exports

User says: "I need to file my VAT for November-December, I had some exports" Actions:

1. Determine: Bi-monthly reporter
2. Identify: Export sales are zero-rated (0% VAT, but still reported)
3. Calculate: Domestic output VAT - Input VAT = Net
4. Note: Exports reported in Field 2, no VAT but supports input VAT recovery Result: VAT report with zero-rated export handling

Scripts

• scripts/calculate_vat.py — Computes net VAT liability from sales (output) and purchase (input) records, applies Israeli deduction rules for non-deductible and partially deductible expenses, and maps results to Form 874 fields. Run: python scripts/calculate_vat.py --help

References

• references/vat-regulations.md — Summary of Israeli VAT law including current and historical VAT rates, registration types (Osek Morsheh, Osek Patur), and filing obligations. Consult when verifying VAT rate or registration rules.
• references/reporting-calendar.md — Filing deadlines for monthly and bi-monthly VAT reporters, including the 15th-of-following-month rule. Consult when determining reporting period and deadline for a specific month.
• references/special-cases.md — Rules for zero-rated transactions (exports, tourism, Eilat zone), exempt transactions (financial services, residential rent), and the distinction between zero-rated and exempt for input VAT recovery. Consult when handling exports or unusual transaction types.

Error: "Reporting period mismatch"

Cause: Submitting for wrong period (e.g., single month when registered as bi-monthly) Solution: Check business registration. Bi-monthly periods: Jan-Feb, Mar-Apr, May-Jun, Jul-Aug, Sep-Oct, Nov-Dec.

Error: "Input VAT not deductible"

Cause: Claiming VAT from non-deductible expenses (entertainment, non-business) Solution: Review deduction rules in Step 3. Only business expenses with valid tax invoices qualify.

Error: "Late filing penalty"

Cause: Filing after the 15th of the following month Solution: File immediately. Late penalty is 0.25% of net VAT per week of delay, plus linkage differentials.