Israel’s clearance regime: Full steam ahead despite challenges

This article was last updated on June 2, 2026, to reflect the final threshold reduction that took effect on June 1, 2026, and to include new data released by the ITA quantifying the scale of tax avoidance resulting from the clearance threshold in 2025.

Israel’s journey towards implementing a comprehensive clearance regime concluded significantly faster than initially anticipated. With the final NIS 5,000 threshold now active (since June 1, 2026), the country has successfully passed all of its major milestones. Despite the complexities and challenges inherent in such an ambitious project, the Israeli Tax Authority (ITA) successfully completed its accelerated timeline, and the full CTC mandate is now in operation since June 2026.

Israel’s e-invoicing pilot phase completed

Israel's e-invoicing pilot phase, which ran from May to December 2024, was successfully completed. That initial phase targeted invoices exceeding NIS 25,000 (~EUR 6,100) and served as a crucial testing ground for both the ITA and businesses. During that period, the ITA assessed the system’s functionality, gathered feedback from participants, and made any necessary adjustments before the regime's broader application.

To comply, businesses were required to ensure that their invoicing systems were capable of generating and transmitting invoice data in real-time. Upon submission, the ITA provides an allocation number, which must be included on the final invoice and in the VAT report. While the seller performs the real-time request, the number is essential for the buyer to claim input VAT deductions. Failure to meet these requirements could result in delays or rejection of invoices, impacting cash flow and compliance status.

Full implementation of e-invoicing

The Israeli Tax Authority (ITA) officially confirmed the accelerated completion of its CTC rollout. The new timeline, first announced in March 2025, was formalized with the publication of VAT Execution Directive 01/2025 on December 7, 2025.

Following the successful completion of the pilot phase (NIS 25,000) and the first mandatory phase (NIS 20,000), the e-invoicing regime has now reached its full scope. The mandatory invoice value threshold decreased to NIS 10,000 before VAT on January 1, 2026 (advancing the original 2027 plan), and the final acceleration point saw the threshold further decrease to NIS 5,000 before VAT on June 1, 2026 (advancing the original 2028 plan).

This means the full scope of compliance is now active, requiring all relevant businesses to be fully integrated. Reviewing and ensuring your invoicing systems are scalable and flexible enough to handle the current volume of e-invoices remains a critical priority.

Full implementation timeline overview (all values excl. VAT)

• Pilot phase: May 2024 – December 2024 (invoices above NIS 25,000)

• Mandatory phase 1: January 1, 2025 (invoices above NIS 20,000)

• Mandatory phase 2: January 1, 2026 (invoices above NIS 10,000)

• Mandatory Phase 3 (final): June 1, 2026 (invoices above NIS 5,000)

New 2026 ITA study: data confirms evasion and reinforces urgency

A study released by the Israel Tax Authority on June 2, 2026, coinciding with the final threshold drop to NIS 5,000, provides a stark validation for the accelerated clearance regime. The study quantifies the scale of artificial transaction splitting - a major tax avoidance tactic that emerged specifically to circumvent the e-invoicing system’s clearance requirement. This practice involves unlawfully breaking up a single large transaction into multiple smaller invoices to intentionally duck below the legal financial threshold (NIS 20,000 in 2025) and avoid the mandatory requirement of obtaining a real-time allocation number from the ITA.

The key findings, based on 2025 data, are crucial:

• Scale of evasion: The study found that an estimated NIS 12.2–16.4 billion in transactions were artificially diverted below the NIS 20,000 clearance threshold in 2025. This scale of diversion was statistically confirmed by comparing the volume of sub-threshold transactions in 2025 (after the clearance system was active) against the corresponding pre-mandate data from 2021–2023.

• Revenue loss: This large-scale splitting of transactions resulted in an estimated VAT revenue loss of approximately NIS 2.2–3 billion for the state treasury.

• Sector focus: Roughly 45% of the total estimated tax loss (or approx. NIS 1–1.3 billion) was attributed to the construction sector, providing evidence of a substantial black economy in that area.

• Sharp increase just below threshold: The data highlights a sharp increase in invoices just below the former NIS 20,000 threshold, confirming that businesses were artificially splitting transactions to avoid the mandatory allocation number requirement.

• Evasion behavior confirmed: The data explicitly shows a sharp increase in invoices ranging from NIS 15,000 to NIS 20,000 - a clear indication that businesses were intentionally splitting transactions to land just below the mandatory clearance limit.

• Future policy consideration: The study concludes that, given the scale of the phenomenon even near the NIS 20,000 mark, the ITA may need to consider requiring Israel Invoice approval from the first shekel to fully eliminate transaction splitting.

Technical updates and industry collaboration

A key obligation under the new regime is the real-time integration of business systems with the ITA’s Sherut HaMihshuv HaAutomati (SHAAM) - the Automated Processing Service - e-invoicing platform. Businesses (sellers) must connect their accounting software via API or the ITA’s online identification system to request 9-digit allocation numbers before issuing invoices exceeding the thresholds.

This clearance step is performed by the seller, but the subsequent allocation number is essential for the buyer to claim input VAT deductions, making compliance a critical, shared obligation that affects the legal validity of the invoice for both parties.

In response to feedback from software providers and businesses, the ITA has released a number of updates to the "Israel Invoice Model Description - API's" document with detailed integration guidelines, including:

• Allocation number requests via API, online application, or integrated accounting software;

• The real-time ITA review process with formal rejection handling, hearings, and appeals; and

• Data transmission protocols and error resolution procedures.

These clarifications address practical implementation challenges, ensuring smoother technical rollout across the ecosystem.

Key operational details from the VAT Execution Directive 01/2025

Officially published on December 7, 2025, VAT Execution Directive No. 01/2025 formalizes the accelerated timeline and provides essential operational clarifications for businesses. In addition to confirming the new thresholds (NIS 10,000 from January 1, 2026, and NIS 5,000 from June 1, 2026), the Directive addresses important procedural aspects of the clearance system:

• VAT deduction requirement: The Directive confirms that while the seller performs the real-time allocation number request, the number itself is mandatory for VAT-registered dealers (the buyer) to claim an input VAT deduction for invoices above the threshold.

• Verification process: Recipients can verify the allocation numbers via the ITA’s official portal or API, which allows for better integration into Accounts Payable systems.

• Special cases and appeals: The document provides detailed rules for managing special circumstances. These include what happens when an allocation number is refused, acceptable alternatives, the seller's right to appeal the decision, and the consequences for the buyer if the seller fails to request the required number.

Invoice distribution and record-keeping responsibilities

Once an invoice has been approved and the allocation number has been received, businesses must include this number on the invoice and distribute it to the relevant parties. However, even with the shift to a clearance model, the obligation to maintain proper records remains. Invoices must still be distributed in PDF format (with a digital signature) or on paper to ensure that all documentation is compliant with existing regulations.

Stay informed with Banqup

With the formal rollout complete, our focus shifts to monitoring the ongoing evolution of Israel's tax landscape. We are committed to keeping you informed of any significant developments, particularly any official response from the ITA regarding the recent study's finding that suggests requiring approval from the first shekel.

For those operating in Israel, the ITA's latest data on transaction splitting makes it clearer than ever that ensuring your business is fully prepared for the NIS 5,000 threshold, now active, remains a critical priority.

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