Israel’s VAT Tax [fraud]

In Israel, one of the powerful sales techniques used among higher-end souvenir shops is telling the tourist they will receive a “VAT refund at the airport.”

VAT stands for Value Added Tax, which currently is 16%. The VAT is what most of my readers would know as sales tax, and is added to every transaction that involves money.  However, certain services and items related to tourists are exempt from VAT, if the proper procedures are followed.

In the tourist trade, vendors who are appropriately recognized by the government offer a special receipt that allows the buyer to “get [their] VAT back” for each item they take out of the country. However, this only occurs if:

  1. a certain purchase threshold is met, and 
  2. if the shop is certified, and
  3. if the shop actually provides the appropriate form to the buyer, and
  4. the buyer shows the item at the VAT desk at the airport.

Up to this point, everything seems more or less reasonable. It’s a hassle, and some buyers don’t know the rules, or don’t receive the proper form, but it’s pretty nice to get 16% of the purchase price back.

The process is as follows:

  1. Shop in properly certified shops, which will have a green VAT REFUND logo.
  2. Purchase enough goods at the same time to meet the spending threshold. (I’ve heard different numbers, beginning at $100.)
  3. Get the proper form and keep the receipts.
  4. Do not pack the Duty Free item until it is presented to the VAT clerk located inside the departure hall, prior to the first security checkpoint. After the clerk verifies the item and stamps the form, the item may be packed in checked luggage or hand carried. Jewelry is verified only beyond passport control at the Change Place VAT desk in Duty Free. 
  5. After passing all security checks and passport control, present VAT refund forms at the Change Place VAT desk in the Duty Free hall.
  6. Receive a 16% rebate on your purchase(s) in dollars or shekels. I’ve been told that you can receive the refund via credit card also, but it takes up to three months.
  7. Fly home happy with your purchase(s) and the extra money in your pocket.

Sounds easy enough. And it is, as long as you follow the procedure exactly. However, there is one catch: At step 6, don’t expect to get 16% as you were told by the sales clerk because there is a hefty commission of 20%, which brings the actual refund to 12.8%.

I’ve been told there is a sliding commission scale, depending on how much VAT has been paid. Unfortunately, the Change Place website provides no such information. So, BUYER BEWARE! If you’re budget is dependent upon the VAT REFUND, you need to recalculate what you can afford to spend.

Comments

  1. Craig – this is a very helpful resource. Thanks for going to the trouble to spell it all out.

  2. Thanks, Todd. Your next group will likely benefit from this more than your student groups.

    I’m working on a post about rental phones that might also be of interest to members of your group.

  3. Anonymous says:

    If you bothered doing a bit more research, you’d find there there ARE indeed lists of commission rates available, although they are – as so many other things in this region of the world, not where you’d expect to find them. The information at “http://www.milgam.com/eng/page.php?instance_id=3&actions=show&id=60” is not up to date and I don’t have the time to find the recent numbers atm, but rest assured, they’re out there 🙂

  4. Ok, I found info that is more up-to-date:
    (From http://www.israel-travel-tips.com/en/101/General%20Info/FAQs/Israel%20VAT%20Refund )
    Sorry if the formatting is off…

    16.5% VAT
    1. column Amount of purchase(in $ with VAT)
    2. column Amount of the VAT in the purchase(in $)
    3. column The commission rate in each amount (%)

    100-150 15.25-22.88 15
    151-250 23.03-38.13 13.5
    251-550 38.28-83.88 10.5
    551-1,000 84.03-152.5 8.1
    1,001-2,000 152.65-305.00 7.2
    2,001-4,000 305.15-610.00 6.3
    4,001-7,000 610.15-1,067.50 5.4
    over 7,000 1,067.50-152,500.00 4.8

    The only oddity I can see is the center column stating 15,25% and not 16,5%

  5. Anon/Rube is correct that more information is now available.

    This post is almost 1 year old, and shortly after it was published the handling of the VAT refund was changed to the Postal Service/Milgrim Svcs.

    Here’s the link to the Postal Service announcment – http://www.israelpost.co.il/content.nsf/pages/vat_refund?OpenDocument .

    I will need to update this information, which will be done after I walk through the process myself in March.

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