The Israel Tax Authority, ITA, introduced Allocation Numbers מספרי הקצה for Tax Invoices with VAT as of May 5, 2024. The project is referred to as the Israel Invoice חשבונית ישראל.
The ITA scheduled the minimum amount requiring an Allocation Number to be ₪25,000 before VAT for 2024. The Schedule has this amount reduced each year by ₪5,000 until 2028.
Year 1 | 2024 | ₪25,000 |
Year 2 | 2025 | ₪20,000 |
Year 3 | 2026 | ₪15,000 |
Year 4 | 2027 | ₪10,000 |
Year 5 | 2028 | ₪5,000 |
The overall purpose of this new regulation was to improve the effectiveness of the ITA in combatting fraud through fictitious invoices. The ITA estimates the cost to the Israeli economy of fictitious invoices to be upwards of 2.5 billion Shekels.
Following a successful trial period where the Israeli Invoice has helped the ITA in discovering hundreds of millions of Shekels in fraud, the ITA has upgraded the system to include a rejection of Invoices for cause--the 460 Error.
The Israel Invoice version 1, saw invoices not receiving an Allocation Number due to procedural issues, or incorrect data. Version 2, which started on January 1, 2025, saw the introduction of what is known as the 460 Error. The 460 error will also result in the Invoice not receiving an Allocation Number, but the reason is far more serious. This error means that either the supplier creating the AR invoice or the customer receiving the supplier’s invoice is under suspicion by the Tax and/or VAT authorities.
The solution to the 460 error is not to simply correct some data. The supplier is given four courses of action in order to be compensated for the sale of their goods or services:
1. Cancel
2. Continue
3. Reversal
4. Request a hearing
If options 1, 2 or 3 are chosen, the supplier may also request a hearing.
1. Cancel-- This results in the cancellation of the invoice through standard procedures. The Supplier may request a hearing up till such time as the Invoice and the Credit Note have been fully registered in the system. Having chosen this option, the Supplier should not include either the Invoice or its Credit Note in the PCN874 VAT file.
2. Continue-- The invoice will be completed but without an Allocation Number. The Supplier will ensure that the following sentence “No input tax should be deducted for this invoice” is printed clearly on the Invoice. The vendor may also request a hearing, even retroactively, and if successful, will recreate this invoice using the same Invoice ID as the original Invoice. Depending on the bookkeeping software being used, the Invoice Reference number may or may not be the same as the original invoice. This Invoice will receive an Allocation Number and Input VAT as the tax may be deducted.
3. Reversal--The supplier will communicate with the customer to accept the payment of the tax ("reversal of the charge"). Providing that the customer is a licensed dealer, the following is the order of actions in such a case:
a. The Supplier in the transaction will request a special allocation number for "reversal of the charge” and will generate an invoice at a zero VAT rate and report it to VAT in the PCN874 submission.
b. The customer in the transaction will issue a Self-Invoice using the allocation number given to the Supplier for the zero VAT and then report and pay the VAT. The customer may deduct the input tax to the extent permitted by law.
4. Request a Hearing-The invoice is held in abeyance, and the Supplier sends a Request for a Hearing using the relevant API. On submitting and receiving a date for the hearing, the supplier will provide all relevant information to the ITA. The hearing will be held online. Should the hearing be successful, the Supplier will generate the Invoice a second time to receive an Allocation Number.
We at Alfasi have been in constant contact with the ITA while developing the solution of the 460 Error options for the JD Edwards EnterpriseOne ERP system. If you have any questions, please use the Contact Us form or email us at contact@alfasiisrael.com and we will be happy to address your questions.