Israel’s Compliance vs Audit: What You Need to Know

As Israel prepares for its new Continuous Transaction Controls (CTC) clearance mandate, set to take effect on May 5, 2024, businesses are facing a critical decision: compliance versus audit. In this article, we’ll delve into the intricacies of CTC clearance and electronic invoicing in Israel, exploring the benefits and risks associated with each approach.

Compliance: The New Reality

Starting next year, authorized dealers (taxpayers) will need to clear invoices above a threshold of NIS 25,000 (before VAT), obtaining an allocation number from the Israeli Tax Authority’s SHAAM system. This new requirement is part of Israel’s efforts to combat fraudulent invoices and ensure tax compliance.

Audit: The Post-Audit Approach

While electronic invoicing is not mandatory in Israel, businesses can still opt for e-invoicing as a way to streamline their operations and reduce costs. However, this approach comes with its own set of challenges, including the need for digital signatures and prior notification to the tax authority.

Benefits of E-Invoicing

Despite the extra effort required, e-invoicing offers numerous benefits, including:

• Cost savings
• Reduced manual labor
• Fewer issues and risks through data validation and authentication
• Interoperable, uniformed initiatives and systems for streamlined operations and improved efficiency

The Future of E-Invoicing in Israel

While the CTC clearance mandate does not require electronic invoicing, there is potential for Israel to follow the lead of countries like Romania and Spain, mandating e-invoices across transactions with governments and businesses. For now, however, businesses can choose to opt-in to e-invoicing on a voluntary basis.

Consequences of Non-Compliance

For those who fail to comply with the CTC clearance mandate, the consequences are severe:

• Buyers cannot deduct their VAT based on invoices without an allocation number
• Businesses must understand the implications of non-compliance and take steps to ensure they meet the new requirements

Getting Started with E-Invoicing in Israel

For those looking to set up e-invoicing in Israel, Sovos offers a range of solutions designed to help customers stay on top of their obligations. From continuous transaction controls software to expert guidance on compliance, Sovos is dedicated to helping businesses navigate the complexities of CTC clearance and electronic invoicing.

Conclusion

As Israel prepares for its new CTC clearance mandate, businesses must carefully consider their options: compliance versus audit. By understanding the benefits and risks associated with each approach, businesses can make informed decisions about how to stay compliant in a rapidly changing regulatory landscape.