Taxation Of E-Commerce: Israeli Tax Authority Issues New Circular

Author:Barnea & Co
Profession:Barnea & Co

A few weeks ago, the ITA published a new circular which provides guidelines for the taxation of foreign corporate entities operating in Israel via the internet. These guidelines are based on the BEPS (Base Erosion Profit Shifting) project of the G20 and the OECD. According to the circular, corporate entities that operate an online business without having any physical presence in Israel could still be considered as having a permanent establishment or conducting business activity in Israel, if they have a significant digital or economic presence in Israel.

The circular sets certain characteristics to determine the existence of such digital or economic presence by the foreign corporate entity, of which we note, inter alia, the following:

a significant number of transactions or agreements are conducted with Israeli residents; the services provided are consumed online by many customers in Israel; the online service is tailored for Israeli customers or users (e.g., use of Hebrew, style, charging customers in Israeli currency, processing Israeli credit cards etc.). a high level of use of the website by Israeli users; a tight link...

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