What is VAT Reporting?

What is VAT Reporting and Why is It Important?

VAT reporting is the submission of a periodic report to the Tax Authority in which you report VAT (Value Added Tax) transactions you conducted during the period. This reporting is a legal obligation for authorized businesses and certain exempt businesses, and its purpose is to maintain tax transparency and economic order in Israel.

Every business required to file VAT reports must submit a report detailing the amount of VAT collected from customers, the VAT paid on purchases and services rendered, and the difference between the two. This report also serves to calculate the VAT debt or refund owed to the Tax Authority.

VAT reporting is done through a secure system of the Tax Authority, and some businesses use the assistance of a certified public accountant or accounting software to manage the process. Ben Or Kook Certified Public Accountants guides businesses through all stages of reporting and ensures timely and accurate filing.

Who is Required to File VAT Reports?

Not every business is required to file VAT reports. Generally, authorized businesses (with annual income exceeding a certain threshold) are required to file regular reports. Businesses exempt from VAT reporting are those operating in certain fields, such as healthcare services, education, or property tax, or businesses whose income is below the established threshold.

However, even an exempt business can choose to be authorized for VAT deduction purposes on its purchases, which requires filing reports. Limited liability companies, associations, and other public entities may also be required to file VAT reports under certain conditions.

Determining whether you are required to file VAT reports depends on the type of business, its size, and Tax Authority guidelines. Ben Or Kook assists in determining your legal status and guides you through the correct reporting process.

VAT Reporting Frequency — How Often Per Year?

VAT reporting frequency is determined according to the type of business and the size of its income. Generally, authorized businesses file VAT reports at the following frequencies:

• Monthly reporting: Businesses with high income or those operating in certain fields report their total VAT every month.
• Bimonthly reporting: Some businesses report every two months, in accordance with Tax Authority guidelines.
• Other periodic reporting: In certain circumstances, businesses may report at other frequencies, such as quarterly.

In addition to periodic reporting, every authorized business must submit an annual VAT report at the end of its fiscal year. This report summarizes all transactions for the year and creates a final record for the Tax Authority.

Failure to report on time or submitting an incorrect report can result in monetary penalties and other issues. Therefore, it is important that businesses know their reporting frequency and plan their accounting management accordingly.

How VAT Reporting Works — Steps and Process

VAT reporting includes several basic steps that every business owner should be familiar with:

Step 1: Gathering Transaction Data

During each reporting period, you must collect all relevant documents: invoices you issued (with VAT you collected), invoices received from suppliers (with VAT you paid), and any other accounting document related to VAT transactions.

Step 2: VAT Calculation

After gathering the data, you must calculate the amount of VAT you collected from customers and the difference between this and the VAT you paid on expenses. This difference is the VAT you must report and pay (or refund) to the Tax Authority.

Step 3: Filing the Report

VAT reporting is submitted through the Tax Authority website via a secure system. Most business owners use accounting software or the help of a certified public accountant to submit the report accurately and on time.

Step 4: Payment or Refund

After filing the report, if there is a VAT debt, you must pay the Tax Authority within the prescribed deadline. If there is a credit (meaning you paid more VAT than you collected), you can claim a refund or carry it forward to the next period.

What is Included in a VAT Report?

A typical VAT report includes the following details:

• VAT Collected: The monetary amount of VAT you collected from customers on sales and services provided.
• VAT Available for Deduction: The monetary amount of VAT you paid on purchases, expenses, and services received.
• The Difference (Debt or Credit): The difference between the VAT collected and the VAT available for deduction.
• Business Details: Name, ID number or business number, and address.
• Period Dates: The dates to which the report pertains.

An accurate and timely report ensures there are no problems with the Tax Authority and allows the business owner to manage their finances efficiently.

Comparison Table: Different VAT Reporting Scenarios

To better understand how VAT reporting works in practice, let us examine several common scenarios:

As can be seen in the table, the outcome of VAT reporting depends on the difference between the VAT collected and the deductible VAT. In some cases, the business is required to make a payment; in other cases, the tax authority is required to issue a refund.

Rights and Obligations in VAT Reporting

Obligations of the Business Owner

Every business owner required to file VAT reports must:

• Submit a VAT report on time, at the required frequency (monthly, bimonthly, or other frequency).
• Retain all accounting documents (invoices, receipts, expenses) for a period of at least six years.
• Ensure the accuracy of the data in the report and avoid errors or fraud.
• Pay the VAT debt within the set deadline, or submit a request for extension if necessary.
• Update the Tax Authority of any changes in your business details or tax status.

Rights of the Business Owner

On the other hand, registered business owners also enjoy certain rights:

• VAT deduction on all purchases and expenses related to the business, provided that proper invoices are available.
• Refund of VAT if the amount of deductible VAT exceeds the amount of VAT collected.
• Submission of a request to correct an incorrect report, subject to certain conditions.
• Receipt of advice from the Tax Authority or from an accountant regarding your tax obligations.
• Possibility to choose a different reporting frequency, under certain circumstances.

Risks of Non-Filing or Incorrect Filing

Late filing or submission of an incorrect report can lead to serious consequences:

• Financial Penalties: The Tax Authority may impose fines on the business owner for non-filing or incorrect filing.
• Interest: If there is unpaid VAT debt, interest will be added to the debt.
• Inspection and Audit: The Tax Authority may open an investigation or audit in cases of suspected non-filing.
• Legal Consequences: In extreme cases of fraud or deception, criminal charges may be filed.

How Can Ben Or Kok Accountants Help With Your VAT Reporting?

Ben Or Kok specializes in assisting business owners, self-employed professionals, and companies with all aspects of VAT reporting and accounting management. The firm offers personalized and digital services tailored to each client's specific needs:

• Comprehensive Accounting Management: We manage all your accounting documents, from invoices and receipts to complete financial reports.
• Timely VAT Reporting: We ensure your VAT reports are submitted on time and with accuracy, at the required frequency.
• Tax Planning: We assist with tax planning to reduce your tax burden and ensure you pay only what you owe.
• Professional Consultation: The Ben Or Kok team is available to answer questions regarding your tax obligations and help you understand your reporting requirements.
• Annual Reports: We prepare accurate financial statements and annual VAT reports for the end of your fiscal year.

Ben Or Kok works with exempt businesses, licensed businesses, private companies, nonprofits, e-commerce business owners, startups, and new immigrants requiring international taxation services. The firm is located in Petach Tikva and Ramat Gan and also offers digital services for remote clients.

Your first meeting with Ben Or Kok is complimentary, allowing you to get to know the firm and discuss your business needs. We believe in providing dedicated and personalized service, and that is exactly what we deliver to every client.