How a French Company Registered for Israeli VAT and Appointed a Section 60 Representative

Result: Foreign company VAT-registered, Section 60 representative appointed, and over-withholding stopped · Timeline: File opened in 4 weeks, withholding certificate in 8 · Challenge: A foreign firm carrying on business in Israel without a VAT registration · Authority: Israel Tax Authority, VAT Department (Mas Erech Musaf) · Financial Impact: NIS 864,000 in output VAT regularized; cash-flow hit from 30% withholding reversed

Background

A mid-sized engineering company headquartered in Paris won a contract to install and commission specialized production equipment at a manufacturing plant in central Israel. The work was scheduled to run about eight months on site, with French technicians rotating in and out, and a contract value of roughly EUR 1.2M, around NIS 4.8M at the rate at signing.

The company's finance team treated it the way they treated any export. They invoiced from France, applied the usual French VAT export treatment, and assumed that was the whole tax picture. It was not. The first sign of trouble came when the Israeli client deducted a large slice of the first progress payment as withholding tax and asked the French company for an Israeli VAT invoice the company had no idea it was supposed to issue. The Paris controller called us asking why an Israeli customer was withholding tax from a French supplier, and whether it could be undone.

The Challenge

A foreign company does not get to decide it has no Israeli tax footprint simply because it has no Israeli office. The trigger is activity, not address. Under Section 60 of the Value Added Tax Law 5736-1976, a foreign resident who carries on business or activity in Israel must, within thirty days of starting, appoint a representative whose permanent place of residence is in Israel and notify the Director of VAT, attaching the representative's written consent. An eight-month installation project performed physically on Israeli soil is exactly that kind of activity. The company should have registered before the first technician landed.

The representative requirement is unusual and it scares people once they understand it. The Israeli representative is not a mailbox. Section 60 provides that the representative is treated, for VAT purposes, as the person liable to tax, which means joint and several liability for the foreign company's Israeli VAT. Finding a qualified person or firm willing to stand behind a foreign company's tax bill is not trivial, and it is the step most foreign businesses stumble on.

Two further problems were already running. First, every supply the company made in Israel should have carried Israeli VAT, charged at the standard rate of 18 percent, and none had. On a NIS 4.8M contract that is roughly NIS 864,000 of output VAT that needed to be regularized and invoiced to the client, not absorbed as a loss. Second, because the company was an unregistered foreign supplier, the Israeli client was correctly withholding tax at source from its payments at the default rate, which on cross-border payments to a foreign resident without a certificate can reach 30 percent. That was draining the company's cash flow on a project whose margin did not have 30 percent to spare.

In Practice: Under Section 60 of the Value Added Tax Law 5736-1976, a foreign resident carrying on business in Israel must appoint an Israeli-resident representative within 30 days and register for VAT, with the representative treated as the taxable person and bearing joint and several liability. Registration is opened by filing Form 22 (foreign trader VAT file) with the Israel Tax Authority's VAT Department (Mas Erech Musaf), and the file is typically active within 3 to 5 weeks. At the standard 18 percent rate, the unbilled VAT on this NIS 4.8M contract came to about NIS 864,000, which had to be invoiced to the Israeli client rather than swallowed.

What We Did

We started by confirming what the company hoped was not true: the on-site project created an Israeli VAT presence, and the clock under Section 60 had already run. Pretending otherwise would only have grown the penalty.

We appointed a qualified Israeli representative under Section 60 and filed the appointment, with the representative's written consent, to the Director of VAT. We then opened the foreign-trader VAT file using Form 22 and registered the company as a licensed dealer (osek murshe) so it could lawfully charge and remit Israeli VAT. With the registration in place we rebuilt the invoicing: compliant Israeli tax invoices at 18 percent issued to the client for the supplies already made and those still to come, so the NIS 864,000 of VAT flowed to the client, who could in turn recover it as input tax, instead of becoming the French company's cost.

We filed the back periods to cure the late-registration exposure before the Tax Authority raised it, which kept the company in the position of a business that came forward rather than one that was caught. On the withholding, we applied for a reduced withholding-tax certificate (ishur haktanat nikui mas bamakor) for the Israeli client, so that future progress payments were no longer cut by the default rate and the company's cash flow recovered. We also coordinated with the company's French accountant so the services taxed in Israel were not also charged French TVA, since the same supply being hit by two countries' indirect tax is a real risk when nobody owns the coordination. For a foreign business weighing whether to operate this way at all, our guide on registering a company in Israel as a foreigner compares the representative route against setting up a local entity.

In Practice: Without a certificate, an Israeli payer must withhold tax at source from payments to a foreign supplier, and the default rate on such cross-border payments can reach 30 percent of each payment, here cutting roughly NIS 1.44M of cash flow across the contract before recovery. We obtained a reduced withholding-tax certificate from the assessing officer at the Israel Tax Authority within about 8 weeks of registration, which lifted the deduction on remaining payments. French-language contract documents were notary-translated before filing, because the Tax Authority will not process a foreign-language file.

The Outcome

Within about a month the foreign-trader VAT file was open and the representative was on record. The company issued compliant 18 percent VAT invoices, the NIS 864,000 of output VAT was passed to the Israeli client correctly, and the client recovered it as input tax rather than treating it as a dispute. The reduced withholding certificate came through around week eight, the default deduction stopped, and the cash flow that the 30 percent withholding had been holding back was freed for the rest of the project. The late-registration position was settled on a voluntary footing rather than under assessment.

The takeaway for the Paris team was that Israeli VAT is triggered by what you do in the country, not by where you keep your office, and that the thirty-day clock in Section 60 starts whether or not anyone has noticed. A French company that had registered before mobilizing would have invoiced cleanly from day one and never seen a shekel withheld at the punitive rate. Catching it eight months in cost more in scramble and translation than it should have, but the exposure was contained and the project finished on the numbers the company had bid.

Key Takeaways

What this case illustrates for foreign companies doing project work in Israel:

1. Activity triggers VAT, not an office. Performing a project physically in Israel makes you a foreign resident carrying on business under Section 60 of the VAT Law, with a thirty-day deadline to register and appoint a representative.
2. The representative carries real liability. An Israeli Section 60 representative is treated as the taxable person and is jointly liable, which is why securing a willing, qualified representative is the step that takes planning.
3. Charge the VAT to the client, do not absorb it. Israeli VAT at 18 percent belongs on the invoice to your Israeli customer, who usually recovers it as input tax; failing to register means you cannot pass it on and risk eating it.
4. Fix the withholding with a certificate. An unregistered foreign supplier sees payments withheld at up to 30 percent; a reduced withholding-tax certificate from the Israel Tax Authority restores the cash flow.
5. Coordinate with home-country VAT. The same services should not be charged both Israeli VAT and French TVA, and someone has to own that coordination before invoices go out.

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Facing a Similar Situation?

If your company is about to perform work in Israel, or has already started, the VAT registration and representative requirements under Section 60 apply from day one and the withholding on your payments will not wait. We confirm whether you have an Israeli VAT footprint, appoint the representative, open the file, and secure the certificates that protect your cash flow.

Contact us for a confidential consultation about your Israeli legal matter.