Does my US-owned Israeli company need an allocation number on its invoices, and what is the threshold now?

Israel now checks large invoices before they are issued rather than after they are claimed. The Israel Invoices model, brought in by the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for 2023 and 2024) 5783-2023 and carried into Section 47 of the VAT Law 5736-1975, requires a tax invoice above a set amount to carry an allocation number obtained in real time from the Israel Tax Authority. From 1 January 2026 that amount is NIS 10,000 before VAT, and from June 2026 it is NIS 5,000.

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Detailed Answer

The mechanism is simple and unforgiving. Before issuing a tax invoice above the threshold to a registered Israeli business, the issuing company transmits the invoice details to the Tax Authority system and receives an allocation number, which is then printed on the invoice. The number is not a formality. It is the condition on which the recipient may deduct the input VAT, so an invoice issued without one leaves your Israeli customer holding a bill on which it cannot recover 18% and, predictably, refusing to pay the VAT component until you fix it. The Authority may decline to issue a number where the transaction looks irregular, and the issuer then has a short set of options: cancel the invoice, issue it without the number and accept that the customer loses the deduction, or ask for a hearing. The thresholds have stepped down deliberately since the model went live in May 2024, from NIS 25,000 to NIS 20,000 in 2025, then NIS 10,000 from January 2026 and NIS 5,000 from June 2026, so a company that configured its billing once and left it alone is already non-compliant.

For a US owner the friction is entirely in the plumbing rather than in the rule. Requesting allocation numbers requires the company to be connected to the Tax Authority's system, either through invoicing software with a certified interface or through the Authority's own portal, and access is granted to an identified Israeli representative rather than to a foreign shareholder sitting in Chicago. In practice that means the company's Israeli accountant or an authorised employee holds the credentials, and a company run entirely from abroad with no local finance function will find that no one is able to press the button on a Sunday morning in Israel when the customer wants the invoice. Two knock-on points matter for a US group. Intercompany invoices between the Israeli subsidiary and the US parent are outside the model where the recipient is not an Israeli registered business, but invoices to Israeli customers are inside it regardless of who owns the company. And the timing is real time, so a month-end batch run out of a US accounting system without a live connection to the Israeli system does not produce compliant invoices. Whether the company needs to be registered for VAT at all is a prior question, covered in our answer on whether an Israeli company must register for VAT.

In Practice: The allocation number requirement flows from the Economic Efficiency Law 5783-2023 and Section 47 of the VAT Law 5736-1975, and is administered in real time by the Israel Tax Authority. The threshold was NIS 25,000 from May 2024, NIS 20,000 in 2025, NIS 10,000 from 1 January 2026 and NIS 5,000 from June 2026, in each case before VAT. An invoice above the threshold without a number leaves the Israeli customer unable to deduct input VAT at 18%, so on a NIS 30,000 invoice the customer is out of pocket by roughly NIS 5,400 until it is corrected.

When to Consult a Lawyer

• Your Israeli company invoices from a US or group accounting system that was never connected to the Tax Authority interface, because the exposure is not a penalty on you but a stream of customers refusing to settle the VAT element
• The Tax Authority has declined to issue an allocation number for a transaction, which is a signal about how the Authority reads that customer or that arrangement and should not be answered by simply reissuing the invoice
• You are structuring the Israeli entity now and deciding between a subsidiary, a branch and invoicing directly from the US company, since the invoicing obligations differ sharply between those routes

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Speak With an Israeli Attorney

The allocation number is a small technical step that quietly decides whether your Israeli customers can pay you in full. We check that the company's invoicing is connected and compliant at the current threshold and sort out the authority and credentials so it does not depend on you being awake in Israeli hours.

Contact us for a confidential initial consultation.