Israel — ITA clearance model and allocation number

In 2024 Israel introduced a clearance model for B2B invoices above a threshold: every supplier must obtain an allocation number from the Israel Tax Authority (ITA) before issuing the invoice — otherwise the buyer loses the right to deduct input VAT.

Regulatory timeline

• 1 July 1976 — Value Added Tax Law (Law 5736-1975). Sets the Israeli VAT framework, current standard rate 17 % (raised to 18 % by 2024 vote, applicable on 1 January 2025).
• 23 May 2023 — Economic Arrangements Law 5783-2023. Introduces the allocation number mechanism for B2B invoices above an ITA-defined threshold.
• 1 April 2024 — Preparatory phase. Registration window and voluntary testing on the ITA API, without binding obligation.
• 5 May 2024 — Phase 1 go-live. Binding obligation for every B2B invoice issued above ILS 25,000 excluding VAT: the seller must obtain an allocation number; the buyer loses the right to deduct VAT if missing.
• 1 January 2025 — Phase 2. Threshold lowered to ILS 20,000 excluding VAT. Perimeter extended.
• 1 January 2026 — Phase 3. Threshold ILS 15,000.
• 1 January 2027 — Phase 4 (planned). Threshold ILS 10,000.
• 1 January 2028 — Phase 5 target. Threshold ILS 5,000 — near-complete B2B coverage.

Technical schema

The ITA has published a proprietary XML/JSON schema whose semantics aligns with EN 16931 (BT-* elements) to ease interoperability with international standards and OpenPEPPOL. Key elements:

• documentNumber — unique invoice reference on the supplier side.
• allocationNumber — alphanumeric identifier returned by the ITA, to be printed on the document before transmission to the buyer.
• allocationStatus — approved, rejected, pending. A pending invoice does not entitle to deduction.
• vatNumber — 9-digit number (מספר עוסק מורשה).
• vatRate — 17 % standard (18 % from January 2025), 0 % for exports, exemption for Eilat.

Minimal example of a B2B invoice above the threshold:

{
  "invoice": {
    "header": {
      "documentNumber": "IL-2026-009142",
      "documentType": "305",
      "issueDate": "2026-05-16",
      "issueTime": "10:30:00",
      "currency": "ILS",
      "allocationNumber": "RZ-91038271-A4F2",
      "allocationStatus": "approved"
    },
    "supplier": {
      "vatNumber": "514287139",
      "name": "Ediverse Demo Ltd",
      "address": "Rothschild Blvd 12, Tel Aviv"
    },
    "customer": {
      "vatNumber": "511234567",
      "name": "Customer Demo Ltd"
    },
    "lines": [
      {
        "lineNumber": 1,
        "description": "Consulting services May 2026",
        "quantity": 1,
        "unitPrice": 5000.00,
        "vatRate": 17,
        "lineTotal": 5000.00
      }
    ],
    "totals": {
      "taxExclusive": 5000.00,
      "vatAmount": 850.00,
      "taxInclusive": 5850.00
    }
  }
}

Submission flow

The seller calls the ITA API POST /AllocationRequest with the draft invoice (VAT amount, both parties' IDs). The ITA checks consistency in real time (buyer exists, seller is VAT-compliant) and returns either an approved allocationNumber or a motivated rejection. The seller then issues the final invoice including this allocation number and transmits it through the usual channels (email, EDI, private platform).

┌───────────────┐   ┌──────────────────┐   ┌───────────────┐
│ IL supplier   │──>│ ITA Allocation   │──>│ IL customer   │
│ (ERP)         │ * │ API (clearance)  │ * │ (ERP)         │
└───────────────┘   └────────┬─────────┘   └───────────────┘
                             │
                             ▼
                  ┌──────────────────┐
                  │ Allocation       │  ← required above
                  │ number returned  │     ILS 25,000 threshold
                  └──────────────────┘
                  * 2024 threshold: ILS 25,000
                    2028 target: ILS 5,000

Note: the ITA is not an exchange hub, it is a validator. The invoice itself flows classically in B2B. It is a partial clearance model (pre-validation of VAT deduction) rather than a centralised hub model in the Italian style.

Validation

• ITA Allocation API — test and production environments accessible via the SHAAM ITA developer portal.
• Official documentation: gov.il/Invoice-Israel.
• ITA audit — ERP vendors must obtain ITA certification to integrate their solution with the allocation API.
• SHAAM — Service for Automated Exchange of Information, the single entry point for any technical interaction with the ITA.

Common pitfalls

1. Allocation number = condition for deductibility. Without a valid number on the invoice, the buyer loses VAT deduction even if the invoice is otherwise compliant. Any architecture must therefore block issuance before ITA validation, not after.
2. Descending threshold. The threshold goes down stepwise (25k → 20k → 15k → 10k → 5k) between 2024 and 2028. A system that hardcodes the 2024 threshold becomes non-compliant at every drop. The threshold must be parameterised and reviewable.
3. Allocation before or after issuance?. Allocation must be requested before issuance to the customer, not after. A workflow that issues a draft first and requests allocation after is exposed to rejections if the buyer changed status in between.
4. VAT rate 17 → 18 %. The rate moves to 18 % on 1 January 2025. Any invoice issued after that date with the old rate is invalid. Combining this change with the threshold Phase 2 complicates early-2025 migrations.
5. Eilat exemption and free zone. Transactions tied to Eilat (VAT-free zone) follow a specific 0 % regime. The allocation number is still required but the VAT calculation is zero — don't forget to set the right attribute in the API request.

Cross-links

• EN 16931 — European semantics the ITA draws on for its XML.
• PEPPOL — for comparison with a decentralised model.
• Saudi Arabia — Middle East clearance comparison.
• United Arab Emirates — another Gulf mandate.
• Official sources: gov.il — Israel Tax Authority, Invoice Israel portal.