Loan intermediary services: Israel

Abstract

Israel's Value Added Tax Law generally applies an expense multi-stage tax to the value added in respect of goods or services at every stage of the production, distribution and marketing process at the current rate of 17%. The final consumer is commonly understood as paying the tax on the full retail price, not being able to deduct paid tax. The added value of the business firm is principally the difference between its transactions (sales of goods and rendered services) and its relevant inputs. Although VAT may be imposed on loan intermediary services, generally, the financial institution granting the loans will be subject to Wage and Profit Tax (at the rate of 17%), on wages paid and profits earned; no VAT will be imposed on said services and the institution will not be allowed to deduct input tax. Dealers, who take loans from financial institutions, will not be able to deduct the Wage and Profit Tax that the financial institution has paid. Deposits made by a dealer with a financial institution or extension of loans by a dealer to a financial institution are exempt from VAT.