Billing clients abroad
Billing a client abroad changes three things at once: the VAT on your invoice, the currency your books have to cope with, and the possibility that a second country wants tax from the same income. None of the three is difficult, and all three go wrong quietly if nobody looks at them until the year is over.
Zero rated, and what earns it
Services exported to a foreign resident are generally zero rated. That means an invoice with no VAT charged, while you keep the right to reclaim the input VAT on everything you bought to do the work. It is the most favourable position in the VAT system and it is conditional rather than automatic.
Three questions decide it. Is the customer genuinely a foreign resident, rather than an Israeli company with a foreign address on the paperwork. Is the service consumed abroad rather than in Israel. And is there an Israeli resident who also benefits from the service, because that can pull the transaction back to the standard rate.
Services connected to an asset located in Israel are the usual exception. Work on property here, or on goods physically in Israel, is not exported merely because the person paying for it lives elsewhere.
Keep the evidence at the time: the contract, something establishing where the customer is resident, and the record of payment arriving from abroad. The zero rate is defended with documents, and reconstructing them two years later is much harder than filing them as they arrive.
Zero rated is not exempt
This distinction is the one that costs money when it is confused. A zero-rated transaction is a taxable transaction at a rate of zero, so your input VAT comes back. An exempt transaction sits outside the system, and the input VAT attached to it does not come back at all.
Both produce an invoice with no VAT on it, which is exactly why they get mixed up in the bookkeeping. Recording exports as exempt rather than zero rated quietly forfeits input VAT you were entitled to reclaim.
The invoice itself
An export invoice is a full tax invoice. Every field it normally carries is still required, and the VAT line reads zero rather than being deleted. An invoice with no VAT row at all looks like a document from an exempt dealer, which is a different thing entirely.
You may bill in dollars or euros. Your books are in shekels regardless, so the transaction is recorded at the rate on the invoice date. Adding the shekel equivalent to the document itself makes the bookkeeping easier and costs nothing.
Exchange differences
The rate on the day you invoice and the rate on the day the money lands are rarely the same. That difference is an exchange difference, recorded as such, and it is not a reason to reissue or amend the invoice. The invoice recorded a sale at a moment; the currency moved afterwards.
Over a year of foreign billing these differences accumulate in both directions and are part of your taxable result. Ignoring them is how a set of books stops agreeing with the bank.
Because your output VAT on exports is zero while your input VAT continues, exporters often sit in a permanent refund position with the VAT authority. This is entirely legitimate and it does attract closer review, which is a reason to keep supplier invoices immaculate rather than a reason to avoid claiming.
Getting paid
Bank transfer, or a payment platform such as Wise, Payoneer or PayPal. Two things matter regardless of route.
First, fees are business expenses, and platform fees on international payments are not small. Record them rather than treating the net amount that arrived as your revenue: your income is what the customer was invoiced, and the fee is a cost against it.
Second, the money has to arrive somewhere your books can see. Payments accumulating inside a platform account are still your income on the date the transaction occurred, not on the date you finally withdraw them. Withdraw regularly and reconcile the platform statement, or the account becomes a shadow ledger nobody is reading.
Israeli banks ask questions about incoming foreign payments as a matter of routine compliance. Having the invoice and the contract ready turns that into a two-minute exchange.
Income tax, and the second country
If you are an Israeli resident, your income is taxable in Israel wherever it was earned. Exporting services does not move the income out of the Israeli tax net, and it does not remove National Insurance either.
The complication is that the customer's country may also want tax. Some clients are required to withhold from payments to foreign suppliers unless a treaty position is established, which is why a US client typically asks for a W-8BEN before paying: the form establishes that you are not a US person and lets the treaty rate apply instead of the default deduction.
Where foreign tax is properly withheld, Israel generally allows a credit for it against the Israeli tax on the same income, so the same shekel is not taxed twice in full. Claiming that credit requires the foreign withholding certificate, which means asking for it at the time rather than at year end.
This is the point in an otherwise simple picture where an accountant earns their fee. Treaty positions and foreign tax credits are worth getting right once, at the start of a relationship, rather than discovered after a year of deductions.
Practical points that save money
- Agree the currency and who absorbs the transfer fees in writing, before the first invoice. Foreign wire fees are frequently deducted from the amount sent.
- Invoice on delivery, in the customer's expected format. Large foreign customers have accounts payable systems with their own requirements, including purchase order numbers.
- Expect longer payment cycles and price for them. Cross-border payment runs are slower than domestic ones.
- Watch the currency exposure if a large share of your revenue is in one foreign currency and all your costs are in shekels. A ten percent move is a ten percent change in your income.
- Keep the residency evidence with the invoice, not in a separate place you will forget.
The mistakes that surface later
- Recording exports as exempt, and forfeiting the input VAT.
- Issuing an invoice with no VAT line rather than a zero VAT line.
- Recording revenue at the amount that reached the bank after platform fees.
- Leaving money in a payment platform and reporting it in the wrong year.
- Signing a W-8BEN incorrectly, or not at all, and absorbing withholding that a treaty would have reduced.
- Assuming income earned abroad is not reportable in Israel.
General information, not tax advice for your situation. Zero-rating conditions, treaty positions and reporting rules are detailed and change, so confirm your own case with the Israel Tax Authority or your accountant. Next: Israeli VAT without the jargon or the invoice checklist.