After speaking to
Israelis who make money with Google Adsense will now have to collect VAT on all payments they receive from Google, the Israel Income Tax Authority (Mas Hachnasa) has just announced.
Previously we didn’t have to worry about VAT, as the authorities classed Google as a foreign-based business that was exempt from the 18% tax. However, this regulation was recently challenged in Israel’s High Court of Justice. Petitioners argued that Google should not be considered a foreign business, since they have operations in Israel and there are many Israel-based websites targeting Israeli audiences profiting from Google Adsense.
As a result, theIncome Tax Authority announced that Israelis’ Google earnings would now be subject to VAT.
This update was publicized by Ziv Shiffer and Associates CPAs.
Up until now, when I received payment for Adsense income, it was transferred straight in to my Bank Hapoalim account by “Google Ireland.” I then issued a tax receipt without VAT included, just like I would for any foreign client. The only difference is that I didn’t send Google a copy – since they have no interest in receiving it.
But now, unless Google makes some arrangement to pay me 18% more than what I earned, I would have to hand over 18% of my earnings to the VAT authorities.
I hardly use Adsense, so this doesn’t affect me personally very much. But there are plenty of bloggers and other web publishers in Israel who make serious income with Adsense, which is by far the world’s most popular ad network, and it’s important that this issue is clarified immediately. The Israeli authorities are going to have to require Google to pay VAT on top of our earnings.
An even more interesting issue that could come out of this change is its impact on Adwords. Google Adwords’ Pay-Per-Click ads are hugely popular among Israeli businesses, but we’ve never paid VAT on our Adwords’ accounts either. It could be that Google is going to have to do a major re-shuffle in the way it collects and pays-out payments to and from Israelis.
Since Facebook was also addressed in the case, the same may be true for them.
Hopefully all this will be managed without too many headaches for Israeli bloggers, businesses and organizations.
For the time being, do not issue any receipts for Google Adsense earnings without consulting with a tax expert.