AGREEMENT ON PREPARATORY TRANSFER OF POWERS AND RESPONSIBILITIES
Annex VI
Protocol Concerning Preparatory Transfer of Powers and Responsibilities in
the Sphere of VAT on Local Production
1. The powers and responsibilities of the Civil Administration in the
sphere of VAT on local production in the West Bank will be transferred
to and will be assumed by the Palestinian Authority.
2. For the purpose of this Annex the term "VAT" shall refer to Value
Added Tax on local production imposed on the sale of assets and the
provision of services by dealers.
3. The sphere of VAT shall include all matters dealt with in the laws,
regulations and military orders listed in Appendix A, subject to the
principles set forth in this Annex.
4. In accordance with Protocol IV of the Gaza - Jericho Agreement, while
the prevailing system and principles of VAT in the West Bank will
continue to apply, the Palestinian VAT rate shall not be lower than
15% to 16% and the maximum annual turnover for dealers to be exempt
from VAT will be decided by the Palestinian Authority, within an upper
limit of 12,000 US dollars.
5. Subject to paragraph 6 below, each side will register for VAT purposes
dealers who are subject to its powers and responsibilities,
notwithstanding the place of their activity.
6. a. Ongoing permanent businesses will register for VAT purposes with
the VAT administration of the side exercising powers and
responsibilities in the place in which they are situated.
b. Notwithstanding subparagraph 6.a, ongoing permanent Israeli
businesses situated outside the settlements and military
locations will be registered for VAT purposes with the Civil
Administration. The rules of Palestinian VAT legislation will
apply to these businesses.
The Civil Administration will transfer to the Palestinian
Authority the net VAT collected from these businesses, after
deduction of their refunds.
7. For the purpose of this Annex, and for the purpose of the application
of Appendix B of Annex V to this Annex pursuant to paragraph 17 below
a. A corporation will be regarded as either a Palestinian or an
Israeli if the majority of its shares which grant rights to
distribution of profits are held by Palestinians or by Israelis,
respectively.
b. For the purpose of subparagraph a. above, shares held by
foreigners will be considered as shares held by Palestinians,
except with regard to corporations operating within the
settlements and military locations.
c. The above mentioned principle regarding corporations will apply
to partnerships, with the necessary adjustments.
d. The registration for VAT purposes of corporations and
partnerships in which Israelis and Palestinians hold equal rights
to distribution of profits, will be according to the place of
registration of the corporation or the partnership. Each side may
bring such cases for discussion before the joint committee
referred to in paragraph 16 below, if it considers that the place
of registration for VAT purposes should be different.
8. Foreign dealers will be registered for VAT purposes in accordance with
their place of activity.
9. The VAT levied on dealers registered for VAT purposes will accrue to
the VAT administration with which the dealer is registered and the tax
code of that side will apply.
10. The principles set out in paragraphs 1-9 and 16-17 of this Annex shall
also apply to wage-and-profit tax on financial institutions.
11. There will be clearance of VAT revenues between Israel and the
Palestinian Authority according to the following principles:
a. The VAT clearance will apply to VAT on transactions between
dealers registered with different VAT administrations. For the
purpose of this paragraph, dealers registered with the Civil
Administration shall be considered to be registered with the
Palestinian Authority.
b. The following procedures will apply to clearance of VAT revenues
accruing from transactions by dealers registered for VAT
purposes:
1. To be acceptable for clearance purposes, special invoices,
clearly marked for this purpose, will be used for
transactions between dealers registered by the different
sides.
2. These invoices will be worded either in both Hebrew and
Arabic or in English and will be filled out in any of these
three languages, provided that the figures are written in
"Arabic" (not Hindi) numerals and that the amounts filled
out in the invoice are stated also in NIS.
3. For the purposes of tax rebates, such invoices will be valid
for six months from their date of issue.
4. Representatives of the two sides will meet once a month, on
the twentieth day of the month, to present each other with a
list of invoices submitted to them for tax rebate, for VAT
clearance. This list will include the following details
regarding each invoice:
a. the number of the registered dealer issuing it;
b. the name of the registered dealer issuing it;
c. the number of the invoice;
d. the date of issue;
e. the amount of the invoice - with a separate reference
to the amount of VAT, specified both numerically and in
words; and
f. the name and the VAT registration number of the
recipient of the invoice.
5. The clearance claims will be settled within six days from
the meeting, through a payment by the side with the net
balance of claims against it, to the other side.
6. Each side will provide the other side, upon request, with
invoices for verification purposes. Each tax administration
will be responsible for providing invoices for verification
purposes for six months after receiving them.
7. Each side will take the necessary measures to verify the
authenticity of the invoices presented to it for clearance
by the other side.
8. Claims for VAT clearance which will not be found valid will
be deducted from the next clearance payment.
9. Once an interconnected computer system for tax rebates to
dealers and for VAT clearance between the two sides is
operational, it will replace the clearance procedures
specified in subparagraphs (4) and (5) above.
10. The two tax administrations will exchange lists of the
dealers registered by them and will provide each other with
the necessary documentation, if requested, for the
verification of transactions.
11. The subcommittee established under Article VI paragraph 5 of
Annex IV of the Gaza - Jericho Agreement will deal with the
implementation of the provisions of this paragraph.
12. Pending the Interim Agreement, the following provisions shall apply
with regard to VAT on imports:
a. In addition to the clearance described in paragraph 11 above, VAT
on imports paid by dealers registered with the Palestinian
Authority who deduct input tax on such imports shall be remitted
to the Palestinian Authority.
b. The clearance shall be effected in the framework of the monthly
settlement referred to in paragraph 10 above. For this purpose,
the Palestinian Authority shall provide Israel with a list
containing the following details.
1. the VAT registration number of each dealer;
2. the number of each import entry document; and
3. the VAT amount included in each import entry document.
c. The Palestinian Authority shall verify and confirm that the list
referred to in subparagraph (b) does not include imports the
final destination of which is the Gaza Strip or the Jericho Area.
The remittance of VAT payments in respect of these imports shall
continue to be in accordance with the Gaza-Jericho Agreement.
13. VAT paid on transactions with dealers registered with Israel by
not-for-profit Palestinian organizations and institutions registered
with the Palestinian Authority, or by the Palestinian Authority where
the transaction relates to powers and responsibilities transferred
under this Agreement, will be remitted to the Palestinian Authority in
accordance with the clearance system set out in paragraph 11. The same
principle will apply to VAT paid on such transactions by Palestinian
local authorities, once the powers and responsibilities regarding them
are transferred to the Palestinian Authority.
14. VAT paid on transactions with dealers registered with the Palestinian
Authority by not-for-profit Israeli organizations and institutions, by
Israeli local authorities, or by Israel, will be remitted to Israel in
accordance with the clearance system set out in paragraph 11.
15. Where the zero VAT rate on transactions by dealers registered with the
Palestinian Authority is conditional upon the submission of proof by
the dealer that foreign currency has been deposited with a financial
institution, the deposit will be made in a financial institution
operating in the West Bank. The definition of foreign currency for the
purposes of this paragraph may be determined within the JEC.
16. The two sides will establish a joint committee composed of
representatives of both VAT administrations. This committee will deal
with all issues requiring coordination and cooperation with regard to
this Annex.
17. VAT enforcement by the Palestinian Authority shall be in accordance
with the principles set out in Appendix B attached to Annex V.
Appendix A
Laws, Regulations and Military Orders in the Sphere of VAT
1. Law of Excise on Local Production, No. 16, 1963, except for the
following articles (Hebrew Version):
2(A), 2(B), 2(E), 3, 6A(2), 6A(5), 6A(6), 6A(8)
6A(7) - will be subject to principles regarding the tax enforcement
2. Regulations Regarding Excise on Local Production (Judea and Samaria),
1985, except for the following articles (Hebrew Version):
2, 33, 118, 137, 147, 127
31(A)1, will not apply in relation to authorizing use of "other
document"
53 (B), 70, 85, 86, 87A, 89, 92, 94, 103, 116, 116A(D)-(E), 117,
119(D), 129(C), 139(B) - will be subject to the principles regarding
tax enforcement
35(A)2, 35(A)3, 112, 115A, 116A(C), 119, Chapter 16, 139(A) - will be
subject to principles regarding tax enforcement
3. Regulations regarding Bookkeeping (Judea and Samaria), 1985
4. Notification regarding Excise on Local Production (designating Egypt
as bordering country) (Judea and Samaria), 1987