What Are Import Duties and Taxes?

The term Import Duties and Taxes i The taxes and duties that may apply when goods are imported into Israel, depending on the type of goods and the applicable legal framework. does not necessarily refer to a single tax.

Depending on the goods and the circumstances of the import, several different tax components may be relevant. One of these is Customs Duty i A duty that may apply to imported goods depending on their classification, origin and the applicable customs tariff. .

Certain categories of goods may also be subject to Purchase Tax i An additional tax that may apply to specific categories of goods according to their classification and applicable law. .

Another important component is Import VAT i Value Added Tax collected in connection with imported goods. Its accounting treatment depends on the importer and the applicable rules. , which may also have an important cash-flow impact on the importer.

It All Starts with Tariff Classification

Before calculating customs duty, the importer needs to determine how the goods are classified. This process is known as Tariff Classification i The process of determining the appropriate customs classification for goods according to their characteristics and applicable classification rules. .

Classification is not merely an administrative number. It may affect the applicable tax rates, regulatory requirements, licenses, approvals and other import conditions.

International trade uses the HS Code i A classification code based on the international Harmonized System used for classifying goods in international trade. .

However, an importer should not automatically assume that a code supplied by an overseas manufacturer is necessarily the correct classification for customs purposes in Israel.

Factors such as the material, composition, function, construction and intended use of the product may be relevant when determining its classification.

What Is Customs Value?

One of the most important concepts in import planning is Customs Value i The value determined for imported goods under the applicable customs valuation rules and used as a basis for relevant customs calculations. .

Customs value is determined according to the applicable valuation rules and may serve as the basis for calculations during the import process.

The process of determining that value is known as Customs Valuation i The process used to determine the value of imported goods for customs purposes. .

In many cases, the starting point is connected to the transaction price actually paid or payable for the imported goods, subject to the conditions and adjustments required under the applicable rules.

Therefore, simply taking the final amount on the supplier's invoice and multiplying it by a duty rate may not provide the complete calculation.

Customs Duty: Why Classification and Origin Matter

Once the goods have been properly classified, the applicable customs duty rate can be examined under the relevant tariff provisions.

However, the general duty rate is not always the end of the analysis. In appropriate cases, the Origin of Goods i The origin assigned to goods under the applicable rules of origin. It is not necessarily the same as the country from which the shipment was dispatched. may also affect the customs treatment.

Where Israel has an applicable trade agreement, compliance with Rules of Origin i Rules that determine whether goods qualify as originating in a particular country for trade and customs purposes. may be important when determining eligibility for preferential tariff treatment.

Depending on the relevant arrangement, appropriate origin documentation may also be required, such as a Certificate of Origin i A document used in relevant cases to support the origin of goods under an applicable trade arrangement. or another form of proof of origin.

A Free Trade Agreement May Change the Import Cost

Israel maintains trade arrangements with various countries and trading blocs. Where applicable, a Free Trade Agreement (FTA) i An agreement between countries or trading blocs that may provide preferential tariff treatment subject to rules of origin and other applicable requirements. may affect the customs duty payable on imported goods.

However, the fact that a shipment was dispatched from a particular country does not necessarily mean that the goods originate in that country for purposes of a trade agreement.

The country of dispatch, country of manufacture and origin of the goods should therefore not automatically be treated as the same concept.

From a commercial perspective, origin should ideally be reviewed during supplier selection rather than after the goods have already been shipped. Two suppliers offering similar purchase prices may ultimately result in different landed costs.

Purchase Tax: An Additional Tax Layer for Certain Goods

Certain goods may be subject to Purchase Tax i A tax that may apply to specific categories of goods according to their classification and the applicable Israeli tax rules. .

Purchase tax does not apply uniformly to all products. This once again makes correct tariff classification an important part of the import-cost calculation.

An importer that evaluates profitability without checking whether purchase tax applies may discover a significant difference between the forecast cost and the actual cost of importing the goods.

For a new product, the relevant tax treatment should therefore be examined before the purchase order is approved rather than after the shipment has already arrived in Israel.

Import VAT: Cash Flow Is Part of Import Planning

Import VAT i Value Added Tax collected in connection with imported goods. The treatment of that VAT depends on the importer and the applicable tax rules. is an important component of financial planning for importers.

Even where a business is entitled to deduct input VAT under the applicable rules, there may be a timing difference between the payment of import VAT and its subsequent deduction through the relevant VAT reporting process.

For a small shipment, the cash-flow effect may be relatively limited. For high-value shipments or when several containers arrive within a short period, the amounts involved can become substantial.

Finance teams should therefore understand the expected arrival schedule, estimated shipment values and the payments that may be required around the customs clearance date.

Landed Cost: The Number Purchasing and Sales Teams Should Know

Landed Cost i The total cost of imported goods up to a defined point, including the purchase price and relevant import-related expenses. provides a broader economic picture than the purchase price alone.

The calculation may include the price of the goods, international freight, cargo insurance, non-recoverable taxes, port and terminal charges, customs brokerage and domestic transportation.

This is particularly important for pricing. If the sales department calculates margins using the supplier's invoice price rather than the actual landed cost, the apparent gross margin may be higher than the margin the business ultimately earns.

Businesses importing a large range of products may benefit from monitoring landed cost at SKU or product-family level rather than relying solely on an overall shipment cost.

Incoterms Affect What Is Included in the Supplier's Price

When comparing quotations from overseas suppliers, importers should also understand the applicable Incoterms i ICC rules that define certain responsibilities, costs and risks between seller and buyer in international sales transactions. .

For example, an EXW quotation cannot be directly compared with a CIF quotation without understanding which transportation and related costs are included in each offer.

Incoterms help allocate certain responsibilities, costs and risks between the seller and buyer, but they do not replace the need to determine the customs and tax treatment applicable in Israel.

The Documents Behind the Calculation

One of the central documents in an import file is the Commercial Invoice i A commercial document generally containing information about the parties, goods, quantities and transaction price. .

It is commonly accompanied by a Packing List i A document detailing the shipment contents, packages, quantities, weights and other logistical information. .

For sea freight, one of the principal transportation documents is the Bill of Lading (B/L) i A key sea-freight document containing information about the cargo, parties and transportation. .

Inconsistencies between the commercial and transportation documents may result in additional questions or checks during the import process.

Import Taxes Are Also a Pricing Decision

Customs and logistics teams are not the only departments that need to understand import costs. The calculation directly affects sales and pricing decisions.

If a product is purchased for ILS 100 but its actual landed cost is ILS 115, pricing the product based only on its purchase price creates a distorted picture of gross profitability.

When that difference is multiplied across hundreds or thousands of units, a relatively small costing error can become a substantial reduction in overall margin.

Pricing systems should therefore use an updated cost basis that reflects the relevant import expenses rather than relying solely on the commercial invoice.

Import Taxes Also Affect Cash Flow

A transaction may be profitable and still create cash-flow pressure. The importer generally finances the goods, transportation and various import-related costs before the goods are sold and before customers pay.

When several shipments arrive within a short period, the payments associated with customs clearance may become concentrated within the same week or accounting period.

Import forecasts should therefore be connected to cash-flow forecasts. Finance teams should know which shipments are expected, their approximate values and the likely payments associated with clearance.

What Happens During Customs Clearance in Israel?

When goods arrive in Israel, the relevant Customs Clearance i The process through which the required customs procedures are completed in order to release imported goods. procedures must be completed before the goods can be released, subject to the requirements applicable to the shipment.

A professional who may be involved in this process is a Customs Broker i A professional handling customs procedures and declarations in accordance with the applicable authorizations and requirements. .

However, effective customs planning should not begin when the vessel or aircraft arrives in Israel. The earlier the classification, documentation, origin and regulatory requirements are reviewed, the easier it is to identify potential issues before the shipment reaches the border.