The Israel Tax Authority confirmed on Sunday that tips given to service staff in restaurants are not subject to Value Added Tax (VAT).
According to a joint statement by the Institute of Tax Consultants and the Israeli Restaurants and Bars Association, the Tax Authority had intended to begin enforcing VAT on tips from June 1, 2025, onwards, but this decision was successfully reversed after lobbying from the two organizations.
A letter sent by the Tax Authority Director Shay Aharonovich to President of the Institute of Tax Consultants Yaron Gindi clarified that tips given to a salaried employee in a restaurant will not be subject to VAT, "provided it is voluntarily given, documented in the restaurant's service log, and properly reported on the employee's payslip."
This was in response to a letter from Gindi to Aharonovich in which he argued that tips should not be subject to VAT as they are not considered business revenue.
The Institute of Tax Consultants and the Israeli Restaurants and Bars Association also approached MK Eliyahu Revivo (Likud). They initiated a bill to exempt tips from VAT, which passed its preliminary reading, gaining support from government ministers, which the statement argued directly influenced the Tax Authority's final decision.
'A historic resolution after decades of dispute'
The press release referred to the decision as "a dramatic and historical clarification which has finally been published after decades of disagreement, opposition from the Tax Authority, conflicting legal opinions, and rulings in district and high courts."
The organizations praised the decision, regarding it as "a public achievement" which they will continue to oversee for "the benefit of all in the industry, and a stable, fair Israeli economy."
Gindi thanked both Aharonovich and Revivo for their roles in this decision, as well as the "smart, proud, and determined public leadership" of Chairman of the Israeli Restaurants and Bars Association Yakir Lisitzky.
Lisitzky also thanked Aharonovich and Revivo, as well as Gindi, stating, "When I assumed the role of Chairman, I set a goal to resolve this longstanding, burdensome issue once and for all. Today, we close that chapter."
This marks "a historic achievement for the industry. We went from a defensive battle to a decisive national victory—not just for the sector, but for every citizen in Israel," he commented.
"This decision strengthens the confidence of restaurant owners and workers in a sector already suffering from a severe labor shortage. This is a clear message: we are done with fear and hiding from the authorities," he added.
"And to all restaurateurs—I say with confidence: we will continue to act with determination and pride for our industry. We have a critical role in Israel’s economy and society," he concluded.