A trade-in looks simple at the till. The customer brings an old phone, adds cash and walks out with a new one. In the shop's books it is three separate transactions. That is what the Israel Tax Authority set out in VAT professional position paper 01/2026, published on February 2, 2026, and since then two professional events have spelled out what it means for the documents a shop produces.
One invoice, for 5,000 NIS
The paper's example: a new device priced at 5,000 NIS and a used device worth 2,000. The customer pays 3,000 and hands over the old one. Under section 7 of the VAT Law, the price of a transaction is the consideration agreed, and here that is 5,000. So the shop produces an invoice for 5,000 and pays VAT on the whole amount.
The common practice in the trade was to produce an invoice for the new device alongside a credit note in the customer's name for the list price of the old one. The Authority wrote that a credit note is allowed only when a transaction was cancelled, its terms changed, an error was found or the invoice amount changed. Receiving the old device is none of these, and it is not a discount on the new one either. Companies that work this way, the paper says, are acting against the law.
At a webinar run by the accounting firm Fahn Kanne in June 2026, the speaker was asked what document the customer gets for the phone they handed in. The answer was none at all, "not an invoice and not a credit note." A private person selling a personal item is not making a transaction for VAT purposes.
Tax on the used item
When the shop sells the used device on, section 5(a) of the law applies. A dealer whose business is selling used goods pays VAT only on the difference between the selling price and the buying price. A device bought for 2,000 and sold for 3,000 is taxed on 1,000. If it sells for 2,000, the paper says the invoice to the buyer is produced at a price of zero.
At the Israel Tax Advisors Bureau conference in Eilat in October 2026, the paper was presented by the head of the VAT field in the Authority's professional department. He pointed to a tax ruling from July 2025 on second-hand clothing, which defined household goods by reference to the Property Tax regulations, since the VAT Law has no definition of its own. The same ruling set the difference at no less than zero, so a sale at a loss counts as a difference of zero.
He also explained why the Authority stepped in. Trade-in companies reported only the 3,000 NIS in cash at the time of sale, and the other 2,000 when the old device was sold. It later turned out the devices had been exported, which is a zero-rated sale, so VAT on the 2,000 was never paid.
When the old surfboard ends up in the bin
A former head of the VAT professional department, who now represents businesses, attacked the paper in the same session. In his view, many businesses never sell the old item at all. They give a discount for it to encourage the purchase, then strip it for parts or throw it away. He described a client who sells surfboards on the beach, collected old boards in a promotion, sawed them up and dumped them next to the shop. The client received a VAT assessment.
He also cited a used-car dealer that netted the loss on one car against the profit on another each month. A district court accepted its position, and the Authority has appealed to the Supreme Court. The Authority's representative replied that the law imposes VAT on a transaction, and a transaction price cannot be negative.
The webinar speaker suggested that a business selling used items at a loss can apply to the professional department for approval to produce a credit note for the loss. In the meantime, a shop doing trade-ins produces a tax invoice for the full price of the new product, does not produce a credit note for the item it took in, and records the old item at the agreed value, so there is a base for working out the difference when it sells.