VAT changes ahead: detailed PCN reporting becomes mandatory from January 2026
VAT changes in Israel ahead: detailed PCN reporting becomes mandatory from January 2026.
Starting in January 2026, any business in Israel with a turnover of ₪500,000 or more must file a detailed VAT report (PCN). Until now, this level of reporting was required only from companies above ₪2.5 million, but the new threshold brings a much wider group of businesses into the system.
Two types of VAT reporting to Maam.
There are currently two reporting formats:
- Simplified system
- Detailed report (PCN)
The simplified system, familiar to most entrepreneurs, requires reporting only four figures: turnover subject to VAT, turnover not subject to VAT, deductible VAT on current expenses, and deductible VAT on fixed asset purchases.
At this stage, the VAT office in Israel (Maam) usually accepts the simple report. If questions arise about refunds or payments, the authorities may request additional documentation or clarification.
What is a detailed VAT report (PCN)?
The PCN format requires entrepreneurs to report every invoice – both those issued to customers and those received from suppliers.
Unlike the simplified system, where only totals are indicated, here full details are mandatory: supplier name, registration number, invoice amount, etc. This significantly increases the workload and demands stricter bookkeeping. For most businesses, this also means more work hours for accountants (and, inevitably, higher costs).
Why did the Tax Authority introduce PCN?
The main goal is transparency and the prevention of manipulations with VAT.
Previously, unscrupulous businesses could issue fictitious invoices to reduce taxable income. In the PCN system, each invoice is assigned a unique code, allowing the Tax Authority to cross-check the data with suppliers. Any discrepancies are flagged immediately, and an audit begins.
For honest entrepreneurs, this is a positive step – the market becomes cleaner. But the new reporting format is also more complex and requires preparation.
How to prepare for PCN filing?
To avoid mistakes and rejections, businesses should check these points in advance:
- Accounting software
Ensure your system supports the PCN874 format. Update to the latest version if necessary. - Supplier and client registration numbers
All numbers must be accurate and up-to-date. Even a single incorrect digit will cause the report to be rejected. - Distribution number (מספר הקצאה)
For invoices above ₪20,000, this number is mandatory. It must appear both when issuing invoices and when recording expenses. Missing it will block the report and deny VAT deductions. - Accurate invoice entry
The accountant must record every invoice correctly. Small invoices may be grouped, but only under strict conditions:- Income invoices up to ₪5,000.
- Sales via cash register up to ₪5,000.
- “Kupa ktana” expenses (invoices with VAT up to ₪300), provided the total does not exceed 5% of all input VAT.
After upload, the file is automatically checked by the VAT system. Errors are highlighted instantly for correction.
Why work with an accountant?
For entrepreneurs still managing VAT alone, this is the right moment to reconsider. Preparing and submitting a PCN report can take an enormous amount of time for someone without experience. An accountant familiar with the process can handle it quickly and efficiently.
Moreover, if the Tax Authority finds discrepancies, they will request clarifications. For a professional accountant, this is routine work; for an entrepreneur, it can become a serious burden.
Final thoughts.
Many business owners ask me whether PCN reporting adds extra work for accountants. The answer is yes.
In the simplified system, some “shortcuts” were possible — for example, leaving out full supplier details. The PCN system doesn’t allow this: missing or inaccurate data will block the report.
- If your business has a small document flow, the workload increase will be minor.
- But if you run a shop, restaurant, or service company with many invoices, expect a significant rise in the accountant’s workload.
The bottom line: the new VAT rules are here to stay. The sooner you adapt, the smoother the transition will be.
TOPICS > Bituach Leumi, CPA Israel, CPA Services in Israel, CPA Services in Israel Financial Reporting, MAAM VAT, PCN CPA Israel, PCN Israel, PCN Maam, PCN Report Israel, Roeh Heshbon, Tax Services in Israel, Taxes in Israel 2025, VAT in Israel