Value-added tax on medical tourism

The Israel Tax Authority has just published a ruling that clarifies when zero-rate value-added tax applies to medical tourism.

The facts of the case: The ruling addresses a generic situation in which an Israeli doctor, registered for Israeli VAT purpose as an authorized dealer, treats foreign tourists in Israel in hospitals and clinics. The treatment includes surgery, advice and other medical services while the patient is in the hospital and after discharge from the hospital. Sometimes the doctor transacts directly with the patient and sometimes via a travel agent regarding his or her services related to the hospitalization. The hospital separately transacts with the patient regarding other aspects of the hospitalization.

The issue: Section 30(a)(8) of the VAT Law allows zero-rate VAT for the hospitalization of a tourist in a hospital registered under the People’s Health Ordinance, 1940, and additional services provided due to the hospitalization. Does it apply to all fees paid to the doctor directly or via the travel agent?

The ruling: The ruling clarifies the conditions that must be met for zero-rate VAT to apply in Israel regarding medical tourism.

First, the tourist must be hospitalized in a hospital ward or hospitalization unit.

Second, the tourist must be an individual present in Israel on a transit visa (up to five days) or visit visa (up to three months) or other exceptional cases, such as diplomats but not foreign workers.

Third, the hospital must be registered under the People’s Health Ordinance.

Fourth, the additional services must be due to the hospitalization and billed on a receipt or invoice if the hospital is a nonprofit body or on a tax invoice if the hospital is an authorized dealer in business for Israeli VAT purposes.

Fifth, the service provider must record details of the transaction in its accounts, including the price, method of payment and currency paid. The service provider must also retain a written document confirming details of the transaction, name and address of the tourist, passport number and invoice or tax invoice.

Implications: The ruling emphasizes that the full rate of VAT (currently 17 percent) will apply to separate billings by doctors to patients even if the services are provided in an Israeli hospital following hospitalization.

The full rate of VAT will apply to services provided by a clinic rather than a hospital registered under the People’s Health Ordinance.

But VAT at zero rate will apply to a billing by the hospital to the foreign tourist that includes the hospital’s services and additional services due to the hospitalization, such as the

doctor’s services.

The solution: Based on the ruling and the current state of the VAT Law, only Israeli hospitals can bill foreign tourist patients with zero-rate VAT.

But doctors who provide services due the hospitalization can bill the hospital with full-rate VAT (17%). If the hospital is an authorized dealer for VAT purposes (rather than a nonprofit charity), the hospital can recover the VAT (17%) and include the doctor’s services in an onward billing to the foreign tourist patient with VAT at 0%.

But if the hospital a is nonprofit charity for VAT purposes, the hospital cannot recover the VAT (17%) charged by the doctor, and the VAT becomes an additional cost.

As always, consult experienced tax advisers in each country at an early stage in specific cases.