Renting a car in Israel: the VAT tourists skip
Two travelers land at Ben Gurion on the same flight, walk to the same rental counter and book the same compact car for a week. One pays 18% more than the other. The difference is not the car, the season or the credit card. It is the document each of them hands over at the desk.
Israel’s VAT on car rentals is one of the least explained line items in the country’s tourism economy. Here is who pays it, who doesn’t, and what the counter will actually ask for.
The rule: foreign tourists don’t pay VAT on the rental
Israel’s standard VAT rate has been 18% since January 1, 2025, up from 17%, and it stayed at 18% in 2026 despite earlier promises to roll it back. It applies to almost everything, but foreign tourists are exempt on two big-ticket items: hotel stays and car rentals.
That exemption has survived more than one attempt to kill it. In 2023 the Finance Ministry proposed cancelling it to raise revenue; Tourism Minister Haim Katz fought the plan and a ministerial committee dropped it. The head of the Israel Incoming Tour Operators Association warned at the time that an 18% tax could cut tourism by 8% to 14%. For now, the exemption stands.
But “tourist” has a narrow legal meaning here, and rental companies apply it literally.
Who qualifies, and who gets caught
The rental companies’ own terms are the clearest guide. Europcar Israel’s rental conditions say that only tourists holding a B2 or B3 visa permit have the VAT waived, and that the permit must be shown at the desk. Eldan’s terms extend this to B2, B3 and B4 tourist visas, and add that the visa must be valid for the entire rental period.
The people who pay full VAT:
- Israeli passport holders, including dual citizens. Europcar’s terms say so explicitly. An American who also holds Israeli citizenship and enters on the Israeli passport, as the law requires, is not a tourist for VAT purposes.
- New olim and residents. Anyone living in Israel pays VAT like any other resident. Olim are residents, so the exemption does not apply to them.
- Holders of non-tourist visas. Eldan’s list covers only the B2, B3 and B4 classes, so a student or worker on an A-class permit should expect to be charged.
- Tourists who can’t prove their status. No entry document at the counter, no exemption.
What the exemption covers, in shekels
The exemption applies to the rental itself, not to everything on the bill. Eldan’s terms state that extra components such as fuel and toll roads are charged VAT according to the law. So a VAT-exempt tourist still pays VAT on a refuel charge or on Route 6 tolls billed back by the rental company.
A hypothetical example, using round numbers rather than any company’s price list:
| 7-day rental at ₪250/day | Exempt tourist (B2) | Resident or Israeli passport |
|---|---|---|
| Rental | ₪1,750 | ₪1,750 |
| VAT at 18% | ₪0 | ₪315 |
| Total before fuel and tolls | ₪1,750 | ₪2,065 |
That is ₪45 a day, purely from status. On a ten-day rental at ₪180 a day, the resident pays ₪324 of VAT.
What to bring to the counter
Israel stopped stamping passports years ago. Instead, travelers receive a small entry card at passport control, and the US State Department has noted that this card is often requested at hotels and car rental companies. It is the easiest way to prove your B2 status, and it is very easy to lose.
A practical checklist:
- Keep the entry card with your passport from the moment you clear immigration.
- Present it at pickup, together with the foreign passport you entered on.
- Check that your permit covers the whole rental. Eldan requires the visa to be valid for the entire period.
- If you are a dual citizen, assume you will pay VAT and budget for it.
Eilat is a separate case: the city is a VAT-free zone with its own pricing logic, and one-way rentals there can carry extra charges (Europcar lists $200 for one-way rentals of one or two days to or from Eilat).
The details vary by company and change over time, so it is worth reading an overview before booking. I keep one up to date: ChulGuide’s guide to renting a car in Israel as a visitor, which pulls together the conditions the main rental companies publish.
Why this matters beyond the bill
The tourist VAT exemption is a quiet piece of economic policy. It lowers the cost of a trip to Israel at a time when the industry is still trying to bring visitors back, and it is why the Tourism Ministry defended it when the Treasury tried to scrap it. It also creates an odd asymmetry: an Israeli living abroad who flies home to see family pays more for the same car than a first-time tourist.
Bottom line
If you are a foreign tourist on a B-class permit, keep your entry card and show it: the 18% VAT on the rental should disappear, though fuel and tolls still carry it. If you hold an Israeli passport, are a new oleh or live here, budget the full 18% from the start, and check whether the price you were quoted already included it.
Sources: Europcar Israel and Eldan published rental conditions; Ynet (Dec. 30, 2025) and vatcalc on the 18% VAT rate; Jerusalem Post on the 2023 exemption fight; US State Department entry-card guidance. Figures checked November 14, 2026. General information, not legal or tax advice.
