Taxation threatens Amazon's entry to Israel

Amazon Photo: Shutterstock

Amazon representatives met with a leading accounting firm in Israel to decide whether to open an online store here, or just translate its US site to Hebrew.

Sources inform "Globes" that ecommerce giant Amazon is reconsidering its entry into the local market through an Israeli store. The main reason for Amazon's hesitation is the threat posed by taxation in Israel to the world's strongest ecommerce platform.

A group of executives from Amazon's US and European offices began a visit to Israel last week for a series of meetings. During the visit, which is still taking place, the representatives met with players in the Israel market, took part in conferences led by Minister of Economy and Industry Eli Cohen and a conference for small businesses, and met with traders active on Amazon.com. This follows a request for a pre-ruling by Guillame Codsi, manager of a group in Amazon's global sales arm, on behalf of Amazon UK. Another executive, Prakash Somasundaram from Amazon USA, is also visiting Israel, is also scheduled to take part in a conference of the Israel Export and International Cooperation Institute this week.

Sources who met with Amazon's representatives said that the question of taxation in Israel was of great concern to the company, and was likely to deter it from establishing a store in Israel. The dilemma currently facing Amazon is whether to establish such an online store in Israel with a URL address ending in il or to translate the US website into Hebrew, similar to the model used by AliExpress.com.

In order to decide this question, Amazon's representatives met with a leading accounting firm active in the local market, which signed a confidentiality agreement that applies to the entire agreement with it, and with local traders. The meetings lasted for many hours. Sources present at the meetings said that Amazon's attitude has changed in the past two weeks. It appears that the threat of taxation is disrupting Amazon's plans to establish an Israeli store.

"They are declaring that entering Israel depends on taxation"

How significant is the difference between these two options for the Israel market? Establishment of an Israeli store with an Israeli marketplace will change the Israeli market by bringing offline players into it to establish stores within Amazon. Such a measure is also likely to lead foreign players to establish stores on Amazon Israel, establish regular activity with local delivery companies, and improve delivery time to the customer's home.

Translating the US website into Hebrew, on the other hand, will have less effect on the local retail market and the Israeli consumer. Translation into Hebrew will increase the number of deals on Amazon among Israeli consumers, but this will probably be merely an expansion of existing activity, not a market changer. "There will be more online deals, like AliExpress has, but this will not change the entire Israeli retail picture," a retail sector source told "Globes" today.

The source added that Amazon had asked many questions in order to learn about the local market, but had not yet made a decision. "The questions they asked indicate that they are leaning towards translating Amazon.com into Hebrew, which poses less of a threat to the market. Many questions were asked about consumer behavior and the effect of the delivery time and how critical it is for consumers. It appears that the questions are moving in the direction of translating the US website, rather than establishing an Israeli ecommerce website.

Another source who works closely with Amazon adds, "In the past two weeks, messages arising from talks with Amazon have concerned the dilemma of the taxation question - both VAT (VAT in Israel is 17%, but overseas online purchases up to $75 are exempt from VAT, S.M.) and taxation of Amazon's profits in Israel. They are declaring that entering Israel depends on taxation."

Worthy of mention in this context is the severe criticism by Israeli retailers, who find it difficult to compete with the VAT exemption enjoyed by the international players sending products to Israel. On the other hand, the local players have already found bypassing solutions, such as Shufersal Ltd. (TASE:SAE), which founded a platform for delivery of VAT-exempt goods from warehouses in the US.

In any case, whether Amazon chooses to establish an Israeli ecommerce website in Hebrew or to translate its US platform into Hebrew, it appears that the US ecommerce giant has marked the Israeli market as a target and wants to increase its activity here. It is investing resources in studying it, including visits by senior representatives and meetings with local players.

An official demand for payment of VAT from Europe

Concurrently, the taxation issue is also challenging Amazon's Israeli sellers operating in Europe. Sources inform "Globes" that Israel sellers active on Amazon in the UK market reported last month receiving the first-ever official demand for payment of UK VAT, according to Adv. Elad Blaunstein, an expert on Amazon. Demand for payment was sent retroactively to Israeli sellers. For example, a source we spoke with said they he had received a demand for retroactive payment of over NIS 10,000.

The question of taxation has been threatening Israeli sellers on Amazon and eBay operating in markets in European countries for a long time. The sources added, however, that up until last month, threatening letters demanding payment of tax in Europe were sent only to sellers who exceeded the tax threshold and those using the fulfillment by Amazon (FBA) method. Demands for payment were formerly sent only in Germany, a country marked by Israeli sellers as a problem for taxation, not in the UK.

Published by Globes, Israel business news - en.globes.co.il - on December 9, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

5 Comments
View comments in rows
Update by email about comments talkback
POST
Comments
Amazon Photo: Shutterstock
Amazon Photo: Shutterstock
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018