Want to cut import costs and boost your profit margins?
If you’re an importer who brings in raw materials to manufacture products for export,
you may be entitled to a refund on import taxes – including customs duties, purchase tax, and levies.
This process is called Drawback, and it can save you thousands of shekels on every shipment!
But how does it actually work?
Who qualifies for it?
And how do you apply?
Let’s break it down in a simple and practical way.
What Is Drawback and How Does It Work?
Drawback is a process that allows for the deferral or refund of import taxes in order to encourage exporters to manufacture goods using imported raw materials – without letting the imposed taxes reduce the profitability of their business.
Who Is Eligible for Drawback?
✔️ Importers who import raw materials used in the production of goods intended for export.
✔️ Exporters who purchase imported raw materials from other importers to produce goods for export.
✔️ Exporters who buy components manufactured in Israel and use them to produce export goods.
What Does This Mean in Practice?
If you’ve paid taxes on imported raw materials – or purchased locally made components –
you may be entitled to a refund of the taxes paid, or the option to defer payment in advance.
How Far Back Can You Claim a Refund?
✅ For imported components – refunds can be claimed up to 5 years back.
✅ For locally manufactured components – refunds can be claimed up to 3 years back.
How Does the Refund Process Work?
Eligibility for drawback is granted to the exporter listed on the export declaration,
and it applies only to export declarations classified as “absolute exports.”
Types of Drawback Programs
There are two main types of drawback systems that help reduce costs:
1️⃣ Drawback Based on “Tax Percentage” (Cash Refund)
In this method, you receive a cash refund for the taxes paid during import or local purchase.
🔹 Ideal for those who have already paid customs duties, purchase taxes, or levies and want to reclaim their money after exporting the goods.
🔹 Requires submitting a detailed request to Customs, along with import and export documentation.
🔹 The refund amount can be substantial, especially for companies with large export volumes.
2️⃣ Drawback Based on “Deferred Tax” (Tax Credit)
This method allows deferring the payment of import taxes, instead of paying them upfront and waiting for a refund.
🔹 Best for exporters who want to improve cash flow.
🔹 Instead of paying customs duties in advance and waiting months for reimbursement, you can delay payment until after the goods are exported.
🔹 You must prove that all imported materials were used exclusively in the production of exported goods.
Which Method Is Better?
✅ If you’re an importer with significant export turnover –
the Deferred Tax Drawback may be more beneficial and improve your cash flow.
✅ If you’ve already paid import taxes and want your money back –
the Tax Percentage Drawback will likely suit you better.
How to Apply for a Drawback
Step 1: Keep Detailed Records of All Raw Materials and Components
To qualify for drawback, you must maintain accurate documentation for every raw material –
whether purchased locally or imported.
✅ Keep all import declarations.
✅ Document production processes and material usage.
✅ Keep export declarations for every shipment leaving Israel.
Step 2: Submit Your Application to the Customs Authority
Your application must include the following:
✔️ Import declaration – proof of tax payment.
✔️ Export declaration – proof that the final product was indeed exported from Israel.
✔️ Production reports and material documentation – clear records showing how imported materials were used in manufacturing.
Step 3: Approval and Refund
Once your application has been reviewed and approved,
the Customs Authority will issue a tax refund to your bank account –
or grant a tax deferral for importers using the deferred tax method.
Common Mistakes That Lead to Losing Drawback Refunds
🔻 Poor document management
If import and export data don’t match properly, Customs may reject your claim.
🔻 Late submission
Remember – refunds can be claimed up to 5 years for imports and 3 years for local purchases.
🔻 Partial use of raw materials
Only materials fully used in the production of export goods are eligible for refunds.
🔻 Ignoring international trade agreements
Make sure your refund complies with relevant trade agreements between Israel and other countries.
Why It’s Important to Understand the Drawback Process
✔️ Significantly reduces import costs.
✔️ Improves your company’s cash flow.
✔️ Maximizes profitability within the legal framework.
✔️ Enables smarter financial planning for export operations.
If you are an importer or an exporter, don’t leave money on the table! Check your eligibility for Drawback and start saving today.
