What exactly is the product being imported?
Every product imported into Israel must be classified under an appropriate customs tariff Heading, in accordance with the Customs Tariff and Purchase Tax Order. The customs tariff Heading is effectively the product’s “code” within the customs tariff. It may determine the rates of customs duty and purchase tax applicable to the product, as well as the approvals, licenses and standards required for its importation.
The classification system is based on the international Harmonized Commodity Description and Coding System (Harmonized System or HS), established by the International Convention on the Harmonized Commodity Description and Coding System and developed under the auspices of the World Customs Organization (WCO), which is headquartered in Brussels. Under this system, each category of goods is assigned a numerical code. As a general rule, the first six digits are common to all contracting parties to the Convention, including Israel. Each country may then add further digits for its own purposes and determine the applicable tax rates and import requirements within its jurisdiction. For example, smartphones are classified by all contracting parties under HS subheading 8517.13.
Disputes frequently arise between importers and the Israel Customs Authority regarding the correct classification of a product. Such disputes may have significant financial and regulatory implications: the classification may determine the applicable tax rates, whether approval is required from a government authority – such as the Ministry of Health or the Ministry of Transport – and whether particular standards, licenses or other statutory requirements apply.
Classification disputes are especially common in relation to new or multi-purpose products. Technology develops rapidly, and new products sometimes reach the market before the customs tariff provides an express and precise classification for them. The difficulty is greater where a single product can perform several different functions, or where its characteristics appear to correspond to more than one customs tariff heading.
One example can be found in the rapidly developing field of personal mobility, which includes electric bicycles, electric scooters, Segways and hoverboards. The customs tariff does not always provide a separate classification for each of these products. Consequently, a product commonly known as an “electric scooter” may, for customs purposes, be classified under a heading covering motorcycles and similar vehicles.