AGREEMENT ON PREPARATORY
TRANSFER OF POWERS AND
RESPONSIBILITIES

Annex VI

Protocol Concerning Preparatory Transfer of Powers and Responsibilities in the Sphere of VAT on Local Production

1. The powers and responsibilities of the Civil Administration in the sphere of VAT on local production in the West Bank will be transferred to and will be assumed by the Palestinian Authority.
   
   
2. For the purpose of this Annex the term " VAT " shall refer to Value Added Tax on local production imposed on the sale of assets and the provision of services by dealers.
   
   
3. The sphere of VAT shall include all matters dealt with in the laws, regulations and military orders listed in Appendix A, subject to the principles set forth in this Annex.
   
   
4. In accordance with Protocol IV of the Gaza - Jericho Agreement, while the prevailing system and principles of VAT in the West Bank will continue to apply, the Palestinian VAT rate shall not be lower than 15% to 16% and the maximum annual turnover for dealers to be exempt from VAT will be decided by the Palestinian Authority, within an upper limit of 12,000 US dollars.
   
   
5. Subject to paragraph 6 below, each side will register for VAT purposes dealers who are subject to its powers and responsibilities, notwithstanding the place of their activity.
   
   
1. Ongoing permanent businesses will register for VAT purposes with the VAT administration of the side exercising powers and responsibilities in the place in which they are situated.
   
   
2. Notwithstanding subparagraph 6.a, ongoing permanent Israeli businesses situated outside the settlements and military locations will be registered for VAT purposes with the Civil Administration. The rules of Palestinian VAT legislation will apply to these businesses. The Civil Administration will transfer to the Palestinian Authority the net VAT collected from these businesses, after deduction of their refunds.
   
   

6. For the purpose of this Annex, and for the purpose of the application of Appendix B of Annex V to this Annex pursuant to paragraph 17 below -
   
   
1. A corporation will be regarded as either a Palestinian or an Israeli if the

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