Israel's Value Added Tax (VAT) currently stands at 15.5%. According to law, the total listed all bills and receipts must be inclusive of VAT, unless otherwise noted.
Foreign tourists that do not possess Israeli passports are exempt from VAT charges at hotels, on flights, organized tours and car rentals, either with or without driver. This is so only when payments are made in foreign currency, or with a credit card from a foreign bank. In addition, tourists from abroad that do not have Israeli citizenship or an Israeli passport may receive a refund on the VAT they have paid for certain purchases made in Israel. The refund will only be received in the following cases:
The purchase is made at a shop authorized by the Israel Tax Authority and the Ministry of Tourism to participate in the refunding arrangement (a sticker noting the shop's participation should be placed on the door or window of the shop), and the shopper receives a special VAT invoice (“Refund Invoice”).
The price of the purchase including VAT (per tax invoice) exceeds $100.
The relevant goods must be taken out of the country.
The goods purchased are intended for personal use only and are in non-commercial quantities.
The goods purchased do not include food, drink, or tobacco products (VAT will not be refunded for those goods).
Procedure: The shopkeeper should place the goods together with the special VAT refund invoice in a sealed and transparent nylon bag (Make sure the required details are filled out accurately on the refund invoice and that the goods and the refund invoice are placed in the bag prior to it being sealed). The bag must not be opened until it is presented for VAT refund.
To receive the VAT refund when departing from Israel, tourists need to go  to the VAT refund counter of Change Place Ltd. and present the sealed bag (which contains the goods and the refund invoice), as well as the tax invoice. Tourists departing from Ben Gurion International Airport and who wish to receive a VAT refund on items to be checked with their luggage should go to the Change Place VAT counter prior to the security check and present their flight ticket, passport and the sealed bag with  the original VAT invoice and all the goods listed on it. They will receive the actual refund only after they pass through passport control. VAT refunds are only given in Israel and requests from abroad once the tourist has left will not be honored.
Border crossings where VAT refunds are available:
Airports: Ben Gurion Airport. Eilat Airport. Ovda Airport. Ashdod
Seaport. Eilat Seaport. Haifa Seaport.
Land Border Crossings: Nahar-HaYarden (Hussein) Bridge. Allenby Bridge. Rafiah Border Crossing. Taba Border Crossing. Aravah Terminal.
(Note: Change Place Ltd. is a private company that charges a commission for its service).
Eilat is a VAT-free zone for just about everything except cigarettes.