israeli-tax-withholding

Israeli Tax Withholding

Legal notice

This is a free information tool operated by an AI model. It explains the tax rules and helps you organise your own figures. All of its outputs are produced automatically by an AI model, with no involvement, review, or approval by a tax adviser or accountant. The output is not a tax opinion, not a return prepared by a licensed representative, and not professional advice, but a general calculation and explanation only: it does not examine the full extent of your income or your complete documents. An AI model may err, omit data, or present a wrong conclusion.

Any form or text this tool produces is an automatic draft for your personal preparation only, and is not a filed return. Responsibility for reporting and for paying the tax is yours, the binding computation is the Tax Authority's, and representation before the Tax Authority is reserved to those permitted by law. This tool is not a substitute for advice that takes account of the particular circumstances and needs of each person. Consult a tax adviser or accountant before filing or paying. All use of its output is the user's sole responsibility.

Instructions

Step 1: Identify Payment Type and Default Rate

Payment Type	Hebrew	Default Rate	Section
Services/assets (payee keeps acceptable books, no certificate)	shlumim avur sherutim o nechasim	20%	reg. 1977
Services/assets (payee without acceptable books, no certificate)	shlumim avur sherutim o nechasim	30%	reg. 1977
Services (companies, no certificate)	shlumim avur sherutim	20%, or 30% without acceptable books (reg. 2 draws no individual/company distinction)	reg. 1977
Rent (real estate, where the tenant deducts the rent as a business expense)	schar dira	35% (uniform, no residential/commercial split)	reg. 1998
Royalties	tamlugim	No separate category in the 1977 regulations: a payment to a resident falls under the 20%/30% services-and-assets rule; a payment to a non-resident is withheld under section 170	170
Interest	ribit	25% to an individual (15% on a non-index-linked asset); the maximum rate to a company (the 23% corporate rate), and the maximum rate when a company pays its substantial shareholder, its employee or its supplier (reg. 6, the top section 121 rate for an individual)	reg. 2005
Dividends	dividendim	To an individual: 25%, 30% to a substantial shareholder. Company to an Israeli-resident company: withheld only where a limited rate applies under any law (reg. 2(א1))	reg. 2005
Building and haulage work	avodot bniya vehovala	20%; 17% or 15% with the assessing officer's written approval; 10 points higher without acceptable books	reg. 1973
Agricultural work / agricultural produce	avoda chaklait / tozeret chaklait	20% / 5%; 10 points higher without acceptable books	reg. 1979
Payments to non-residents	tishlumin letoshvei chutz	25% to an individual, the 23% corporate rate to a company, unless the assessing officer sets another rate in writing; see Step 9	170

For a service/asset payment with no certificate, the statutory default under the 1977 regulations is 20% where the payee keeps acceptable books (reg. 2(a), the ordinary case) and 30% where the payee does not (reg. 2(b), the penalty rate for an unverified/no-books payee, not a separate "high" rate; there is no ~47% service-withholding rate). Start from 20% and move to 30% only once you know the payee failed the books-and-returns test. A valid certificate from the assessing officer sets a reduced rate or an exemption for that payee. Rent on real estate that the tenant deducts as a business expense is withheld at a uniform 35% (there is no separate residential vs. commercial rate); a private residential tenant who cannot deduct the rent is generally not a withholding agent at all.

Every category has two rates, not one. The ITA states this as a general rule of the withholding regulations, not a quirk of the services category: "In the regulations for withholding tax from income that is not wages, different rates were set for those who keep valid books and file the report on time, and higher rates for refusers." So a single quoted rate for any category is incomplete by construction. Always establish the payee's bookkeeping and filing status before quoting a number.

De-minimis: reg. 2(a) excludes a payment for an asset or service whose value does not exceed the amount fixed in section 2(b) of the Public Bodies Transactions Law, 1976, which stands at 5,520 NIS. The test in the regulation is the value of that asset or service, not a running annual total, and neither text says whether the figure is VAT-inclusive, so do not assert that either way. The amount is updated by ministerial notice, so verify the current-year figure.

Step 2: Check for Withholding Certificate

A valid withholding certificate (ishur nikui mas bemakor) may reduce or eliminate the withholding:

Certificate shows: business name, TIN, approved rate, validity period
Verify online, shortly before each payment. Certificates are electronic only and are not printed or mailed, and instruction 02/2026 puts the duty to check them close to payment on the payer. Confirm today's date falls inside the validity shown. Do not assume a calendar year: under that instruction the certificates issued for 2026 run from 1.1.2026 (or their issue date, if later) to 31.3.2027, with a 1.1.2026 to 31.3.2026 overlap in which the 2025 certificates stayed valid. A certificate cannot be back-dated
Verify: certificate is genuine, issued by the ITA
Online lookup: verify the payee's certificate status through the ITA's gmishurim service (see Reference Links)

Step 3: Calculate Withholding

Payment amount (before VAT): X NIS
Withholding rate: Y% (from certificate, or default)
Withholding amount: X * Y%
Net payment to payee: X - withholding
VAT (if applicable): calculated separately on the full pre-withholding amount

Step 4: Periodic Reporting and Payment (Form 102)

Supplier withholding is a monthly cycle: reg. 4 of the 1977 regulations requires the return and the payment by the 16th of each month for the previous month. Withhold at the time you pay, not when the invoice arrives.
Form 102 is the periodic deductions report and payment. It summarises the wages/payments and the income tax (and, on the National Insurance side, the parallel 102) withheld in the period.
Deadline: the 16th of each month, not the 15th. This is in the regulation itself: reg. 4 of the 1977 regulations reads "A payer shall submit to the assessing officer by the 16th day of each month an account ... and shall pay him on that same date the total amount of tax withheld". The amendment history is explicit that this replaced the 15th, by Amendment 2017. The 15th is the Bituach Leumi date, and BTL has its own separate form also called 102, which is why the two get conflated. Late reporting and late payment carry penalties and indexation.
Reg. 4 names form 0852 as the per-payee return the payer files on that date for service and asset payments. Do not assume Form 102 alone discharges the obligation for supplier withholding.

Step 5: Annual Reconciliation (Form 856)

Form 856 is the ANNUAL withholding reconciliation for payments to suppliers and service providers. It is a detailed file listing every payee, the total paid, and the total withheld during the year, reconciled against the Form 102 deposits made through the year.
Deadline: 30 April, online. Section 166(b) of the Ordinance sets it by statute for form 0856 (and 0126 for salaries): "online, by April 30 following the tax year". Reg. 5(a) of the 1977 regulations still carries an older 31 March date and names the per-payee 0851 cards. Check for an ITA extension notice for the current year before telling a user they are late.
Workflow: deposit withheld amounts monthly via form 0852 / Form 102 -> at year end, compile the per-payee detail file -> submit Form 856.
Form 856 is separate from the payee's own annual return; it is the payer's obligation as the withholding agent.
Interest and dividends: the payer gives the recipient, on request and by 20 March, a certificate on form 0867 (2005 regulations).
Form 0857, the payee's annual certificate. Reg. 6 of the 1977 regulations requires the payer to give every payee a certificate on form 0857 of the payments made and the tax withheld in the previous tax year, by 20 March. Payees need it to credit the withholding on their own return.
Form 126 is the salary-side counterpart: the annual report of employee salaries and the tax withheld from them, filed alongside Form 856 on the same 30 April online date under section 166(ב). A payer with both suppliers and employees files both: 856 for suppliers/service providers, 126 for salaries.

Step 6: Certificate Types

Certificate	Hebrew	Purpose
Ishur Nikui Mas BeMakor	ishur nikui mas bemakor	Reduced/zero withholding on payments
Ishur Tium Mas	ishur tium mas	Tax coordination for multiple payers/employers

Withholding on the sale of real estate runs under the Land Taxation Law, not this regime, and is outside this skill.

Step 7: How to Obtain a Certificate

Apply through the ITA online services (the gmishurim system).
Provide: TIN, financial statements, tax returns.
Validity is shown online. The 2026 certificates run to 31.3.2027, and taxpayers with a clean file are renewed automatically without applying (execution instruction 02/2026). A company taxed at the section 126(a) rate may ask that withholding not exceed that rate.
Check the dates each time rather than assuming a January-December year.

Step 8: Who Is a Mandatory Withholder, and Which Payments Are Covered

The size test is in the order, not in the regulations. The 1977 regulations define the payments they cover by reference to Income Tax Order (Determination of Payments for Services or Property as Income), 1977, and that order lists who is a withholding payer: the State and public bodies, government companies, financial institutions, hospitals and similar bodies, and any business required to keep double-entry books or whose turnover exceeded the amount in Schedule A to the order. Section 2א of the order then excludes payments by an individual, a partnership of individuals, or a company outside a group, where in each of the three relevant tax years turnover did not exceed the Schedule A amount AND they were not required to keep double-entry books. The last year shown in the consolidated Schedule A on Nevo is 2018, at 5,300,000 NIS; the amount is updated by order, so confirm the current figure. Check both limbs before telling a small payer they are outside the regime, and never on turnover alone:

Section 164 of the Ordinance imposes the duty, and the ITA describes the scoping mechanism as an order: "The determination of the types of payers and the types of payments is done by order of the Minister of Finance and with the approval of the Knesset Finance Committee", under which "a series of payments and payers to which the withholding duty applies was determined". The withholding family is therefore an open, order-by-order set, not a closed list.
The 1977 regulations add one more exit: an individual or a partnership of individuals whom the assessing officer has approved in writing as not being a payer for a given tax year following a material contraction of their business.
Certain recipients are outside the regime under Schedule A to the same regulations (the State, Bank of Israel, a local authority, the State Comptroller, an association of towns, the National Insurance Institute, a religious council, the Jewish Agency, the World Zionist Organization, the Airports Authority, KKL, the Employment Service, Keren Hayesod, the Administrator General, a banking institution, an insurer, and a house-committee representation for common-property maintenance charges).

Step 8a: The Full Set of Withheld Payment Types

The categories above are the ones this skill prices. They are not the whole statutory set. Section 166(c) of the Ordinance defines "income subject to withholding" by listing the section 164 payment types: insurance commission; fees of artists, examiners, lecturers, providers of office services, directors and sportspeople; authors' fees; payment for agricultural work or agricultural produce; building and haulage work; clothing, metal, electrical and electronics work; diamond processing or diamond trading; and payments for services or assets. The ITA repeats the same list in its taxpayer guide, adding interest, dividends, work-injury and reserve-duty payments, indirect-damage compensation, and capital gains including traded securities.

Do not invent a rate for a category this skill does not price. Building and haulage (reg. 1973) and agricultural work/produce (reg. 1979) are now priced in Step 1 from their own regulations. Diamonds, insurance commission, and the fees of artists, lecturers, directors and sportspeople are confirmed statutory categories whose operative rates sit in their own regulations under section 164 and are not reproduced here. The ITA declines to publish a consolidated rate table at all and directs users to the live per-payee figure: "Available and up-to-date information regarding withholding tax rates can be obtained by payers and payees directly from the Israel Tax Authority website." Query the payee's own rate by company/dealer number at the ITA lookup in Reference Links, and treat that result as authoritative over any table.

Step 9: Payments to Non-residents (Section 170)

Rate. Section 170(a) fixes it in the statute: 25% where the payee is an individual, and the corporate rate under section 126 (23%) where the payee is a company, "or another rate that the assessing officer shall set for them in a written notice". The assessing officer may also allow payment with no withholding.
Scope. Section 170 covers income not already withheld under sections 161 and 164. Dividends and interest to a non-resident are withheld under the 2005 regulations instead (dividends 25%, or 30% to a substantial shareholder).
The bank is a payer too. Section 170 treats the financial institution that transfers the payment as a payer, unless it holds an assessing-officer approval exempting it, so the transferring bank carries the withholding duty too.
Deadline. Tax withheld under section 170(a) is paid to the assessing officer within 7 days of withholding, with a report (section 171). This is not the monthly 16th cycle.
Two relief routes, not one. Form 2513/2 is a bank declaration for exempt payment types only: investment in shares, real estate or tangible assets abroad, loans, options, investment in a foreign partnership, and (since the ITA letter of 15.12.2025) digital assets bought on a KYC exchange, for payees resident in a treaty or CRS country. The form itself says every other payment type goes through the ordinary route under execution instruction 34/93, i.e. the assessing officer. Service fees, licences and royalties are in that second group.
Services performed wholly abroad. Instruction 34/93 s.3.9 carries a relief for services "that were provided and performed in full abroad" by foreign providers; the ITA's 16.12.2025 supplement raised its cap to $250,000 per payer. That supplement is titled as an update on "special companies" (special companies), an approval status under 34/93, and it stresses that such a company stays liable for the tax if it withheld less than required. Read the instruction's conditions before relying on either.
Payer bears the tax (gross-up). If the contract fixes the net amount the vendor receives and you pay the Israeli tax on top, the arithmetic is: tax = net x rate / (1 - rate), e.g. 10,000 net at 23% gives 2,987.01 of tax on a 12,987.01 base. --payer-bears-tax computes it. This is arithmetic, not an ITA instruction; confirm the base with an advisor or the assessing officer.
Year-end accruals. Under section 18(ה), an expense to a non-resident that is subject to withholding under section 164 or 170 is deductible in its year only if paid, or the tax withheld, no later than three months after year-end, and the tax transferred within 7 days of withholding.

Examples

Example 1: Payment to Freelancer

User says: "I need to pay a freelancer 10,000 NIS for consulting" Result: With no certificate, the default for a freelancer who keeps acceptable books and files on time is 20% = 2,000 NIS withheld, 8,000 NIS net payment, plus 1,800 NIS VAT (if the payee is an osek murshe). The 30% rate (3,000 NIS withheld, 7,000 NIS net) applies only where the payee cannot show the assessing officer that they kept acceptable books and filed their returns. Do not open at 30%: for an ordinary compliant freelancer that over-withholds by half. Recommend asking the freelancer whether they hold a reduced-rate or exemption certificate, and check their status on the ITA lookup. A payment for a service worth no more than 5,520 NIS is outside the duty altogether (the de-minimis in Step 1).

Example 2: Certificate Check

User says: "A vendor gave me a 0% withholding certificate, is it valid?" Result: Check the payee on the ITA gmishurim lookup shortly before paying, confirm today falls inside the validity shown there and that the vendor's TIN matches. Certificates are electronic, so the online record, not a paper copy, decides.

Example 3: Cross-border Payment

User says: "I need to pay a US company for software licenses" Result: The payee is a company, so the section 170 default is the 23% corporate rate, not 25% (25% is the rate for a non-resident individual). The tax is paid to the assessing officer within 7 days of withholding (section 171). A reduced treaty rate is NOT automatic: it runs through the assessing officer under execution instruction 34/93, because software licences are not among the payment types the bank declaration form 2513/2 accepts. Whether a software payment is a royalty, a service or a purchase changes the treatment, so have a tax advisor classify it before relying on a treaty rate.

Bundled Resources

Scripts

scripts/calculate_withholding.py -- Calculates Israeli tax withholding (nikui mas bemakor) amounts for services (with and without books), rent, interest, dividends, building and haulage, agriculture, and non-resident payments split into non_resident_individual (25%) and non_resident_company (23%). Categories with no single sourced rate (royalties, company-to-company dividends, related-party interest, diamonds, insurance commission, prizes) return a routing message instead of a number. Applies the 5,520 NIS de-minimis to service/asset payments, drops the VAT line for interest, dividends, non-residents, residential rent (exempt, VAT Law s.31(1)) and agricultural produce (unprocessed fruit and vegetables of the types the Finance Minister set are zero-rated, s.30(a)(13); other produce may carry VAT, so pass --with-vat), grosses up with --payer-bears-tax, and supports certificate rates. Run: python scripts/calculate_withholding.py --help

References

references/withholding-rates.md -- Default withholding rates by payment type under Section 164 (including rent) and Section 170 (non-residents), including rates for individuals, companies, major shareholders, and non-residents. Consult when determining the correct default rate for a payment.
references/certificate-guide.md -- Guide to Israeli withholding certificates: types (Ishur Nikui Mas BeMakor, Ishur Tium Mas), application process, validity periods, and verification through the ITA gmishurim service. Consult when a vendor presents a withholding certificate or when guiding users through the certificate application process.

Recommended MCP Servers

israel-law -- look up the Income Tax Ordinance sections (164, 170) and the cash-use law text when you need the primary legal source behind a withholding rule.

Gotchas

Israeli withholding rates are set by the regulations and by the ITA per business, not as one flat rate. With no certificate the service/asset default is 20% where the payee keeps acceptable books and 30% where they do not; there is no ~47% service-withholding rate (that figure is not in the regulations, do not cite it). An established payee may hold a reduced-rate or exemption certificate. Do not hardcode a single rate.
The common case is 20%, not 30%. The 30% figure is the sanction for a payee who could not prove acceptable books and timely returns. Defaulting to it silently over-withholds an ordinary compliant supplier by half and pushes them into a refund claim. scripts/calculate_withholding.py --type services uses 20%; use --type services_no_books for the sanction rate.
The skill prices only some of the section 164 categories. Diamond processing and trading, insurance commission, artists, examiners, lecturers, directors and sportspeople are all statutory withholding categories whose rates are NOT in this skill. If asked about one, say the category exists, name the statute, and send the user to the per-payee lookup. Never estimate the rate.
Withholding exemption/reduction certificates (ishur nikui mas bemakor) are time-limited but no longer track the calendar year: the 2026 certificates run to 31.3.2027. Read the dates on the certificate; do not tell a user it expired on 31 December.
When paying a foreign contractor, Israel requires withholding unless a tax treaty provides a reduced rate. Do not apply domestic rates to international payments or skip withholding entirely. And do not quote a flat 25%: that is the individual rate; a foreign company is withheld at the 23% corporate rate.
A payer who withholds and does not remit, or never withholds, is assessed for the tax itself (sections 167 and 173) and in suitable cases faces criminal sanctions (sections 218 or 219). Losing the expense deduction is on top of that, not instead of it.
Withholding on rent that the tenant deducts as a business expense is a uniform 35%, there is NO separate residential vs. commercial rate, and no "30% residential" rate exists. A private residential tenant who cannot deduct the rent is generally not a withholding agent at all. The reduced/zero rate applies only with a valid certificate.
2026 black-market legislation (Income Tax Circular 3/2026, 9.2.2026). Three separate limbs, with different triggers and dates. (1) Section 32A: from payments made on 1.1.2026, an expense subject to withholding is allowed only if the withheld tax was actually transferred to the assessing officer, not just reported, unless the payee paid the tax, the tax was withheld under an assessing-officer approval, or no withholding duty applied; the rule does not apply to a mainly private expense such as a home rented with a business corner. (2) Section 32(16א): a cash-law breach disallows the expense only once a financial sanction has actually been imposed, for payments from 1.1.2026; the parallel VAT limb, section 38(א2), denies input VAT on invoices issued from 1.1.2026 on the same sanctioned-breach condition. A withholding failure alone does not deny input VAT. (3) Section 32(18): from expenses paid on 1.8.2025, no deduction without an allocation number where one is required; the threshold fell to 10,000 NIS from 1.1.2026 and to 5,000 NIS from 31.5.2026. The cash-use law caps cash at 6,000 NIS in ANY transaction where a dealer (osek) is a party, on either side (sections 2(א) and 2(ג)), so a dealer taking 10,000 in cash from a private consumer is already in breach. The 15,000 ceiling applies only when NEITHER side is a dealer. And the ceiling is not the whole rule: permitted cash is the LOWER of the scheduled amount or 10% of the transaction price, so on a 20,000 NIS deal the real cash limit is 2,000, not 6,000. Treat a missed withholding or a cash-law breach as a deduction risk, not just a reporting issue.

Reference Links

Source	URL	What to Check
Israel Tax Authority (ITA)	`https://www.gov.il/he/departments/israel_tax_authority`	Default withholding rates per activity, annual updates
Withholding certificate lookup (gmishurim)	`https://www.gov.il/he/service/itc-gmishurim`	Verify a vendor's certificate status and validity period
Per-payee rate lookup (misim.gov.il)	`https://www.misim.gov.il/gmishurim/frmInputMekabel.aspx`	The authoritative operative rate for a specific payee, queried by company/dealer number. Use this instead of a table whenever the payee is known
ITA taxpayer guide, chapter 8 section 9	`https://www.gov.il/BlobFolder/generalpage/income-tax-guide-knowyourright/he/Guides_IncomeTax_da-2025.pdf`	The two-tier rate rule, the order-based scoping of withholders, and the ITA's own list of withheld income types
gmishurim direct lookup tool	`https://taxinfo.taxes.gov.il/gmishurim/firstPage.aspx`	Direct online check of a payee's withholding/bookkeeping status
Income Tax Ordinance s.164/170	`https://www.nevo.co.il/law_html/law01/255_001.htm`	Legal basis for withholding on services, rent, non-residents
ITA Circular 3/2026 (black-money amendments)	`https://www.gov.il/BlobFolder/policy/professional-directives-090226-1/he/IncomeTax_professional-directives-090226-1.pdf`	The three disallowance limbs, their triggers and commencement dates
ITA execution instruction 02/2026	`https://www.gov.il/BlobFolder/policy/inst-02-2026/he/IncomeTax_inst-02-2026.pdf`	Certificate validity period and automatic renewal
Form 2513/2 (bank declaration, non-resident)	`https://www.bankhapoalim.co.il/sites/default/files/media/PDFS/declaration_of_overseas_transfer_exemption_from_tax2513_2.pdf`	The closed list of payment types the declaration route accepts
ITA publications index	`https://www.gov.il/he/collectors/publications?OfficeId=c0d8ba69-e309-4fe5-801f-855971774a90`	Current forms (856, 102, 0852), circulars and treaty publications. The two direct gov.il links this table used to carry, for form 856 and for the taxation agreements guide, both 404 as of 2026-08-19, so search here instead

Troubleshooting

Error: "Certificate expired"

Cause: the validity shown for the certificate has passed. For the 2026 certificates, instruction 02/2026 set validity to 31.3.2027, not to 31 December; read the dates for the current year's certificates rather than assuming either. Solution: check the payee's current status on the ITA lookup (clean files are renewed automatically), and ask the vendor for the new certificate if none shows.

Error: "Wrong withholding rate applied"

Cause: using the default rate when a certificate exists, or vice versa; or confusing the with-books (20%) and no-books (30%) service defaults. Solution: always request the certificate before the first payment, apply the certificate rate only during its validity period, and for a no-certificate service payment use 20% if the payee keeps acceptable books, 30% if they do not.

Error: "Late reporting penalty"

Cause: the periodic deductions report (Form 102) was not filed by the 16th. Solution: file immediately. Penalties and indexation apply for late reporting and late payment of withheld amounts. Remember the separate annual Form 856 reconciliation (30 April, online, under section 166(ב)).

Error: "Deduction disallowed by the tax office"

Cause: under Circular 3/2026, an expense subject to withholding is disallowed when the withheld tax was not both reported and transferred (section 32A, from 1.1.2026). A cash-use breach (cash over 6,000 NIS, or over 10% of the transaction price if that is lower, in any transaction where a dealer is a party) disallows the expense and the input VAT only once a financial sanction has been imposed. Solution: withhold, report on form 0852 / Form 102 and actually pay the tax by the 16th, keep the per-payee detail for Form 856, and pay above-threshold amounts by non-cash means.