When advising on Israeli tax withholding at source (ניכוי מס במקור — Nikui Mas BeMakor).
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General reference only
This Guide is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for your personal facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.
Source-cited draft. This Guide is source-cited but has not been reviewed by a licensed practitioner. It may be incomplete, outdated, or wrong.
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Services (individuals, no certificate) — default withholding rate
30%Income Tax Ordinance — Section 164
Services (individuals, no certificate) — maximum rate for unverified payees
~47%Income Tax Ordinance — Section 164
Services (companies, no certificate) — default withholding rate range
20–30% by ITA classificationIncome Tax Ordinance — Section 164
Rent — business/commercial property — default withholding rate
35%Income Tax Ordinance — Section 170
Rent — residential property — default withholding rate
30%Income Tax Ordinance — Section 170
Royalties — default withholding rate
23%Income Tax Ordinance — Section 170
Interest — default withholding rate
25%Income Tax Ordinance — Section 164
Dividends — default withholding rate range
25–30%Income Tax Ordinance — Section 164
Payments to non-residents — default withholding rate
25%Income Tax Ordinance — Section 170
Conservative default rate — unknown/unclear payment type
30%Income Tax Ordinance — Section 164
Conservative default rate — unknown resident/non-resident status
25%Income Tax Ordinance — Section 170
De minimis single-payment threshold — withholding not required below this amount (annually indexed)
NIS 5,520Income Tax Ordinance — Section 164
Cash payment limit — B2B; above this amount triggers deduction disallowance
NIS 6,000Law for Reduction of the Use of Cash
VAT rate applied on gross payment amount
18%Value Added Tax Law (Israel)
Form 102 (periodic withholding report) — deadline for small businesses (bi-monthly)
15th of the month after the bi-monthly periodIncome Tax Ordinance — Section 164
Form 102 (periodic withholding report) — deadline for larger businesses/employers (monthly)
15th of the following monthIncome Tax Ordinance — Section 164
Form 856 (annual withholding reconciliation) — annual filing deadline
April 30 of the year following the reporting yearIncome Tax Ordinance — Section 164
Form 102 — reporting frequency for small businesses
Bi-monthlyIncome Tax Ordinance — Section 164
Form 102 — reporting frequency for larger businesses/employers
MonthlyIncome Tax Ordinance — Section 164
Certificate validity period — expiry date
December 31 of the current tax yearIncome Tax Ordinance — Section 164
Tax year — calendar period
January 1 – December 31Income Tax Ordinance
Late Form 102 reporting/payment — consequence
Penalties and indexation (הצמדה + ריבית)Income Tax Ordinance — Section 164
Missed withholding — payer liability for shortfall
Payer liable for the withholding shortfallIncome Tax Ordinance — Section 164
Missing Form 856 by April 30 — consequence
Separate annual reconciliation penaltyIncome Tax Ordinance — Section 164
2026 rule — expense deduction disallowed where payer failed to withhold as required
Expense deduction and input VAT both disallowedIncome Tax Circular 3/2026
2026 rule — expense deduction disallowed where payer failed to report withholding as required
Expense deduction and input VAT both disallowedIncome Tax Circular 3/2026
2026 rule — expense deduction disallowed for B2B cash payment over NIS 6,000
Expense deduction and input VAT both disallowedIncome Tax Circular 3/2026; Law for Reduction of the Use of Cash
Based on work by Skills IL, licensed under MIT. Adapted for the OpenAccountants format.
| Field | Value |
|---|---|
| Country | Israel (מדינת ישראל) |
| Scope | Withholding tax at source on payments to suppliers, freelancers, landlords, and non-residents |
| Currency | NIS (Israeli New Shekel — ₪) |
| Governing law | Income Tax Ordinance — Sections 164 and 170 |
| Tax authority | Israel Tax Authority (ITA — רשות המיסים בישראל) |
| Periodic report | Form 102 (טופס 102) — monthly or bi-monthly |
| Annual reconciliation | Form 856 (טופס 856) — due April 30 |
| Certificate verification | gmishurim service — https://taxinfo.taxes.gov.il/gmishurim/firstPage.aspx |
| Contributor | Open Accountants Community |
| Validated by | Pending — requires sign-off by Israel-licensed רואה חשבון or יועץ מס |
| Ambiguity | Default |
|---|---|
| No withholding certificate provided | Apply default rate for payment type |
| Certificate year not verified | Treat as expired — apply default rate |
| Unknown whether payee is resident or non-resident | Treat as non-resident (25% rate) |
| Payment type unclear | Apply 30% services default |
| Unknown whether payer exceeds mandatory withholder threshold | Withhold to be safe |
| Payment type | Hebrew | Default rate | ITO Section |
|---|---|---|---|
| Services — individuals, no certificate | שלומים עבור שירותים | 30% (up to ~47% for unverified payees) | 164 |
| Services — companies, no certificate | שלומים עבור שירותים | 20–30% by ITA classification | 164 |
| Rent — business/commercial property | שכירות נכסי נדל"ן | 35% | 170 |
| Rent — residential property | שכר דירה למגורים | 30% | 170 |
| Royalties | תמלוגים | 23% | 170 |
| Interest | ריבית | 25% | 164 |
| Dividends | דיבידנדים | 25–30% | 164 |
| Payments to non-residents | תשלומים לתושבי חוץ | 25% | 170 |
The "20% flat" figure from older guidance is incorrect. The ITA default for a service payment with no certificate is 30%, and the tax office can set it as high as ~47% for an unverified payee. A valid certificate is what brings the rate down (often to 0–5%).
A single payment to a payee below approximately NIS 5,520 (annually indexed) does not require withholding, unless cumulative payments to that payee cross the threshold. Always verify the current-year threshold.
| Certificate | Hebrew | Purpose |
|---|---|---|
| Ishur Nikui Mas BeMakor | אישור ניכוי מס במקור | Reduced or zero withholding on payments received |
| Ishur Tium Mas | אישור תיאום מס | Tax coordination for individuals with multiple payers/employers |
| Ishur Nikui Mas Rechisha | אישור ניכוי מס רכישה | Real estate purchase tax withholding |
When a payee presents a withholding certificate:
Payment amount (before VAT): X NIS
Withholding rate: Y% (from certificate, or default)
Withholding amount: X × Y%
Net payment to payee: X − Withholding amount
VAT (if applicable): Calculated separately on the full pre-withholding amount
Scenario: Business pays NIS 10,000 to a freelancer (Osek Murshe) for consulting, no certificate.
| Line | Amount (NIS) |
|---|---|
| Gross payment (before VAT) | 10,000 |
| Withholding (30% default) | 3,000 |
| Net payment to freelancer | 7,000 |
| VAT (18% on gross) | 1,800 |
| Total paid by business | 8,800 (net 7,000 + VAT 1,800) |
If the freelancer provides a valid certificate showing 2% withholding:
| Line | Amount (NIS) |
|---|---|
| Gross payment (before VAT) | 10,000 |
| Withholding (2% per certificate) | 200 |
| Net payment to freelancer | 9,800 |
| VAT (18% on gross) | 1,800 |
| Total paid by business | 11,600 (net 9,800 + VAT 1,800) |
For payments to non-residents:
Amounts withheld must be reported and paid to the ITA periodically:
| Business size | Reporting frequency | Deadline |
|---|---|---|
| Small businesses | Bi-monthly | 15th of the month after the period |
| Larger businesses / employers | Monthly | 15th of the following month |
Late reporting and late payment carry penalties and indexation (הצמדה + ריבית).
Not every payer must withhold. A business becomes a mandatory withholding agent for service/asset payments once its turnover crosses the ITA's indexed turnover threshold. Below the threshold, withholding on service payments may not be required, but a business with employees still files Form 102 for payroll.
Form 856 (טופס 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.
| Field | Description |
|---|---|
| Supplier details | ID/company number, name, address |
| Total payments | Gross amount paid during the year |
| Tax withheld | Amount withheld at source |
| Payment type | Services, goods, rent, commissions, etc. |
April 30 of the year following the reporting year.
Income Tax Circular 3/2026 (effective for payments made from 1.1.2026):
An expense or input-VAT deduction is disallowed where the payer:
Treat a missed withholding or a cash-law breach as a deduction risk, not just a reporting issue. The business loses the right to deduct the expense for income tax purposes AND loses the right to claim input VAT on the payment.
| Error | Consequence |
|---|---|
| Using the legacy "20% for services" rate | Under-withholding; payer liable for the shortfall |
| Not checking certificate expiry | Applying a reduced rate when certificate has expired |
| Applying domestic rates to non-resident payments | Under-withholding; potential double taxation issues |
| Using residential rent rate (30%) for commercial property | Should be 35% for commercial |
| Cash payment over NIS 6,000 in B2B | Expense deduction disallowed under 2026 rules |
| Missing Form 102 deadline | Penalties and indexation on late payment |
| Not filing Form 856 by April 30 | Separate annual reconciliation penalty |
| Item | Why it needs a professional | What to ask |
|---|---|---|
| Tax treaty application | Treaty rates and documentation requirements vary by country | "Which country is the payee resident in? Provide the treaty article relied on." |
| Withholding on real estate transactions | Complex exemption rules under Mas Rechisha | "Is this a residential or commercial property purchase?" |
| Reclassification of payment type | ITA may challenge the classification | "Provide the service agreement or contract." |
| Exemption claims by non-residents | Requires ITA approval and specific documentation | "Does the non-resident have a permanent establishment in Israel?" |
| Resource | Reference |
|---|---|
| Israel Tax Authority (ITA) | https://www.gov.il/he/departments/israel_tax_authority |
| Certificate lookup (gmishurim) | https://taxinfo.taxes.gov.il/gmishurim/firstPage.aspx |
| Form 856 filing | https://www.gov.il/he/service/form-856 |
| Income Tax Ordinance s.164/170 | https://www.nevo.co.il/law_html/law01/255_001.htm |
| Tax treaty list | https://www.gov.il/he/departments/guides/taxation-agreements |
| ITA filing portal (Shaam) | https://www.misim.gov.il |
חשוב: כל המידע בקובץ זה מיועד למטרות מידע וחישוב בלבד. יש לבדוק כל עמדה מול רואה חשבון (Ro'eh Cheshbon) או יועץ מס (Yo'etz Mas) מוסמך לפני הגשה או פעולה.
This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional — such as a רואה חשבון (Ro'eh Cheshbon — CPA) or יועץ מס (Yo'etz Mas — tax advisor) licensed in Israel — before filing or acting upon.
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Other Israel computations in the OpenAccountants Tax Library.
Rendered from the facts database. General reference only — confirm with a qualified professional before acting.
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