IL Tax Withholding

Israel Tax Withholding (Nikui Mas BeMakor — ניכוי מס במקור) Skill v1.0

Based on work by Skills IL, licensed under MIT. Adapted for the OpenAccountants format.

Section 1 — Quick reference

Quick reference

Quick reference table

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

Conservative defaults

Conservative defaults table

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

Section 2 — Default withholding rates

2.1 Rates by payment type (no certificate)

Rates by payment type (no certificate)

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

• Legacy 20% rate incorrect — 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%). (164)

2.2 De minimis threshold

• De minimis threshold for single payment — NIS 5,520 NIS (annually indexed; a single payment to a payee below this does not require withholding unless cumulative payments to that payee cross the threshold. Always verify the current-year threshold.)

Section 3 — Withholding certificates

3.1 Certificate types

Certificate types

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

3.2 Verifying a certificate

• Steps to verify a certificate — When a payee presents a withholding certificate: 1. Verify the year — certificates are valid for the current tax year (January–December) only. 2. Verify the payee's identity — business name, TIN (taxpayer identification number), and approved rate must match. 3. Verify online — use the ITA gmishurim service to confirm certificate status: https://taxinfo.taxes.gov.il/gmishurim/firstPage.aspx. 4. Check validity period — some certificates have shorter validity than the full year (https://taxinfo.taxes.gov.il/gmishurim/firstPage.aspx)

3.3 Obtaining a certificate

• Steps to obtain a certificate — 1. Apply through the ITA online services (gmishurim system). 2. Provide: TIN, financial statements, tax returns. 3. Certificate valid for the current tax year. 4. Renewal required annually — certificates expire December 31

Section 4 — Withholding calculation

4.1 Basic calculation

• Basic withholding calculation — 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

4.2 Worked example — Payment to freelancer

Scenario: Business pays NIS 10,000 to a freelancer (Osek Murshe) for consulting, no certificate.

No certificate scenario

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:

With certificate scenario

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)

4.3 Cross-border payments

• Cross-border payment rules — For payments to non-residents: Default: 25% withholding. Tax treaty may reduce the rate — check the Israel–[country] treaty. Common treaties: US-Israel, UK-Israel, Germany-Israel, France-Israel. Treaty benefits require documentation and proper application. Treaty list: https://www.gov.il/he/departments/guides/taxation-agreements (https://www.gov.il/he/departments/guides/taxation-agreements)

Section 5 — Periodic reporting (Form 102)

5.1 Filing obligation

• Filing obligation intro — Amounts withheld must be reported and paid to the ITA periodically:

Filing obligation table

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 penalties — Late reporting and late payment carry penalties and indexation (הצמדה + ריבית).

5.2 Mandatory withholder threshold

• Mandatory withholding agent threshold — 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.

Section 6 — Annual reconciliation (Form 856)

6.1 Purpose

• Form 856 purpose — 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.

6.2 Requirements

Form 856 requirements

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.

6.3 Deadline

• Form 856 deadline — April 30 date (of the year following the reporting year)

6.4 Workflow

• Form 856 workflow steps — 1. Deposit withheld amounts periodically via Form 102. 2. At year end, compile the per-payee detail file. 3. Submit Form 856 by April 30. 4. Form 856 is the PAYER's obligation as the withholding agent — separate from the payee's own annual return

Section 7 — 2026 deduction-disallowance rule

• 2026 deduction disallowance rule — Income Tax Circular 3/2026 (effective for payments made from 1.1.2026): An expense or input-VAT deduction is disallowed where the payer: Failed to withhold tax as required, OR Failed to report the withholding as required, OR Breached the Law for Reduction of the Use of Cash (cash over NIS 6,000 in a business-to-business transaction). 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. (Income Tax Circular 3/2026)

Section 8 — Red flags and common errors

Red flags and common errors

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

Section 9 — Tier 2 items (require professional input)

Tier 2 items

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?"

Section 10 — Reference material

Reference material

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

Disclaimer

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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