Withholding tax at source (nikui mas bamakor) means that many Israeli payers, such as companies, government bodies and businesses that keep double-entry books, must deduct income tax from what they pay suppliers. The regulations set a default rate of 20%, or 30% if the supplier has no bookkeeping certificate. A supplier with clean tax files can hold a withholding certificate that reduces the rate or exempts payments. For 2026 these certificates are electronic and valid until 31 March 2027.
In Israel, many businesses do not pay a supplier the full invoice amount. They are required to deduct part of the payment as income tax and pass it on to the Israel Tax Authority. This is called withholding tax at source, or nikui mas bamakor. As a supplier, you avoid most of this deduction by holding a valid withholding certificate (ishur nikui mas bamakor) that shows a reduced rate or a full exemption. Most active businesses with an up-to-date tax file get one automatically. Foreign residents and new businesses usually have to ask for one.
Not every payer has to withhold. The Income Tax Order on payments for services or assets lists the payers. The list includes the State and local authorities, government companies, banks and other financial institutions, hospitals and health funds, universities, and any business that must keep double-entry books. It also covers companies above a turnover threshold and partnerships in which a withholding company is a partner. A private individual paying for something that is not recorded in business books is generally not a withholding payer.
So if you invoice an Israeli company, a municipality or a larger business, you should expect them to check your withholding status before they pay you.
The Income Tax Regulations on deduction from payments for services or assets set two default rates:
Regulation 3 lets the assessing officer allow a lower rate, or no deduction at all, where the standard rate would lead to overpaid tax. That permission is what a withholding certificate records.
The Tax Authority issues two separate documents, and suppliers often confuse them:
Income Tax Directive 02/2026 was published on 19 January 2026. It sets out the rules for this year:
The directive treats a business as new if it opened on or after 1 July 2025, or within six months before the certificate is issued, whichever is later. Assessing offices are told to be cautious here. A certificate for a new business is limited to a period of no more than six months. As a general rule, the rate should not be set below 5% unless there are special reasons. There should also be no exemption until advance tax payments have been set.
Foreign individuals and foreign companies that have no Israeli entity code are left out of the automatic annual run. The directive says their certificates are issued only at the assessing office, after approval from the professional desk under the international tax department's guidelines. If you are a foreign supplier with Israeli customers, plan for this well before your first invoice. For the wider picture, see Do I need an Israeli accountant if my company is registered abroad?
If you hold a certificate but think the rate is too high, the directive describes the route. You send a written, reasoned request with supporting documents to the coordinator of the central unit at your assessing office. The coordinator may invite you to a meeting and replies in writing. If you disagree with the decision, you can file a written objection with the assessing officer or their deputy. In practice, the strongest supporting documents are recent financial statements and advance-payment figures that show the standard rate would lead to overpaid tax.
If your own business is a withholding payer, you need to:
After the year ends, you give each supplier an annual certificate on form 806. It lists the payments, the VAT and the tax deducted during the year. The Tax Authority's service page says every withholding payer must issue it, even where no tax was actually deducted. Suppliers use it to claim credit for the withheld tax in their own annual return. If you run an Israeli company, this sits alongside the other duties described in Israeli company annual filings.
If your certificate was refused, or you are a foreign supplier starting to work with Israeli customers, an English-speaking accountant can review the deficiency letter with you and handle the request with the assessing office.
Under the Income Tax Regulations the basic rate is 20%. It rises to 30% if the supplier has not proved proper bookkeeping and filing and holds no written confirmation from the assessing officer. A withholding certificate can lower either rate or remove the deduction.
Under Income Tax Directive 02/2026, certificates issued for 2026 are valid until 31 March 2027. They can be revoked earlier if deficiencies appear in your tax files.
No. The bookkeeping certificate confirms under the Public Bodies Transactions Law that you keep books and file reports. The withholding certificate sets the rate your customers deduct. They are issued separately and each has its own checks.
Yes, but not automatically. The 2026 directive says certificates for foreign residents and foreign companies without an Israeli entity code are issued only at the assessing office, after approval from the international tax desk.