Quick Answer: Israel requires Israeli payers to withhold income tax from payments to non-residents at a default rate of 25% under Section 170 of the Income Tax Ordinance (Pekudat Mas Hachnasa). Non-residents whose actual Israeli tax liability is lower than this — because a double tax treaty applies, because they qualify for a Section 14 new-immigrant exemption, or because deductible expenses reduce the effective rate — can apply to the Israel Tax Authority (ITA) for a nikui memas mekorot (reduced withholding certificate). The ITA typically processes complete applications within 30–60 business days. The certificate is presented to each Israeli payer, who then withholds at the reduced rate going forward. Without the certificate, the only way to reclaim over-withheld tax is to file an annual Israeli income tax return — a process that can take 12–18 months to result in a refund.

Every foreign investor who earns Israeli-source income runs into the same unwelcome arithmetic: the Israeli company paying them deducts a large chunk before the wire arrives, and recovering the difference takes the better part of two years. The root of the problem is Israel's source-based withholding system, which puts the collection obligation on the paying party rather than the non-resident recipient. That makes sense from the ITA's perspective (it has no direct hold over a foreign party), but it creates a real cash-flow problem for non-residents who are over-withheld at the standard rate.

The remedy is the reduced withholding tax certificate, known in Hebrew as nikui memas mekorot, issued under Section 164(a) of the Income Tax Ordinance (Pekudat Mas Hachnasa). What follows covers who needs one, the application process and documents, how double tax treaties change the numbers, and what to do when the wrong rate has already been applied. All statutory references are to the Income Tax Ordinance [New Version] 5721-1961.

1. Withholding Tax at Source in Israel

Under Section 164(a) of the Income Tax Ordinance, any person making a payment that constitutes taxable income in Israel is required, before making the payment, to withhold tax at a rate set in law or in regulations made under the ITO. This obligation falls on the payer, not the recipient. If the payer fails to withhold, the ITA can recover the unpaid tax from the payer directly, with interest and penalties from the payment date.

Section 170 of the ITO specifically extends this withholding mechanism to payments made to non-residents for Israeli-source income. The Minister of Finance has issued the Income Tax Regulations (Withholding from Payments to Non-Residents) under Section 170, prescribing default rates for each income category. Key default rates for payments to non-Israeli residents are:

  • Business income and service fees (services performed inside Israel): 25%
  • Dividends from an Israeli company: 25% (or 15% where the recipient holds 25% or more of the paying company, under Section 125B)
  • Interest on Israeli bank deposits and company bonds: 15–25% depending on the instrument and issuer type (Sections 125C and 125D)
  • Royalties for intellectual property used inside Israel: 25%
  • Rental income from Israeli real estate: 25%
  • Capital gains on Israeli-listed securities: 25% on equity instruments, 15–20% on certain debt instruments (Section 97(b))

These rates apply regardless of the recipient's nationality. A US citizen, a UK limited company, and a Canadian trust all face the same default rates on Israeli income unless they have a reduced certificate or a treaty applies at source.

In Practice — The Cost of the Default Rate: An Israeli company pays a French consulting firm NIS 120,000 for services performed in Israel. Under Section 170 of the ITO and the associated Withholding Regulations, the Israeli company must withhold NIS 30,000 (25%) and remit it to the ITA by the 15th of the following month via the ITA's online payment portal (Shaam). The French firm receives NIS 90,000 net. If the firm's actual Israeli tax liability — after deducting business expenses attributable to the engagement — is NIS 18,000 at an effective 15% rate on net profit of NIS 120,000, then NIS 12,000 has been over-withheld. Without a reduced certificate obtained before the payment, the French firm can only reclaim this NIS 12,000 by filing an Israeli annual income tax return with the ITA, a process that typically takes 12–18 months from filing to refund credit. Interest under Section 160 of the ITO accrues on the refund amount, but it does not cover exchange-rate losses or the administrative cost of engaging a licensed Israeli tax agent (ro'eh cheshbon), which typically runs NIS 3,000–8,000 for a refund-only return.

2. Who Needs a Reduced Withholding Tax Certificate?

Not every non-resident benefits from applying. The certificate makes practical sense when:

  • A double tax treaty reduces your rate. Israel has treaties with approximately 60 countries; most cap dividends, interest, and royalties at 5–15%, well below the domestic 25% default.
  • You are a new immigrant (Oleh Chadash) in your 10-year foreign-income exemption period under Section 14(a) of the ITO and want foreign-source passive income credited to Israeli accounts withheld at 0%.
  • You are a Returning Resident (Toshav Chozer) with a temporary exemption under Section 14(b), where a similar reduced or zero certificate applies.
  • Your deductible expenses bring your effective Israeli tax well below 25%. A non-resident earning NIS 200,000 from Israeli consulting but incurring NIS 140,000 in legitimate expenses has net taxable income of NIS 60,000, so withholding at 25% of gross over-collects by a wide margin.
  • You are a foreign company subject to Israeli corporate tax at 23%, which is below the 25% default withholding rate for non-resident service providers.

A reduced certificate does not help if the standard rate accurately reflects the true liability, or if the income is genuinely exempt and the exemption is self-executing (for example, capital gains on Israeli securities by a non-resident who qualifies for the Section 97(b1) exemption — though even here a certificate helps the broker apply the exemption at source rather than withholding and waiting for a refund claim).

3. Income Types and Default Rates

The table below covers the main Israeli-source income categories for non-residents, the default withholding rates, and the relevant ITO provision. Treaty rates, which override these defaults, are covered in Section 7.

Income Type Default Rate ITO Reference
Business / services performed in Israel 25% Section 170
Dividends (portfolio investor) 25% Section 125B
Dividends (25%+ shareholder) 15% Section 125B
Bank interest / deposits 15–25% Sections 125C, 125D
Royalties (IP used in Israel) 25% Section 170
Rental income (Israeli real estate) 25% Section 170
Capital gains — listed equity 25% Section 97(b)
Capital gains — Israeli debt instruments 15–20% Section 97(b)
In Practice — Non-Resident Landlord Withholding: A non-resident who owns an Israeli apartment rented to a corporate tenant at NIS 9,000 per month faces a withholding obligation on the tenant's side. Israeli companies that pay rent to non-resident landlords are required under Section 164(a) and the Withholding Regulations (Rental Income) to withhold 25% of each monthly payment — NIS 2,250 per month, or NIS 27,000 per year — before remitting the balance. If the landlord elects the Section 122 flat-rate track (15% on gross rent), their actual annual tax liability on NIS 108,000 gross rent is NIS 16,200. Without a certificate, NIS 10,800 is over-withheld each year. A reduced withholding certificate specifying 15% eliminates the over-withholding and the need to file an annual return for refund purposes. Applications for rental-income reduced withholding certificates are filed at the ITA district office covering the location of the property — Tel Aviv, Jerusalem, Haifa, Be'er Sheva, or regional office — and must identify the tenant as the paying party.

4. The Section 164 Application Process

The Israel Tax Authority's Withholding Tax Unit (Yachid Nikui MeMakor), based in each ITA district office, handles all reduced certificate applications. There are four steps.

Stage 1: Open or confirm a tax file

A non-resident applying for any reduced withholding certificate must have an Israeli income tax file number (*mispar tik mas hachnasa*). Israeli citizens and permanent residents already have one (their *teudat zehut* number serves the same purpose). Foreign nationals who have never had Israeli income must open a file at the ITA district office covering the geographic area where the income arises. For non-residents with Israeli rental property or dividends from Israeli companies, the relevant office is usually the district office nearest to the property address or the paying company's registered address.

Stage 2: Submit the application

The application is submitted in writing to the Withholding Tax Unit, either in person at the relevant district office or, for applicants who have an existing Israeli tax file, via the ITA's online submission portal (*Shaam*). The application letter or form must specify:

  • The applicant's name, passport number, and Israeli tax file number
  • The nature of the Israeli-source income (services, rent, dividends, royalties)
  • The identity of each Israeli paying party (name, Israeli registration number)
  • The expected annual income amount in NIS
  • The reduced rate claimed and its legal basis (treaty article, Section 14 exemption, estimated effective rate on net income)

Stage 3: ITA review and certificate

The Withholding Tax Unit reviews the application, may request supplementary documents, and issues a formal certificate (Teudat Nikui MeMakor, colloquially referred to as Form 2513) specifying the approved reduced rate, the income type, the paying parties covered, and the expiry date (typically 12 months from the date of issue). The Unit issues a written refusal if unsatisfied; that refusal can be challenged.

Stage 4: Give the certificate to each payer

The certificate must be delivered to each Israeli paying party listed in it. The payer applies the reduced rate from the date of presentation, not retroactively. Deliver the certificate the same day it arrives from the ITA. Each Israeli payer must retain a copy and record the reduced withholding amounts in their annual reconciliation filed with the ITA.

In Practice — Application Timeline and Urgency Requests: The ITA's Withholding Tax Unit processes most complete applications within 30–60 business days — roughly 6–12 calendar weeks. Applications should be filed at least 60 days before the first Israeli payment is expected. Where a payment is imminent — for example, a dividend payment whose board resolution has already been passed — write to the Unit at submission flagging the urgency and attaching evidence of the payment date. The ITA has administrative discretion to issue an interim letter (not a formal certificate) to the payer for specific identified payments while the full review continues. The Tel Aviv ITA District Office Withholding Tax Unit operates Sunday–Thursday, 09:00–14:00 at 9 Aharonowitz Street, Tel Aviv 61200, telephone: *4954 (press option for English). For corporate applicants with annual Israeli revenue above NIS 10 million, the Large Businesses Office (Misrad HaBikur HaGadol) in Yigal Alon Tower, Tel Aviv handles the application.

5. Documents the ITA Requires

The document list varies by income type and the basis of the claim. For all applicants:

  • Copy of passport or Israeli ID
  • The contract, engagement letter, lease agreement, or board resolution confirming the Israeli income source
  • Bank details for any refunds (Israeli bank account IBAN)
  • A letter (or the completed application form) stating the claimed rate and its legal basis, signed by the applicant or their licensed Israeli tax agent

Additional documents by claim type:

For treaty-based claims

  • A current Certificate of Tax Residency from your home country's tax authority confirming you are a tax resident of the treaty country for the tax year in which the Israeli income arises:
    • US residents: IRS Form 6166, available online via IRS.gov within approximately 10 business days of request
    • UK residents: HMRC Certificate of Residence, requested via HMRC's online certificate-of-residence service; typically issued within 15 business days
    • EU residents: the equivalent national tax authority certificate — France (DGFiP), Germany (Finanzamt Ansässigkeitsbescheinigung), Netherlands (Belastingdienst), etc.
  • Where the certificate is a foreign government document, an apostille under the Hague Convention of 1961 is generally required
  • A declaration confirming the applicant is the beneficial owner of the Israeli income (treaties do not protect conduit or nominee arrangements)

For new immigrant (Section 14) claims

  • Copy of the Teudat Oleh (immigration certificate) issued by the Ministry of Interior, showing the date of *aliyah*
  • Declaration confirming the income source is foreign (outside Israel) and falls within the Section 14(a) exemption window

For estimated-effective-rate claims

  • A projected income and expense schedule for the Israeli tax year showing that net Israeli taxable income, and the resulting effective tax rate, is below the standard withholding rate
  • Supporting evidence for claimed deductions (invoices, contracts, payroll records)

6. ITA Review Timeline and What to Expect

Once all documents are submitted, the process typically proceeds as follows:

  • Days 1–10 (business days): the Unit acknowledges receipt and assigns a case number. Incomplete applications get a deficiency letter; the review clock pauses until the gaps are filled.
  • Days 10–60 (business days): review against ITA records, verification of treaty or exemption claim, possible request for the applicant's prior-year Israeli return or additional financial data.
  • Days 30–90 (business days): certificate issued or written refusal with stated reasons. Refusals can be challenged by filing a written objection with the Head of the district office within 30 days.

Certificates are valid for 12 months from the issue date. There is no automatic renewal and no grace period after expiry — file the renewal application before the clock runs out.

7. Claiming Treaty-Based Reduced Rates

Israel's double tax treaties reduce withholding on dividends, interest, and royalties below the domestic 25% default. Israeli paying parties do not apply treaty rates automatically. The non-resident must obtain a certificate citing the treaty rate and present it to the payer before the first payment.

Key treaty provisions affecting non-resident investors:

  • US-Israel Income Tax Convention (1994): Dividends — 12.5% (portfolio) or 25% (substantial shareholder); Interest — 17.5% general, 10% for financial institutions; Royalties — 15%
  • UK-Israel Double Taxation Convention (1962, as amended): Dividends — 15%; Interest — 15%; Royalties — 15%
  • Germany-Israel Double Taxation Treaty (1977): Dividends — 5% (10%+ shareholder) or 10% (portfolio); Interest — 0% in many cases; Royalties — 0%
  • France-Israel Tax Treaty (1995): Dividends — 5% (10%+ shareholder) or 15% (portfolio); Interest — 10%; Royalties — 10%
  • Canada-Israel Tax Treaty (1975): Dividends — 15% or 5% for substantial shareholders; Interest — 15%; Royalties — 15%
In Practice — US Investor Dividend Withholding: A US-based family office holds a 10% stake in an Israeli tech company that declares a NIS 400,000 dividend distribution. At the Israeli domestic rate of 25%, withholding would be NIS 100,000. Under Article 10 of the US-Israel Income Tax Convention, dividends paid to a US resident who holds less than 25% of the paying company are taxed at a maximum of 12.5%. The family office's withholding obligation is NIS 50,000 — a NIS 50,000 saving on this single distribution. To apply the 12.5% treaty rate, the family office must: (1) obtain an IRS Form 6166 for the tax year (10 business days online via IRS.gov, approximately USD 85 fee); (2) submit a Section 164 application to the ITA's Withholding Tax Unit at least 60 days before the dividend payment date, citing Article 10 of the treaty; (3) present the issued reduced certificate to the Israeli company's CFO before the distribution is processed. An apostille on the IRS Form 6166 is required by most ITA offices handling treaty applications.

8. Using Your Certificate with Israeli Payers

One certificate per paying party

A reduced withholding certificate names a specific Israeli paying party. If you receive income from multiple Israeli sources (a corporate tenant, a dividend-paying subsidiary, royalties from a licensee), the certificate must either name all of them or you need separate certificates for each. The ITA can issue a single certificate covering multiple named payers on the same application.

Apply from presentation date, not retroactively

The reduced rate applies from the date the certificate is presented to the paying party. Payments made before presentation remain subject to the standard withholding rate, even if the ITA had already issued the certificate by that point. Deliver it the same day you receive it.

Track expiry dates

Israeli paying parties are required to revert to standard withholding rates the day after a certificate expires. Most do not monitor this proactively. It is the non-resident's responsibility to renew the certificate before it lapses and to notify each paying party. File the renewal application no later than 60 days before the expiry date.

Payer reporting obligations

Israeli payers who apply a reduced certificate rate must record the non-resident's tax file number, the certificate number and rate, and the payment amounts on their annual withholding reconciliation submitted to the ITA on Form 126 (for payments to individuals) by April 30 of the following year. The ITA uses these records to verify that the reduced amounts withheld are consistent with the non-resident's filed return.

9. Reclaiming Over-Withheld Tax When No Certificate Was in Place

When withholding has already occurred at the standard rate and no certificate was in place, the only mechanism to recover the excess is the annual Israeli income tax return.

Who must file

A non-resident who believes more tax was withheld than their actual liability must file an Israeli annual tax return for the relevant year. Non-residents whose withholding was correct are technically not required to file, but filing is the only way to get a refund if over-withheld.

Forms and deadlines

  • Form 1301 (annual income tax return for individuals): due April 30 of the year following the tax year
  • Form 1214 (corporate income tax return for companies): due within five months of the company's accounting year-end
  • Extensions are available for up to 60 additional days via an application through a licensed Israeli tax agent (*yoetz mas* or *ro'eh cheshbon*) using the ITA's *Shaam* portal

Required attachments

  • Form 867 or Form 857 (withholding certificate from the Israeli payer confirming amounts withheld)
  • Treaty residence certificate and apostille (if claiming treaty-based rates)
  • Documentation of deductible expenses claimed against Israeli income

Refund timeline and interest

The ITA processes refund-only returns within 6–18 months in most cases. Under Section 160 of the ITO, the ITA must pay interest on overdue refunds at the statutory rate (currently CPI linkage plus 4% per annum from the date the return was filed). Refunds are credited to an Israeli bank account only — the ITA cannot wire abroad. Non-residents who do not hold an Israeli bank account must open one or appoint an Israeli power-of-attorney holder to receive the credit on their behalf.

In Practice — Recovering Over-Withheld Capital Gains Tax: A German investor sold shares in an Israeli startup for a profit of NIS 500,000. The Israeli broker withheld 25% (NIS 125,000) at the time of sale under Section 97(b) of the ITO. Under the Germany-Israel Tax Treaty of 1977, Israel's taxing right on capital gains arising on shares not deriving their value primarily from Israeli real estate is eliminated entirely for German residents. The investor is entitled to a full refund of NIS 125,000. To claim it, the investor must: (1) obtain a German tax residence certificate (*Ansässigkeitsbescheinigung*) from the relevant Finanzamt, apostilled; (2) engage an Israeli-licensed ro'eh cheshbon to file Form 1301 for the tax year of the sale, attaching the broker's Form 867 and the German residence certificate; (3) open an Israeli bank account for the refund wire. Total professional fees: approximately NIS 5,000–10,000. ITA refund processing time: 12–18 months from filing. ITA contact for refund follow-up: the International Taxation Division of the relevant district office, or the ITA's international tax call center (*4954, option 4).

Frequently Asked Questions

The Israel Tax Authority's Withholding Tax Unit typically processes complete applications within 30–60 business days — roughly 6–12 calendar weeks. Complex cases involving disputed residency, multiple income streams, or novel treaty-interpretation questions can take up to 90 business days. Applications should be filed at least 60 days before the first payment is expected. The certificate is valid for 12 months and must be renewed before expiry to maintain the reduced rate without interruption.

Yes. New immigrants who qualify for the 10-year foreign-income tax exemption under Section 14(a) of the Income Tax Ordinance can apply for a certificate reducing withholding on foreign-source income to 0%. The application must be filed with the Withholding Tax Unit together with a copy of the Teudat Oleh showing the date of aliyah. Note that from January 1, 2026, new residents must report all foreign assets annually — the zero-withholding certificate does not remove this annual reporting obligation under the new disclosure rules.

If your Israeli tenant is a company or a business entity, withholding at source on rent is generally required under Section 164(a) of the ITO and the Withholding Regulations. Individual residential tenants are not required to withhold. In practice, most non-resident landlords collect rent from private tenants without withholding. Where the tenant is a corporate entity, the company must withhold 25% unless you present a reduced withholding certificate — for example, one specifying 15% to match your Section 122 flat-rate rental income election.

The paying party is legally required to revert to the standard withholding rate the day after expiry — even if a renewal application is pending. There is no automatic grace period. Tax over-withheld during the gap can only be recovered by filing an annual Israeli income tax return. To avoid a gap, submit the renewal application at least 60 days before the expiry date and inform the Withholding Tax Unit in writing of the existing certificate and renewal timing.

Yes. Foreign companies receiving Israeli-source income — dividends from Israeli subsidiaries, royalties for IP licensed to Israeli companies, service fees from Israeli clients — follow the same application process as individuals. The Israeli corporate tax rate of 23% is below the 25% default withholding rate, so a foreign company subject to Israeli corporate tax on its Israeli income can typically obtain a certificate reducing withholding to 23% or the applicable treaty rate. Corporate applications with annual Israeli revenue above NIS 10 million are handled by the Large Businesses Office in Tel Aviv rather than a regional ITA district office.

Related Guides

Withholding Tax in Israel for Non-Residents: Rates and Rules Double Taxation Treaties with Israel: Country-by-Country Guide The US-Israel Tax Treaty: A Practical Guide for US Citizens and Companies Rental Income Tax in Israel for Non-Residents Filing an Israeli Annual Income Tax Return: A Foreigner's Guide
Adv. Eli Shimony

Adv. Eli Shimony

Licensed Israeli Attorney

Adv. Eli Shimony advises non-residents, foreign investors, and multinational companies on Israeli withholding tax compliance, reduced certificate applications, and double tax treaty claims. He regularly represents clients before the ITA's Withholding Tax Unit and assists foreign nationals in recovering over-withheld Israeli tax through annual return filings.

Request Consultation Firm Website

Being Over-Withheld on Israeli Income?

A reduced withholding certificate saves cash flow and avoids the 12–18 month refund wait. Adv. Eli Shimony can prepare and file your Section 164 application with the ITA, obtain treaty-based rate reductions, and represent you in recovering over-withheld tax.

Get Free Consultation →