Can a foreign service provider get an Israeli withholding tax exemption certificate?

Withholding on payments abroad is imposed on the payer rather than the recipient, which is why Israeli companies insist on it even when the foreign supplier is confident no Israeli tax is due. The default rate under the regulations made pursuant to Section 170 is 25 percent of the gross payment. A tax treaty may reduce or eliminate the liability, most commonly through the business profits article where the supplier has no permanent establishment in Israel, but treaty relief is not self-executing. Either the Tax Authority certifies the reduced rate in advance, or the payer withholds and the supplier reclaims afterwards. Since 2018 a parallel route has allowed Israeli banks to release listed categories of payment against a signed declaration form instead of a certificate.

Timing decides the outcome. A certificate obtained before the first invoice means the supplier is paid in full, whereas tax withheld in error can be recovered only by filing an Israeli return for the year, which brings a registration requirement and many months of delay. Keep the residence certificate current, because the assessing officer generally wants one issued for the year of payment. Where any part of the engagement is carried out inside Israel, expect close scrutiny of whether a permanent establishment exists, since that is the point on which most refusals turn. The underlying rates and treaty positions are set out in the guide to Israeli income tax for non-residents.

From the full guide: Israeli Withholding Tax on Payments to Non-Residents: Rates, Treaties & Exemptions

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