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What Israeli tax does a non-resident pay on interest from an Israeli bank account?

Under Section 125A and Section 170 of the Income Tax Ordinance (New Version) 5721-1961, Israeli banks are required to withhold tax at source on interest paid to non-residents. The standard withholding rate for non-resident individuals is 25% of the gross interest. This rate may be reduced under an applicable double taxation treaty — most commonly to 5–15% — but the non-resident must apply in advance using Form 2513 submitted to the Israel Tax Authority. The withholding is generally the final Israeli tax obligation if the non-resident has no other Israeli-source income.

Israel operates a source-based withholding system for passive income paid to non-residents. Under the Income Tax Ordinance and the Income Tax Regulations (Withholding from Interest, Dividends and Certain Other Payments) 5766-2006, the paying bank must deduct tax at the time of payment and remit it directly to the Israel Tax Authority (*Rashut HaMisim*). Section 125A sets the standard rate for individuals at 25% on interest income from Israeli bank accounts. For corporate non-residents, the ordinary corporate tax rate (currently 23%) applies unless modified by treaty. Where the interest accrues on linked (index-adjusted) deposits, a lower rate may apply on the inflationary component. The bank does not require the non-resident to file an Israeli income tax return — withholding operates as a final discharge of the Israeli tax obligation on that income.

Non-residents from countries that have a double taxation treaty with Israel can apply for a reduced withholding rate, but only before the interest is paid. Treaty claims are made via Form 2513 submitted to the local tax office with jurisdiction over the bank's branch. The Tax Authority then issues a withholding-reduction certificate authorizing the bank to apply the lower treaty rate. Common treaty rates for interest are: United States — 15% under Article 11 of the Israel-US Treaty; United Kingdom — 15%; Germany — 0% in many cases. If the non-resident fails to request the reduced rate in advance, they must file a refund application (*tvia lemesim*) with the Tax Authority — a process that typically takes 12–18 months. Advance planning is strongly recommended for non-residents with significant Israeli bank balances.

⚖ In Practice
  • Governing law: Section 125A and Section 170, Income Tax Ordinance (New Version) 5721-1961; Income Tax Regulations (Withholding) 5766-2006
  • Standard withholding rate: 25% on gross interest for non-resident individuals (without treaty benefit)
  • Competent authority: Israel Tax Authority (Rashut HaMisim)
  • Treaty reduction: Apply in advance with Form 2513; treaty rates typically 5–15%; US residents: 15% under Israel-US Treaty Article 11
  • No annual return required: Withholding is a final tax if no other Israeli-source income exists
  • Retroactive refund timeline: 12–18 months if the reduced rate was not applied in advance

From the full guide: Withholding Tax in Israel for Non-Residents: A Complete Guide

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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