Withholding tax in Israel - Nikouye Mas Bamakor
It's not uncommon to have to deal with withholding taxes in Israel. These samples are called Nikouye Mas Bamakor.
Whether you are an employee, self-employed or a shareholder in a company, you are certainly affected by this levy.
Many people are unaware of it, or don't understand how it works in practice. Yet it's an important concept, given that the system Israeli tax
operates mainly on a pay-as-you-go basis.
Employees in Israel
For employees in Israel, income tax is deducted directly at source every month by the employer. This deduction is made directly from the pay slip.
Taxable employees pay income tax directly, every month. The employer is responsible for calculating and deducting the tax, which is then paid to the tax authorities.
Tax in Israel is therefore simple and efficient.
It is important to point out that responsibility for the amount deducted lies with the employer.
Are you an employer? Make sure your employees complete their Tofes 101. Read also: What are employers' obligations in Israel?
Self-employed or companies in Israel
For freelancers or companies, the scenario is a little different.
Before making any supplier payments, you need to carry out certain checks.
You need to obtain a document from each supplier called אישור ניכוי מס במקור - Ishour Nikouye Mas Bamakor, before proceeding with payment to the latter.
This document is issued by the tax authorities to each entity. It provides information on the amount to be deducted at source from a supplier's payment account.
Some entities have a total exemption from withholding tax, which means you can pay it in full.
The only exception to this rule is if the total amount of payments annual to the supplier does not exceed 4,000 Shekels / year.
Why is withholding tax so important for taxes?
The tax authorities want to optimize tax collection and therefore require payment of partial
at the time of the transaction.
This deduction is made by the payer.
The "independent customer" must therefore deduct part of the tax from the transaction and pay it directly to the tax authorities. The amount he owes his supplier will therefore be reduced by the amount of tax deducted at source.
Here are a few examples to help you understand Israel's withholding tax:
You are self-employed and order 10,000 shekels worth of goods from a supplier. Let's call the supplier "Company A" for simplicity's sake.
Let's imagine that, in this case, the tax authorities have set the withholding tax for this supplier at 20%. In this case, you, as the customer, must pay back the 10,000 shekels:
- 8,000 shekels to your supplier.
- The difference of 2,000 shekels will be paid by you directly to the tax authorities.
- This payment will serve as a deposit with the tax authorities.
Company B has provided you with a marketing service worth 15,000 Nis.
Company B has a total exemption from withholding tax. Check the document issued by the tax authorities.
In this case, you can pay the entire bill to your supplier.
In a way, the tax authorities "trust" it to ensure that the company declares and pays taxes on all its income.
Company C has come to provide you with a cleaning service, to the value of 2,500 Nis.
This company will no longer bill you for the current year.
In this case, as the annual sum does not exceed 4,000 Nis, you can pay without first obtaining the Ishour Nikouye mas Bamakor.
Of course, it also works the other way around. If you have a customer who wants to pay you, they may take a certain amount from your bill.
This amount will be paid back to the tax authorities.
You can claim it back when you file your annual tax return, if the amount of tax deducted exceeds your tax liability.
Some important points about withholding tax in Israel :
1. The tax authorities in Israel set the amount of tax deducted at source for each company.
These amounts are subject to change and update according to circumstances.
As a customer, you should check the amount shown on the withholding tax form. This document is provided by the tax authorities to all companies.
2. How do you know how much to charge a company?
You can consult the Israel tax site and check, for each entity, whether it has an Ishour Nikouye Mas Bamakor, on this link.
3. Do all companies have to do this?
It's important to specify that not all companies have to deduct tax at source, just those that meet certain criteria.
As these criteria are quite numerous, we invite you to contact us if you would like to know if you are obliged to carry out this verification.
4. What if my supplier doesn't have an Ishour Nikouye Mas Bamakor? By default, withholding percentages vary between 30% and 45%. In this case, you must deduct this percentage at source.
Your supplier will have to go to the tax office to recover the deduction made by you.
5. Is there any way to negotiate the percentage set by the tax authorities?
Ask your accountant to negotiate rates.
As with anything in Israel, you can always try to negotiate (a little). Generally speaking, the tax authorities are willing to reduce or even totally exempt you.
In this case, you don't pay tax at the time of the transaction, but at the time of the current declarations, which will certainly improve your cash flow.
Be vigilant: verification is mandatory!
It is mandatory to carry out these checks before each supplier payment, so be vigilant in this respect.
To make sure you don't make a mistake, we recommend that you seek professional advice if you're just starting out or if you feel you haven't mastered these concepts.[/vc_column_text][/vc_column][/vc_row].