Withholding tax - the certificate that stops it
The request nearly always arrives at the same moment. You finished the work, sent the invoice, and the reply is "send us your withholding certificate before we pay". This is not paperwork your client invented. The law requires them to check, and without the certificate they will pay you less than the invoice says.
- The client transfers ILS 10,000
- Nothing is withheld
- Tax is settled in the annual return
- The client transfers ILS 7,000
- ILS 3,000 goes to the Tax Authority in your name
- It comes back only at the annual reconciliation
What is actually happening
Withholding at source is early collection. Rather than waiting for you to report and pay at the end of the year, the state puts the job on whoever pays you: hold back part of the payment and send it in directly. On your side it is recorded as tax already paid against your liability, exactly like income tax advances.
The money is not lost. It is simply no longer yours. A business working with large clients without a valid certificate is effectively lending the state a large share of its revenue until next April.
The duty to withhold sits with the payer, not with you, so arguing with the finance department on the other end goes nowhere. Anyone who fails to withhold when they should is exposed themselves, which is why business clients check before any first payment.
Two certificates in one document
What everyone calls "the withholding certificate" actually carries two separate things.
The first is a bookkeeping certificate, confirming that your books are kept as required and have not been disqualified. It matters most when working with public bodies, which are not permitted to engage a supplier without one.
The second is the withholding rate set for your file: zero, a reduced rate, or the default in the regulations. That rate is what your client types into their payment system.
Both come from the same Tax Authority certificates system, which is why the request that reaches you is almost always phrased as both together.
How to get it
Usually there is nothing to obtain, because it already exists. The Tax Authority issues next year's certificates automatically to businesses that file on time and carry no open debts, and all that is left is to print.
- Open the certificates systemNo login needed, certificates are open to check by file number
- Enter the file numberYour ID number for a sole proprietor, or the company number
- Print or save as PDFThis is the document you send, and it can be saved in advance
That the system is open works both ways. Your client can look you up directly, and many do exactly that instead of asking. Worth knowing that your status is visible to anyone holding your file number.
When no certificate was issued, or the rate is too high
Three situations cause this: a new business with no filing history yet, a business with an unfiled return or an open debt, and a business classified in a sector where a high default rate applies.
The route out is an individual request on form 2542, an application to reduce or waive withholding at source. The assessing officer looks at the scale of the activity and at the expenses, and in a business where costs eat most of the turnover there is no sense in withholding thirty percent of each receipt.
For a new business this is worth handling before the first invoice rather than after. Fixing the certificate after a payment has already had tax withheld does not return the money, it only changes what happens next time.
What to do with tax already withheld
At the end of the tax year the payer reports every deduction to the Tax Authority and gives you an annual certificate of what was withheld. That certificate, form 806, is what you attach to the annual return to credit the amount against your liability.
Two things are worth doing during the year rather than at the end of it. File every certificate as it arrives, because a client whose finance contact has changed will not always find it in April. And reconcile what was withheld against what actually landed in your account, because a gap between invoice and receipt that looks like an error is usually withholding you did not notice.
The mistakes that repeat
Assuming it only concerns an osek murshe. The certificate belongs to income tax, not VAT, so an osek patur needs it just as much. An osek patur working with companies and holding no certificate finds out on the first payment.
Confusing withholding with VAT. These are two systems that have nothing to do with each other: VAT is added to the invoice and reported in the periodic report, while withholding comes off the payment and goes to income tax. An ILS 10,000 invoice plus VAT that had 30 percent withheld is still an ILS 10,000 invoice.
Ignoring an expired certificate. Certificates are issued for a fixed period, and a client whose system spots an expired one reverts to the default rate without telling you. Cash flow that dries up mid-project is nearly always this.
Keeping no copy. The certificate is always available, but on the day the Tax Authority system is down and a client is waiting for the document to release a payment, a saved copy is worth the minute it took.
Worth checking once a year
- The certificate is valid, and its expiry date is in your calendar
- The rate set fits the expense profile of the business, rather than a stale classification
- Last year's withholding certificates from clients are filed in one place
- The amounts withheld add up to what your personal area shows
- No unfiled return or open debt is blocking next year's automatic issue
Where Slate fits
Slate shows the gap between each payment received and the invoice it belongs to, so withholding is spotted when it happens rather than at year end. The amounts collect through the year and go out with the rest of the material to your accountant at filing time.
This is general information, not tax advice. For a specific situation, talk to an accountant or tax adviser.
Common questions
What is withholding tax at source?
The payer holds back part of your invoice and sends it straight to the Tax Authority against your future tax bill, instead of paying you the full amount. The money is not lost, it is credited to you in the annual return.
How much is withheld without a certificate?
For payments for services or assets the rate set in the regulations is 30 percent, and it applies by default to anyone without a valid certificate. A certificate lowers the rate, and for most businesses it sets it to zero.
Does an osek patur need one?
Yes. The certificate belongs to income tax rather than VAT, so every open file needs one, including an osek patur who charges no VAT at all.
Where do you get the certificate?
From the Tax Authority's certificates system, by file number. You can print it without logging into your personal area, which also means your client can check you before paying.
Is it issued automatically?
For a business that files on time with no outstanding debts, next year's certificate is issued automatically. An individual request is needed when it was not issued, or when the rate set is too high, using form 2542.
How is it different from a bookkeeping certificate?
A bookkeeping certificate confirms your books are properly kept and have not been disqualified. A withholding certificate sets how much is deducted from you. Both come from the same system in the same document, which is why they are usually asked for together.
When do you get the withheld money back?
At the annual reconciliation. The tax withheld is set against the liability calculated in your return, and anything over-withheld is refunded. Until then it sits with the Tax Authority rather than in your cash flow.