When requesting a bank to execute a transfer of foreign currency abroad, in many cases the banks require us to obtain approval from the Tax Authority regarding the payment transfer or to deduct tax at the source (prepayment of tax so that the recipient’s amount is reduced).

The normative sources of the instructions for withholding tax at the source are as follows:

1. The Law: Generally, the Income Tax Ordinance (Section 170(a)) stipulates that transfers abroad of income in Israel to a foreign resident are subject to a withholding tax at the source of 25% (for a company, corporate tax – 23%).
2. Implementation Instruction 34/93: The Tax Authority established in 1993 an implementation instruction that specifies the implementation of the section. Additionally, over the years, there have been amendments and updates to the implementation instruction.
3. Income Tax Circular 13/2001: This circular deals with the classification of income from software transactions. The transaction classification also determines the withholding tax on it.
4. Tax Authority guidelines (usually issued as guidelines of senior tax inspectors in charge of auditing and inspection). It should be noted that according to the definition, if it is not income at all or not income in Israel, then there is no application of the withholding tax at the source rule.

However, the practice of banks, mostly when dealing with a significant amount, is to demand prepayment of tax at the source or approval from the Tax Authority under the expertise of a tax specialist, and to check whether it is indeed income or whether exceptions apply as detailed below.

Approval from the Tax Authority is required through Form SAM/114. Using this form, it is possible to request a reduction in withholding tax according to tax certification instructions, for example, and so forth.

It should be noted that certain companies can obtain approval from a “special company” for the purpose of transfers abroad. This approval prevents the company from needing to request approval from the Tax Authority for each transfer, but allows it to examine the transfers itself and report to the Tax Authority once a year.

There are exceptions to the withholding tax of two types, for which there is no need to withhold tax at the source:

The first type of exceptions is those specified in Implementation Instruction 34/93 and its additions as detailed below:

1. Purchase of tangible goods (excluding computer software) – must attach an import list. If less than $500 and there is a declaration that it is not within the scope of the business, then there is no need for an import list.
2. Correspondent bank fees (“correspondent”) abroad, without the payer’s declaration.
3. Transportation services performed abroad.
4. Ports, unloading, loading, and storage services abroad, including payments to customs authorities.
5. Services provided to Israeli shipping and airline companies operating international routes, except for services performed in Israel.
6. International shipping or aviation services performed by a country with which Israel has an agreement or where an order has been issued in the matter.
7. Tourism services performed abroad.
8. Insurance services provided abroad.
9. Services performed abroad by service providers or agents under the condition that the payer declared that the recipient or their representative did not reside in Israel for the purpose of their performance, and the payment amount in the tax year does not exceed $250,000.
10. However, payments for services abroad for holding software, software development, or internet services should be referred to the tax assessor’s approval.
11. Refund of a deposit to a customer (equal to the deposit amount).
12. Mandatory payments to authorities.
13. Subscription fees for foreign periodicals.
14. Membership fees to international organizations abroad.
15. Entrance fees or participation in conferences or exhibitions abroad.
16. Advertising expenses abroad.
17. Usage fees paid by exhibitors for their booths at exhibitions.
18. Participation fees in tenders abroad.
19. Purchase of airline tickets abroad.
20. Tuition fees, registration fees, examination fees, etc., paid to educational institutions abroad.
21. Rent for personal needs not demanded in Israel as a tax expense.
22. Consideration for real estate transactions accompanied by a real estate tax payment confirmation paid.
23. Purchase of social rights from a foreign state.
24. Allowances for foreign residents.
25. Bequests based on a probate order or court approval regarding the inheritance within the limits attributed to heirs abroad.
26. Alimony payments by law.
27. Gifts and support for family members as defined in Section 88 of the Ordinance.
28. Allocation for medical travel and medical treatment expenses abroad.
29. Redemption of Israeli government bonds.
30. Consideration from the sale or redemption of securities traded on the Israeli stock exchange.
31. Consideration for the purchase of foreign securities.
32. Consideration for the sale of a personal car owned by a single individual.
33. Transfers to a single recipient in an amount not exceeding $500 per year to the payer.
34. Transfers from a non-resident account to a non-resident account.

As mentioned, sometimes even when it comes to transfers included in the exceptions list, the client may require approval from an account manager or a tax assessor, and our office handles this on an ongoing basis.

The second type of exceptions – the Green Route

The Green Route, established in 2017, only refers to the transfer of funds for a specific type of payment from the list in the table below, such as investments abroad, and only to a recipient who is a resident of a country that has signed a treaty with Israel to prevent double taxation. In these cases, the bank usually agrees to accept a declaration on Form 2513/2.

Payment Type Code:

01: Investment in Human Capital Stocks

02: Investment in Real Estate Abroad

03: Investment in Other Assets Abroad (Tangible Assets Only)

04: Granting Loans to Foreign Residents

05: Granting Loans by Owners to Human Capital Companies

06: Repayment of Loan Fund by Company with Tax Authority Approval

07: Investment in Partnership Rights

08: Purchase of Options

09: Additional Payment for Option Exercise

Payment Type Details:

– 01: Investment in Human Capital Stocks.

– 02: Investment in Real Estate Abroad.

– 03: Investment in Other Assets Abroad (Tangible Assets Only).

– 04: Granting Loans to Foreign Residents.

– 05: Granting Loans by Owners to Human Capital Companies.

– 06: Repayment of Loan Fund by Company with Tax Authority Approval.

– 07: Investment in Partnership Rights.

– 08: Purchase of Options.

– 09: Additional Payment for Option Exercise.

Document for Storage and Documentation:

– Contract and Company Articles of Association.

– Purchase Agreement and Invoice.

– Loan Agreement and Tax Authority Approval.

– Partnership Agreement.

Additional requirements of banks regarding money transfers abroad and regulations

In providing consultancy services regarding money transfers abroad, in addition to the issue of withholding tax at the source, are handled by our office. We address the foreign banks’ requirements, such as an account holder’s approval for tax payment and examining additional actions required in light of the Common Reporting Standard (CRS) – automatic exchange of information between countries initially performed through banks and then between tax authorities of each pair of countries.

Withholding tax from payments to foreign residents – Additional relief and instructions regarding the extension of the provisions in Addition 1 to Directive 93/34 – 2022

The Tax Authority extends each year the special provisions in Addition 1 to the implementation directive for money transfers abroad. Accordingly, the validity criteria for approval as a “special company” have been extended, and relief regarding payments made to foreign residents for services provided and fully performed abroad by foreign service providers has also been extended. In such cases, when the payment is up to $250,000 per annum to the payer (and not the supplier!), a declaration on Form SM 114 to the banks is sufficient, and the bank is authorized to transfer the payment to the foreign resident without withholding tax at the source.

For the full text of the notice for 2022 signed by Rina Pazit Kleiman, Senior Deputy Director at the Tax Authority >

Additional Services Provided by Our Office Beyond Tax Withholding Consultancy

The services provided by our office also include a link to currency service providers and companies for money transfers in cases of difficulties beyond the issues outlined above and/or to facilitate currency conversions at low fees.

Issuance of a copy by a representative – Recently, a senior official at the Tax Authority approved that banks can also accept approvals issued by representatives. Representatives will be able to retrieve the approval issued by the tax assessor and displayed in the international transfer system, with the word “retrieval” appearing in the approval title and the representative’s name and office displayed at the bottom of the approval. In addition, the name and position of the official from the Tax Assessor’s Office who approved the detailed transfer in the document will appear.

Link to approval