Obligation to withhold income tax for self-employed persons and companies
Introduction:
Withholding income tax from payments to suppliers and other service providers is an obligation imposed on a large part of the self-employed and companies.
The deduction ranges from 20% to 48% withholding tax, significant amounts on any scale, the idea behind this obligation is that every self-employed person will have to request an exemption from withholding tax and become a “salary payer”, but here the dog is buried, the exemption is only given to a self-employed person and a company that reports and pays the All the reports and taxes that are required from her for the income tax and VAT, so at the end of the day it is about the “carrot and the stick”.
But the question is how do you avoid this?
The answer is simple – a request for an exemption from withholding tax that reduces or completely eliminates the withholding tax obligation.
What happens if you don’t check / deduct income tax at source?
According to the dry law, the authorities have the right not to recognize the expense we had if we had an obligation to deduct tax at source and the other party did not have an exemption – not pleasant at all.
Experience shows that there is no rush to use this measure, but it is not worth taking a risk, especially when it comes to high or fixed payments such as Shekhed for example.
Our recommendation is to simply ask any supplier and service provider for an “exemption from withholding tax” that can be easily obtained from the “Tax Authority” website and keep it attached to the invoice we received from the service provider we worked with.
Tip: In our experience, many businesses that do not have to withhold tax at all, use this withholding tax approval, or more precisely the lack of withholding tax approval, as an excuse to delay making a payment to a supplier or service provider, so before you collect from your customers, check whether you have an updated approval on the website Taxes Authority.
Not for beginners… “obligation to withhold tax from services and assets”
“Withholding tax from services and assets”, is an obligation imposed on large companies and organizations when specific tax deduction regulations do not apply.
When there is a specific provision for withholding (see the table in Appendix 1), it overrides the provision for withholding according to the regulations for deduction from “services or assets”, only when a payment is made that does not belong to one of the categories in the table, it must be checked whether a withholding obligation applies, according to the regulation for deduction Originally from “Services and Assets”.
A company, as a rule, must withhold tax from services and assets if its turnover, including VAT, exceeds 5.2 million NIS or it must maintain a double system of accounts in accordance with the instructions for managing registers.
Taxpayers who are required to withhold tax at source in 2014 are individuals or companies who are required in 2014 to maintain a double-entry bookkeeping system in accordance with bookkeeping instructions and who in one of the three previous years were required to do so.
Notes and highlights:
1. One must always check if there is a withholding obligation for payments for which a specific obligation to withhold tax has been established, such as writers’ wages, directors’ wages, office service providers’ wages, rent, etc., and only if there is no specific withholding obligation should one check if there is a withholding obligation according to “Services or assets” regulation.
2. Tax must be deducted from the payment including VAT.
3. The deduction rate is 30%, unless the recipient presents a certificate of a lower deduction or an exemption from deduction.
4. Payments for services or assets to a one-time supplier in an amount not exceeding NIS 4,800 (before VAT), are not subject to withholding tax.
In conclusion, withholding tax is a confirmation given by the tax authority as a “bonus” for the fact that we report and pay our debts on time, at the same time it can sometimes also be used as a means of delaying payment to suppliers, either way it is worth being vigilant and checking the suppliers we deal with employees, to avoid a situation where the business expenses we had are not recognized.
The author of the article, Alon Tahori, is a certified accountant and tax consultant with a representation license from the National Insurance Institute, who manages a tax consultant’s office that focuses on the representation of companies and businesses before the tax authorities, including business consulting and income tax planning.
The aforementioned content does not constitute a recommendation, legal opinion, legal advice or a substitute for legal advice; Also, the above content does not claim to be comprehensive or exhaustive and those who rely on the information do so at their own risk and in their own opinion.
Appendix 1 – list of payments and businesses that must deduct tax at source
|
Form of payment |
definition of “ payer “ |
definition of “ receiver “ |
Deduction rate ( when there is no approval ) |
Remarks |
| Works : electricity, electronics , metal , clothing ( check ) | A company that is its main occupation ( company only ) | each gets | 30% | Clothing – including the production of textile products and metal clothing – including repairs . Electricity and electronics – including repairs |
| Salary of artisans , salary of examiners , salary of writers and musicians | Each pays | each gets | 48% | Including in favor of decor , guidance , directing . including payment for reimbursement of expenses and p . M |
| Business rent | Anyone who pays for the rental of a business property ( which is considered an expense for him ) | each gets | 35% | |
| Transporting and transporting passengers | Pays for transport whose main business is ( in transport and anyone who pays for taking passengers to work and back). | each gets | 30% | including for towing |
| Lecturers’ salary | Each pays | every gets | 48% | Lecturer’s salary – including lectures , teaching , practice and non-artistic performance |
| Payment to a foreign resident | Each pays | Any recipient who is not a resident of Israel | 25% | When the foreign resident is a substantial shareholder – 30% |