Income from AdSense, affiliate programs and sponsorships - how it is taxed
The content site, the newsletter, the YouTube channel or the free tool you built has started to earn money, from advertising, from affiliate links or from sponsorships. That income feels "passive", but as far as the tax authorities are concerned it is income in every respect, and usually business income. The good side: handling it is relatively simple, and most of the payers are foreign corporations, which opens the zero-rate VAT question. We have put it in order.
"Passive" in marketing, active in tax
Let us start with a gentle myth-busting: the term "passive income" belongs to the world of marketing, not to the Income Tax Ordinance. You produce content, maintain a site, build an audience. That is active activity, and when it is systematic and productive it meets the tests of a business. The meaning: opening a business file, ongoing filing, and recognition of expenses, exactly like any builder.
And what matters in your favour: the expenses behind that "passive" income (hosting, domains, AI tools for writing and editing, camera equipment, promotion) are all recognized expenses that reduce the tax.
Who pays you - and what that means for VAT
| Income source | Who actually pays | The VAT angle |
|---|---|---|
| AdSense, AdMob, YouTube | Google (a foreign corporation) | A service to a foreign resident, a natural candidate for the zero rate, subject to the conditions |
| International affiliate programs (Amazon, SaaS tools) | The foreign corporation running the program | The same, with the zero rate examined by the payer's identity and the conditions |
| Affiliates or sponsorships from Israeli companies | An Israeli business | An ordinary Israeli transaction: a murshe charges 18% VAT, a patur up to the ceiling |
| Newsletter or podcast sponsorships from a mixed audience | By each advertiser | Separated transaction by transaction, Israeli against foreign |
Note the Regulation 12a nuance here in particular: advertising and affiliate services are a field where the "Israeli beneficiary" question can arise, for example when a foreign body pays you for promotion in fact aimed at an Israeli audience and Israeli advertisers. In most AdSense and international affiliate scenarios the picture is clean, but if your activity is Israel-focused and paid from abroad, it is worth checking with us before assuming the zero rate.
The practice: how to document advertising income correctly
- The platform reports are the source of truth. AdSense, the affiliate dashboards, YouTube: all have periodic reports. Download and keep them every month; the income is recorded by them, in shekels at the exchange rate.
- Issue a lawful document for every receipt according to your status (a receipt or an invoice at the appropriate rate). Even when the payer is Google and nobody "asked" for an invoice, your books require it.
- The payment threshold is not the income threshold: Google pays only above $100, but the income accrues according to the reports, not according to the date of actual payment. At small amounts the difference is negligible; as amounts grow it matters for consistency.
- American tax forms: Google and Amazon will require a W-8BEN with the treaty clause. Filling it in correctly prevents unnecessary American withholding at source (mainly on YouTube income from US views). Was tax withheld anyway? Keep the supporting documents and examine a foreign tax credit in the annual return.
Sponsorships and collaborations - the angle that needs more care
As the audience grows, direct sponsorships arrive, and here things are less automatic than AdSense: negotiation, an agreement, an invoice to the advertiser. Three points to note:
- An Israeli advertiser means a full Israeli transaction, including 18% VAT (for a murshe) and a tax invoice, and if it is above 5,000 ILS before VAT, an allocation number too.
- Value that is not money, a product received in exchange for a review, a long free subscription, can also count as income in kind. Do not ignore large barter arrangements; ask us how they are handled.
- A short written agreement for every sponsorship saves arguments, and also serves as excellent tax documentation.
A licensed Israeli CPA (license no. 500125101) accompanying businesses and self-employed clients across Israel - including founders, builders and owners of digital products. Bookkeeping, filings to the authorities, annual reports and personal financial guidance. About Adir →
Official sources
- Google AdSense - payments and tax information
- IRS - Form W-8BEN and tax treaties
- Value Added Tax Law - Section 30(a)(5) (Hebrew)
- Kol Zchut - opening a self-employed business (Hebrew)
The information in this guide is general only, current as of August 2026, and does not constitute tax advice or a substitute for professional advice fitted to your business's circumstances. It is a condensed adaptation of our fuller Hebrew guide. For personal advice - talk to us.
Advertising and affiliate income - the questions everyone asks
My AdSense income is small, a few dozen dollars a month. Do I need to report at all?
Yes. There is no exemption threshold for reporting business income, even modest income, but in proportion: at those volumes it is usually an osek patur with minimal bureaucracy, and after expenses and credit points the tax in practice may well be zero. What matters is that the framework is right, especially if your content is growing. Regularizing now is several times easier than regularizing retroactively.
YouTube withheld US tax from me - why, and what do I do?
Google is required to withhold American tax on income from US views, unless you completed the tax details (W-8BEN) correctly and applied the Israel-US treaty, which reduces the withholding. First make sure the form was filled in correctly in AdSense; that affects things going forward. As for what has already been withheld: keep the reports, and a foreign tax credit can be examined in the Israeli return.
I received products worth thousands of shekels in exchange for reviews. Is that income?
It may well be: consideration in kind for a service (a review, promotion) is income at its market value. In practice there is a difference between a negligible product and systematic, high-value collaborations. If barter is part of your model, let us set it up properly. This is an area the Tax Authority is alert to with content creators.
I am employed and this income is on the side - is anything different for me?
The principles are the same, with the bracket angle added: the side income joins on top of the salary and is taxed at your marginal rate. We have written a whole guide on being employed with a side project, including National Insurance and whether the employer knows.
Can I offset the cost of building the audience, years of work with no income?
Current expenses from the establishment period that relate directly to the activity are generally recognizable, subject to documentation, but "years of work" are not an expense in themselves, and the extent to which past expenses are recognized depends on the circumstances. Collect every receipt you have and we will examine together what is recognizable. From here on: continuous documentation, so nothing has to be reconstructed again.