As tax laws and regulations continue to evolve, double taxation has become a major concern for international businesses and investors. Double taxation is a situation where a company or individual is taxed twice on the same income or capital. Such an occurrence arises when two countries claim tax rights over the same income or capital. Israel has entered into numerous double taxation agreements with other countries, and in this article, we will take an in-depth look at the double tax agreement Israel has in place.
Firstly, what is a Double Taxation Agreement (DTA)?
A DTA is a bilateral agreement between two countries that aims to eliminate the risk of double taxation when two countries have the right to tax the same income or capital of a taxpayer. The DTA sets out the rules for determining which country has the right to tax the income or capital of the taxpayer. It also provides for tax credits to the taxpayer, which helps to reduce the amount of taxes owed.
Israel has signed DTAs with over 50 countries globally, and it is continuing to enter into new agreements as it seeks to boost its economic ties. The country has been actively signing treaties since 1963 and has put in place a ratified network of these agreements that provides for the exchange of information and the non-discrimination in tax laws of resident taxpayers.
The DTA between Israel and other countries is mainly aimed at promoting cross-border investments, and they generally provide for:
– The elimination of double taxation on the same income or capital, which gives the taxpayer relief from the burden of taxation in two countries.
– Reduced withholding tax rates on dividends, royalties, interest, and other types of income.
– The provisions for exchange of information between the tax authorities of the two countries, which helps to combat tax evasion and avoidance.
For instance, the DTA between Israel and the United States provides that dividends paid by the US company to a company resident in Israel will be subject to a maximum tax rate of 15% if the recipient owns at least 10% of the capital of the US company. The DTA also eliminates the need for a US withholding tax on interest payments made to Israeli residents.
Similarly, the DTA between Israel and the United Kingdom reduces the withholding tax on dividends, interest, and royalties to a maximum of 15%, which facilitates trade and investment between the two countries.
In conclusion, the DTA between Israel and other countries plays a critical role in protecting the interests of investors and businesses that operate cross-border. It helps to eliminate double taxation, reduce withholding tax rates and enables the exchange of information between tax authorities, which combats tax evasion. If you are considering investing in Israel or any other country, it is vital to understand the DTA in place to ensure that you don`t suffer double taxation.