Corporate tax in Israel

Summary

Corporate Income Tax Rate (%) 25 (a)
Capital Gains Tax Rate (%) 25 (a) (b)
Branch Tax Rate (%) 25 (a)
Withholding Tax (%)
Dividends 0/15/20/25/30 (c)(d)
Interest 0/25 (a)(c)(e)(f)
Royalties from Patents, Know-how, etc. 25 (a)(c)(e)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited

a) This is the regular company tax rate for profits and real capital gains. Reduced rates of company tax are available in accordance with the Capital Investment Encourage ment Law (for details, see Section B).

b) See Section B for details.

c) The withholding tax may be reduced by applicable tax treaties.

d) The 0% rate generally applies to distributions to Israeli parent companies. In addition, reduced withholding tax rates of 15% and 20% may apply under the Capital Investment Encouragement Law.

e) In principle, the withholding taxes on interest and royalties are not final taxes.

(f) Interest paid to nonresidents on Israeli corporate bonds registered for trading on the Tel-Aviv Stock Exchange is exempt. In general, interest paid to non­residents on Israeli governmental bonds is exempt. However, interest on short-term bonds (issued for 13 months or less) is taxable.

Taxes on corporate income and gains

Corporate income tax. Resident companies are subject to Israeli tax on their worldwide income. Nonresident companies are subject to Israeli tax on income accrued or derived in Israel, unless other­wise provided for in an applicable tax treaty.

A company is considered resident in Israel for Israeli tax purposes if either of the following applies:

  • It is incorporated in Israel.
  • Its business is controlled and managed in Israel.

Rates of corporate tax. Effective from 1 January 2016, the regular rate of company tax is 25%. The following are the combined Israel taxes on profits, taking into account the 30% withholding tax on dividends paid to shareholders holding 10% or more of the company (material shareholders) and the 25% withholding tax imposed on shareholders holding less than 10% of the company:

  • Material shareholders: 47.5% for 2016 and future years. Hold­ers that are individuals who have taxable income that exceeds ILS810,720 for 2015 (linked to the Consumer Price Index each year) and future years may be subject to an additional tax at a rate of 2% on their taxable income in excess of ILS803,520.
  • Other shareholders: 43.75% for 2016 and future years. For in­dividual holders, an additional tax of 2% may apply (see above).

The dividend withholding tax rates mentioned above may be re­duced based on applicable tax treaties.

Tax levy on oil and gas. Under the Windfall Profits Tax Law, a levy is imposed on oil and gas profits from an oil or gas project in the relevant tax year. The levy is designed to capitalize on the eco­nomic dividend arising from each individual reservoir. The levy is imposed only after the investments in exploration, develop­ment and construction are fully returned plus a yield that reflects, among other items, the developer’s risks and required financial expenses. The levy is progressive and has a relatively lower rate when first collected, and increases as the project’s profit margins grow.

Tax reductions and exemptions. The major tax reductions and ex­emptions offered by Israel are described below.

Capital Investment Encouragement Law. The Capital Investment Encouragement Law has the following objectives:

  • Achieving of enhanced growth targets in the business sector
  • Improving the competitiveness of Israeli industries in interna­tional markets
  • Creating employment and development opportunities in outly­ing areas

Precedence is granted to innovation and development areas.

The country is divided into national priority areas, which benefit from several reduced tax rates and benefits based on the location of the enterprise.

A reduced uniform corporate tax rate for exporting industrial enterprises (generally over 25% of turnover from export activity) applies. The reduced tax rate does not depend on a program and applies to the industrial enterprise’s industrial income.

The reduced tax rates for industrial enterprises that meet the cri­teria of the law are 9% for Development Area A and 16% for the rest of the country. In addition, accelerated depreciation applies. The accelerated depreciation reaches 400% of the standard de­preciation rate on buildings (not exceeding 20% per year and exclusive of land) and 200% of the standard depreciation rate on equipment.

A reduced tax on dividends of 15% or 20% is imposed without distinction between foreign and local investors. These tax rates may be reduced under applicable tax treaties. On the distribution of a dividend to an Israeli company, no withholding tax is im­posed.

A unique tax benefit is granted to certain large industrial enter­prises. This entitles such companies to a reduced tax rate of 5% in Development Area A and 8% in the rest of the country.

In addition to the above tax benefits, fixed asset grants of 20% to 32% of the investment cost of fixed assets may be granted to enterprises in Development Area A.

Grants may also be made under the Employment Grant Program. These grants are made to create incentives for employment in the outlying areas of Israel. The grants are up to 40% of the cost of salaries for a period of two and one-half to four years, depending on the location, number of employees and the employees’ salaries.

Research and development (R&D) incentives programs are avail­able to Israelis companies. The Office of the Chief Scientist at the Ministry of Economy primarily provides these incentives. The company can obtain an R&D grant equal to about 30% to 60% of its R&D expenses, depending on the grant program, the company’s technology innovation and its business model. Binational agreements for joint R&D projects are also available. These agreements provide for grants equaling 30% to 60% of the R&D expenses incurred during the commercial phase.

Some of Israel’s tax treaties include tax-sparing clauses under which regular Israeli taxes, rather than reduced Israeli taxes, may be credited against tax imposed on dividends received from an Israeli company in the investor’s country of residence. As a result, the Israeli tax benefits may be partially or fully preserved for an investor in an Israeli company enjoying the benefits of the Capital Investment Encouragement Law.

Eilat free trade zone. A value-added tax (VAT) exemption and employment benefits are granted to enterprises in the Eilat free trade zone.

Other incentives. Approved residential rental properties qualify for reduced company tax rates on rental income (and on gains derived from sales of certain buildings that have a residential ele­ment; a building has a residential element if at least 50% of the floor space is rented for residential purposes for a prescribed number of years, according to detailed rules). The reduced rates generally range from 11% (plus 15% withholding tax on divi­dends) for companies to 20% for individuals.

Preferential tax treatment may also be allowed with respect to the following:

  • Real Estate Investment Trust (REIT) companies
  • Agriculture
  • Oil
  • Movies
  • International trading
  • R&D financing
  • Hotels and tourist ventures

Foreign resident investors may qualify for exemption from capital gains tax in certain circumstances (see Capital gains and losses).

Capital gains and losses

Residents. Resident companies are taxable on worldwide capital gains. Capital gains are divided into real and inflationary compo­nents. The following are descriptions of the taxation of these components:

  • Effective from 1 January 2016, the tax rate on real capital gains is the standard corporate tax rate of 25%.
  • The inflationary component of capital gains is exempt from tax to the extent that it accrued on or after 1 January 1994, and is generally taxable at a rate of 10% to the extent that it accrued before that date.

Gains derived from sales of Israeli real estate or from sales of interests in real estate associations (entities whose primary assets relate to Israeli real estate) are subject to Land Appreciation Tax at rates similar to those applicable to other capital gains.

Capital losses may be used to offset capital gains derived in the same or future tax years without time limit. In each year, capital losses are first offset against real gains and then offset against taxable in flationary amounts in accordance with the following ratio: ILS3.5 of inflationary amounts per ILS1 of capital losses. Capital losses from assets located abroad must be offset against capital gains on other assets abroad, then against capital gains from assets in Israel.

Capital losses incurred on securities can also be offset against dividend and interest income in the same year, subject to certain conditions.

Nonresidents. Unless a tax treaty provides otherwise, in principle, nonresident companies and individuals are subject to Israeli tax on their capital gains relating to any of the following:

  • An asset located in Israel.
  • An asset located abroad that is primarily a direct or indirect right to an asset, inventory or real estate in Israel or to a real estate association (an entity whose primary assets relate to Israeli real estate). Tax is imposed on the portion of the consideration that relates to such property in Israel.
  • Shares or rights to shares (for example, warrants and options) in an Israeli resident entity.
  • A right to a nonresident entity that primarily represents a direct or indirect right to property in Israel. Tax is imposed on the por­tion of the consideration that relates to such property in Israel.

Foreign residents not engaged in business in Israel may qualify for exemption from capital gains tax on disposals of the follow­ing investments:

  • Securities traded on the Tel-Aviv stock exchange (with certain exceptions)
  • Securities of Israeli companies traded on a recognized foreign stock exchange

The above exemption does not apply to the following:

  • Gains attributable to a permanent establishment (generally a fixed place of business) of the investor in Israel
  • Shares of Real Estate Investment Trust (REIT) companies
  • Capital gains derived from the sale of Israeli governmental short-term bonds (issued for 13 months or less)

Foreign residents may also qualify for an exemption from capital gains tax on disposals of all types of Israeli securities not listed to trade that were purchased on or after 1 January 2009 if the seller (the company or individual who sold the Israeli securities to the foreign resident) was not a related party.

The above exemption does not apply to the following:

  • Gains attributable to a permanent establishment (generally a fixed place of business) of the investor in Israel
  • Shares of a company whose assets are principally Israeli real estate
  • Shares of a company that has the value of its assets derived principally from the usufruct of immovable property and right to payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources (for example, companies that hold licenses to exploit gas and miner­als in Israel’s territory, which includes Israel’s economic water)

In other cases, unless a tax treaty provides otherwise, foreign resi­dent companies pay capital gains tax in accordance with the rules and rates applicable to Israeli resident companies, as described above. However, nonresidents investing with foreign currency may elect to apply the relevant exchange rate rather than the inflation rate to compute the inflationary amount.

Administration. The Israeli tax year is normally the calendar year. However, subsidiaries of foreign publicly traded companies may some times be allowed to use a different fiscal year.

Companies are generally required to file audited annual tax re­turns and financial statements within five months after the end of their fiscal year, but extensions may be obtained.

Companies must normally file monthly or bimonthly reports and make payments with respect to the following taxes:

  • Company tax advances, which are typically computed as a per­centage of a company’s sales revenues
  • Supplementary company tax advances with respect to certain nondeductible expenses
  • Tax and social security contributions withheld from salaries and remittances to certain suppliers
  • VAT

Nonresidents are required to appoint an Israeli tax representative and VAT representative if any part of their activities is conducted in Israel. The VAT representative is deemed to be the tax represen­tative if no other tax representative is appointed. The tax represen­tative is empowered to pay tax out of the foreign resident’s assets.

Dividends. A 30% withholding tax is generally imposed on divi­dends paid to individual shareholders holding 10% or more of the shares in an Israeli company (material shareholders). A 25% with­holding tax is imposed on dividends paid to individual sharehold­ers holding less than 10% of the shares in an Israeli company and on regular dividends paid by a publicly traded company (regard­less of whether the recipient is a material shareholder). How ever, resident companies are exempt from company tax on dividends paid out of regular income that was accrued or derived from sources with in Israel. Companies are generally subject to tax at a rate of 25% on foreign dividend income that is paid from a foreign source or from income accrued or derived abroad (foreign-source in come that is passed up a chain of companies).

A reduced withholding tax of 15% or 20% is imposed on divi­dends paid out of the income of a company entitled to the benefits of the Capital Investment Encouragement Law. The rate may be further reduced under an applicable tax treaty. However, if such dividend is paid to an Israeli company, it is generally exempt from withholding tax (with certain exceptions).

Interest. Israeli resident companies are taxable on worldwide in­terest, original discount and linkage differentials income. The tax rate for these types of income is the standard corporate tax rate of 25%. Interest, original discount and linkage differentials in­come are treated as derived from Israeli sources if the payer is located in Israel. In principle, the same taxation rules apply to non-Israeli resident companies on Israeli-source interest, original discount and linkage differentials income, unless a tax treaty pro­vides otherwise.

Nevertheless, an exemption from Israeli tax is available to foreign investors that receive interest income on bonds issued by Israeli companies traded on the Israeli stock exchange.

In addition, interest paid to nonresidents on Israeli governmental bonds that are issued for 13 months or more is exempt.

Israeli holding companies and participation exemption. To qualify for the participation exemption, an Israeli holding company must satisfy various conditions, including the following:

  • It must be incorporated in Israel.
  • Its business is controlled and managed in Israel only.
  • It may not be a public company or a financial institution.
  • It must not have been formed in a tax-deferred reorganization.
  • For 300 days or more in the year, beginning in the year after incorporation, the holding company must have an investment of at least ILS50 million in the equity of, or as loans to, the in vestee companies, and at least 75% of the holding company’s assets must consist of such equity investments and loans.

In addition, the foreign investee company must satisfy the follow­ing conditions:

  • It must be resident in a country that entered into a tax treaty with Israel, or it must be resident in a foreign country that had a tax rate for business activity of at least 15% on the date of the holding company’s investment (however, it is not required that the investee company pay the 15% tax [for example, it obtains a tax holiday]).
  • At least 75% of its income in the relevant tax year is accrued or derived from a business or one-time venture abroad.
  • The Israeli holding company must hold an “entitling sharehold­ing” in the investee company for at least 12 consecutive months. An “entitling shareholding” is a shareholding that confers at least 10% of the investee’s profits. The entitling shareholding must span a period of at least 12 months that includes the date on which the income is received.

An Israeli holding company is exempt from tax on the following types of income:

  • Capital gains derived from the sale of an entitling shareholding in an investee company
  • Dividends distributed during the 12-month minimum sharehold­ing period with respect to an entitling shareholding in an in-vestee company
  • Interest, dividends and capital gains derived from securities traded on the Tel-Aviv Stock Exchange
  • Interest and indexation amounts received from Israeli financial institutions

In addition, dividends paid by Israeli holding companies to for­eign resident shareholders are subject to a reduced rate of divi­dend withholding tax of 5%.

Foreign tax relief. A credit for foreign taxes is available for fed­eral and state taxes but not municipal taxes. Any excess foreign tax credit may be offset against Israeli tax on non-Israeli-source income from the same type in the following five tax years.

With respect to foreign dividend income, an Israeli company may receive a direct and an underlying tax credit for foreign taxes. The foreign dividend income is grossed up for tax purposes by the amount of the creditable taxes. The following are the alterna­tive forms of the credit:

  • Direct foreign tax credit only: a 25% tax is imposed on foreign dividend income, and any dividend withholding tax incurred is creditable in Israel.
  • Direct and underlying foreign tax credit: a 25% tax is imposed on foreign dividend income, and a credit is granted for dividend withholding tax and underlying corporate tax paid abroad by 25%-or-greater affiliates and their direct 50%-or-greater sub­sidiaries. If an underlying foreign tax credit is claim ed, any excess foreign tax credit may not be used to offset company tax in future years.

Foreign residents that receive little or no relief for Israeli taxes in their home countries may be granted a reduced Israeli tax rate by the Minister of Finance.

Determination of trading income

General. Taxable income is based on financial statements that are prepared in accordance with generally accepted accounting principles and are derived from acceptable accounting records. In principle, expenses are deductible if they are wholly and exclu­sively incurred in the production of taxable income. Various items may require adjustment for tax purposes, including depreciation, R&D expenses, and vehicle and travel expenses.

Inventories. In general, inventory may be valued at the lower of cost or market value. Cost may be determined using one of the following methods:

  • Actual
  • Average
  • First-in, first-out (FIFO)

The last-in, first-out (LIFO) method is not allowed.

Provisions. Bad debts are deductible in the year they become ir­recoverable. Special rules apply to employee-related provisions, such as severance pay, vacation pay, recreation pay and sick pay.

Depreciation. Depreciation at prescribed rates, based on the type of asset and the number of shifts the asset is used, may be claimed with respect to fixed assets used in the production of taxable income.

Accelerated depreciation may be claimed in certain instances. For example, under the Inflationary Adjustments Regulations (Accelerated Depreciation), for assets first used in Israel between 1 June 1989 and 31 December 2013, industrial enterprises may depreciate equipment using the straight-line method at annual rates ranging from 20% to 40%. Alternatively, they may depreci­ate equipment using the declining-balance method at rates rang­ing from 30% to 50%.

The following are some of the standard straight-line rates that apply primarily to non-industrial companies.

Asset Rate (%)
Mechanical equipment 7 to 10
Electronic equipment 15
Personal computers and peripheral equipment 33
Buildings (depending on quality) 1.5 to 4
Goodwill 10 (a)
Patent rights and technology 12.5 (b)
Solar energy-producing plant 25

a) Subject to the fulfillment of certain conditions.

b) For industrial companies, subject to the fulfillment of certain conditions.

Groups of companies. Subject to certain conditions, consolidated returns are permissible for an Israeli holding company and its Israeli industrial subsidiaries if the subsidiaries are all engaged in the same line of production. For this purpose, a holding company is a company that has invested at least 80% of its fixed assets in the industrial subsidiaries and controls at least 50% (or two-thirds in certain cases) of various rights in those subsidiaries. For a di­versified op eration, a holding company may file a consolidated return with the subsidiaries that share the common line of produc­tion in which the largest amount has been invested.

Group returns may also be filed by an Israeli industrial company and Israeli industrial subsidiary companies if the subsidiaries are at least two-thirds controlled (in terms of voting power and appointment of directors) by the industrial company and if the industrial company and the subsidiaries are in the same line of production.

Detailed rules concerning the deferral of capital gains tax apply to certain types of reorganizations, including corporate mergers, divisions and shares-for-assets exchanges. In many cases, an ad­vance ruling is necessary.

Relief for losses. In general, business losses may be offset against income from any source in the same year. Unrelieved business losses may be carried forward for an unlimited number of years to offset business income, capital gains derived from business ac­tivities or business-related gains subject to the Land Appreciation Tax (see Section B). According to case law, the offset of losses may be disallowed after a change of ownership and activity of a company, except in certain bona fide circumstances.

Special rules govern the offset of foreign losses incurred by Israeli residents. Passive foreign losses may be offset against current or future foreign passive income (for example, income from divi­dends, interest, rent or royalties). Passive foreign rental losses arising from depreciation may also be offset against capital gains from the sale of the relevant foreign real property.

Active foreign losses (relating to a business or profession) may be offset against the following:

  • Active foreign income and business-related capital gains in the current year.
  • Passive foreign income in the current year.
  • Active Israeli income in the current year if the taxpayer so elects and if the foreign business is controlled and managed in Israel. However, in the preceding two years and in the following five years, foreign-source income is taxable up to the amount of the foreign loss.
  • Active foreign income and business-related capital gains in future years.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT), standard rate 17
Wage and profit tax, imposed on financial
institutions instead of VAT; this tax is
imposed in addition to company tax
17
National insurance contributions on monthly
employment income (subject to an upper
income limit that fluctuates periodically)
Employer payments; rates depend on
residency of employee
Various
Employee payments; rates depend on
residency of employee
Various
Payroll levy on salaries of foreign employees;
levy does not apply if monthly salary
exceeds twice the average monthly salary
10 to 20
Acquisition tax, imposed on purchasers of
real estate rights; maximum rate
0 to 10
Annual municipal taxes on property Various

Miscellaneous matters

Foreign-exchange controls. The Israeli currency is the new Israel shekel (ILS).

No exchange-control restrictions exist.

Debt-to-equity rules. No thin-capitalization rules are imposed in Israel. However, approved enterprises and approved properties (see Section B) must be at least 30% equity-financed if they received their approval before 1 April 2005.

Transfer pricing. Transactions between related parties should be at arm’s length. Detailed transfer-pricing regulations apply. An Israeli taxpayer must report on each international transaction undertaken with a related party and indicate the arm’s-length amount for such transaction. Advance rulings may be requested regarding transfer pricing.

Measures to counteract tax planning involving foreign companies. Certain measures are de sign ed to counteract tax planning involv­ing foreign companies.

Foreign professional companies. Israeli residents are taxed on deemed dividends received from foreign professional companies (FPCs) at the standard corporate tax rate; a foreign corporate tax credit is available. In addition, on the actual distribution of divi­dends by FPCs, Israeli residents are subject to dividend tax. A company is considered to be an FPC if a company meets all of the following conditions:

  • It has five or fewer ultimate individual shareholders.
  • It is owned 75% or more by Israeli residents.
  • Most of its 10%-or-more shareholders conduct a special profes­sion for the company.
  • Most of its income or profits are derived from a special profession.

The special professions include engineering, management, tech­nical advice, financial advice, agency, law, medicine and many others.

Controlled foreign corporations. Israeli residents are taxed on deemed dividends received from a controlled foreign corporation (CFC) if they hold 10% or more of the CFC. An amendment to the CFC regime is effective from 1 January 2014. A foreign com­pany (or any other body of persons) is considered to be a CFC if all of the following conditions exist:

  • The foreign company primarily derives passive income or profits that are taxed at a rate of 15% or less abroad.
  • The foreign company’s shares are not publicly traded, or less than 30% of its shares or other rights have been issued to the public or listed for trade.
  • One of the following requirements is satisfied:

— Israeli residents own either directly or indirectly more than 50% of the foreign company.

— An Israeli resident owns over 40% of the foreign company, and together with a relative, owns more than 50% of the company.

— An Israeli resident has veto rights with respect to material management decisions, including decisions regarding the distribution of dividends or liquidation.

The shareholdings of the CFC are calculated as the higher of the following:

  • The shareholdings at the tax year-end
  • The shareholdings any day in the tax year plus any day in the following tax year

The deemed dividend is the taxpayer’s share of passive undistrib­uted income on the last day of the tax year. Under the 2014 amend­ment, the possibility of claiming a deemed foreign tax credit is abolished.

Reportable transactions. Certain types of transactions with for­eign companies must be reported to the tax authorities.

Withholding taxes on overseas remittances. Israeli banks must withhold tax, generally at a rate of 25%, from most overseas re­mittances unless the remittances relate to imported goods. An exemption or a reduced withholding rate may be obtained from the Israeli tax authorities in certain circumstances, such as when a treaty applies or when the payments are for services that are ren­dered entirely abroad. A 30% withholding tax rate applies to divi­dends paid to recipients holding 10% or more of the payer entity.

Free-trade agreements. Israel has entered into free-trade agree­ments with Bulgaria, Canada, the European Free Trade Associ­ation, the European Union, Mexico, Romania, Turkey and the United States.

Treaty withholding tax rates

The following table provides Israeli withholding tax rates for pay­ments of dividends, interest and royalties to residents of various jurisdictions. Exemptions or conditions may apply, depending on the terms of the particular treaty.

  Dividends

%

Interest

%

Royalties (a)

%

Austria 25 15 10
Belarus 10 5/10 (c) 5/10 (aa)
Belgium 15 15 10
Brazil 10/15 (l) 15 (c) 10/15 (jj)
Bulgaria 10/12.5 (b) 5/10 (c) 12.5 (d)
Canada 15 15 15
China 10 7/10 (e) 7/10 (f)
Croatia 5/10/15 (h) 0/5/10 (c)(ll) 5
Czech Republic 5/15 (g) 10 5
Denmark 0/10 (oo) 0/5 (q)(mm) 0
Estonia 0/5 (oo) 5 (c) 0
Ethiopia 5/10/15 (h) 0/5/10 (c)(ll) 5
Finland 5/10/15 (h) 10 (i) 10
France 5/10/15 (h) 5/10 (i)(j) 10
Georgia 0/5 (oo) 0/5 (q)(mm) 0
Germany (pp) 25 15 5
Greece 25 (k) 10 10
Hungary 5/15 (g) 0 0
India 10 10 10
Ireland 10 5/10 (j) 10
Italy 10/15 (l) 10 10
Jamaica 15/22.5 (m) 15 10
Japan 5/15 (n) 10 10

 

     
Korea (South) 5/10/15 (h) 7.5/10 (c) 2/5 (o)
Latvia 5/10/15 (h) 5/10 (c) 5
Lithuania 5/10/15 (h) 0/10 (q)(ll) 5/10 (u)
Luxembourg 5/10/15 (h) 5/10 (c) 5
Malta 0/15 (uu) 0/5 (q)(ss) 0
Mexico 5/10 (p) 10 (q) 10
Moldova 5/10 (kk) 0/5 (q)(mm) 5
Netherlands 5/10/15 (h) 10/15 (r) 5
Norway 25 25 10
Panama 5/15/20 (qq) 0/15 (rr) 15
Philippines 10/15 (s) 10 10/15 (t)
Poland 5/10 (g) 5 5/10 (u)
Portugal 5/10/15 (h) 10 (q) 10
Romania 15 5/10 (v) 10
Russian Federation 10 10 (q) 10
Singapore 5/10 (g) 7 (c) 5 (x)
Slovak Republic 5/10 (g) 2/5/10 (y) 5
Slovenia 5/10/15 (h) 0/5 (q)(mm) 5
South Africa 25 25 0
Spain 10 5 (z) 5/7 (aa)
Sweden 0 (w) 25 0
Switzerland 5/10/15 (h) 5/10 (c) 5
Taiwan 10 7/10 (c) 10
Thailand 10/15 (bb) 10/15 (cc) 5/15 (dd)
Turkey 10 10 (ee) 10
Ukraine 5/10/15 (h) 5/10 (c) 10
United Kingdom 15 15 0
United States 12.5/15/25 (ff) 10/17.5 (gg) 10/15 (hh)
Uzbekistan 10 10 5/10 (ii)
Vietnam 10 10 (q) 5/7.5/15 (u)
Non-treaty
countries (nn)
25/30 25 (tt) 25 (tt)
      a) Different rates may apply to cultural royalties.

 

b) The 10% rate applies to dividends that are paid out of profits taxed at a reduc­ed company tax rate. For other dividends, the withholding tax rate may not exceed one-half the non-treaty withholding tax rate; because the non-treaty withholding tax rate for dividends is currently 25%, the treaty withholding tax rate is 12.5%.

c) Interest on certain government loans is exempt. The rate of 5% (Belarus, Bulgaria, Croatia, Ethiopia, Latvia, Luxembourg, Switzerland and Ukraine), 7% (Taiwan) or 7.5% (Korea) applies to interest on loans from banks or fi­nancial institutions. The 10% rate (Brazil, 15%; Estonia, 5%; and Singa pore, 7%) applies to other interest payments.

d) The withholding tax rate may not exceed one-half the non-treaty withholding tax rate; because the non-treaty withholding tax rate is currently 26.5%, the treaty withholding tax rate is 13.25%.

e) The 7% rate applies to interest paid to banks or financial institutions.

f) Under a protocol to the treaty, the 7% rate is the effective withholding rate for amounts paid for the use of industrial, commercial or scientific equipment.

g) The 5% rate applies if the recipient holds directly at least 10% of the capital of the payer (Hungary, Singapore and Slovak Republic) or at least 15% of the capital of the payer (Poland), or if the recipient is a company that holds at least 15% of the capital of the payer (Czech Republic).

h) The 5% rate applies if the dividends are paid out of profits that were subject to the regular company tax rate (currently, 26.5%) and if they are paid to a corporation holding at least 10% (Ethiopia, Finland, France, Korea, Latvia, Lithuania, Luxem bourg, Slovenia and Switzerland) or 25% (Croatia, Nether­lands, Portugal and Ukraine) of the payer’s capital. The 10% rate applies to dividends paid to such a corporation (under the Ukraine treaty, a corporation holding at least 10%) out of profits that were taxed at a reduced rate of com­pany tax. The 15% rate applies to other dividends.

i) Alternatively, an interest recipient may elect to pay regular tax (currently, the company tax rate is 26.5%) on the lending profit margin.

j) The 5% rate applies to interest on a bank loan as well as to interest in con­nection with sales on credit of merchandise between enterprises or sales of industrial, commercial or scientific equipment.

k) Dividends are subject to tax at the rate provided under domestic law, which is currently 25% in Israel.

l) The 10% rate applies if the recipient holds at least 25% of the capital of the payer.

m) The 15% rate applies if the recipient is a company that holds directly at least 10% of the voting power of the payer.

n) The 5% rate applies to corporate recipients that beneficially own at least 25% of the voting shares of the payer during the six months before the end of the accounting period for which the distribution is made.

o) The 2% rate applies to royalties for use of industrial, commercial or scien­tific equipment.

p) The 5% rate applies if the recipient holds at least 10% of the payer and if the payer is not an Israeli resident company that paid the dividends out of profits that were taxed at a reduced tax rate. The 10% rate applies to other dividends.

q) Interest on certain government loans is exempt.

r) The 10% rate applies to a Dutch bank or financial institution.

s) The 10% rate applies if the recipient holds at least 10% of the capital of the payer.

t) The 15% rate applies unless a lesser rate may be imposed by the Philippines on royalties derived by a resident of a third country in similar circumstances. The Philippines-Germany treaty specifies a 10% withholding tax rate on industrial and commercial royalties. Consequently, a 10% rate might apply to these royalties under the Israel-Philippines treaty.

u) The 5% rate applies to royalties for the use of industrial, commercial or scientific equipment. The 7.5% rate (Vietnam) applies to technical fees.

v) The 5% rate applies to interest on bank loans as well as to interest in con­nection with sales on credit of merchandise between enterprises or sales of industrial, commercial or scientific equipment. Interest on certain govern­ment loans is exempt.

w) Under a disputed interpretation of the treaty, a 15% rate may apply to divi­dends paid out of the profits of an approved enterprise or property.

x) The tax rate on the royalties in the recipient’s country is limited to 20%.

y) The 2% rate applies to interest paid on certain government loans. The 5% rate applies to interest received by financial institutions that grant loans in the course of its usual business activities. The 10% rate applies to other inter­est payments.

z) This rate applies to interest in connection with sales on credit of merchan­dise between enterprises and sales of industrial, commercial or scientific equipment, and to interest on loans granted by financial institutions.

(aa) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment (and road transport vehicles under the Belarus treaty), or for copyrights of literary, dramatic, musical or artistic works. The rate for other royalties is 10% (Belarus) or 7% (Spain).

(bb) The 10% rate applies if the recipient is an Israeli resident or if the recipient is a Thai resident holding at least 15% of the capital of the payer.

(cc) The 10% rate applies to interest paid to banks or financial institutions, in­cluding insurance companies.

(dd) The 5% rate applies to royalties paid for the use of literary, artistic or scien­tific works, excluding radio or television broadcasting works.

(ee) Interest on certain government loans is exempt. The 10% rate applies to all other interest payments.

(ff) The 12.5% rate applies to dividends paid by a company that does not have an approved enterprise or approved property in Israel to US corporations that own at least 10% of the voting shares of the payer, subject to certain conditions. The 15% rate applies to dividends paid out of the profits of an approved enterprise or property. The 25% rate applies to other dividends.

(gg) The 10% rate applies to interest on a loan from a bank, savings institution, insurance company or similar company. The 17.5% rate applies to other in­terest. Alternatively, an interest recipient may elect to pay regular tax (the company tax rate is currently 26.5%) on the lending profit margin.

(hh) The 10% rate applies to copyright and film royalties. The 15% rate applies to industrial and other royalties.

(ii) The 5% rate applies to royalties paid for the use of literary, artistic or scien­tific works, excluding cinematographic films. The 10% rate applies to other royalties.

(jj)    The 15% rate applies to royalties for the use of, or the right to use, trade­marks. The 10% rate applies to other royalties.

(kk) The 5% rate applies if the dividends are paid to a corporation holding at least 25% of the payer’s capital. The 10% rate applies to other dividends.

(ll)    The 0% rate applies to interest with respect to sales on credit of merchan­dise or industrial, commercial or scientific equipment. Under the Lithua­nia treaty, such credit must not exceed six months and related parties are excluded.

(mm) The 0% rate applies to interest with respect to a loan, debt-claim or credit guaranteed or insured by an institution for insurance or financing of inter­national trade transactions that is wholly owned by the other contracting state (Denmark, Georgia and Moldova) or acts on behalf of the other con­tracting state (Slovenia), and with respect to interest paid on traded corpo­rate bonds (Denmark and Georgia). The 5% rate applies to other interest.

(nn) See Sections A and B. A 25% withholding tax rate applies to dividends and other payments to recipients who hold under 10% of the payer entity.

(oo) The 0% rate applies if the recipient is a company that holds directly at least 10% of the capital of the payer for a consecutive period of at least 12 months.

(pp) A new treaty has been signed, but it has not yet been ratified. The table lists the rates under the existing treaty.

(qq) The 5% rate applies to dividends paid to pension schemes. The 20% rate applies to distributions from a real estate investment company if the benefi­cial owner holds less than 10% of the capital of the company. The 15% rate applies to other dividends.

(rr)    The 0% rate applies to interest on certain government loans, interest paid to pension schemes and interest on certain corporate bonds traded on a stock exchange. The 15% rate applies to other interest.

(ss) The 0% rate applies to interest derived from corporate bonds listed for trading.

(tt)    This is the regular company tax rate for profits and real capital gains effec­tive from 1 January 2016.

(uu) The 0% rate applies if the beneficial owner of the dividends is a company (other than a partnership or a real estate investment company) that holds directly at least 10% of the capital of the company paying the dividends. The 15% rate applies to dividends in all other cases. Distributions made by a real estate investment company that is a resident of Israel to a resident of Malta may be taxed in Malta. Such distributions may also be taxed in Israel according to the laws of Israel. However, if the beneficial owner of these distributions is a resident of Malta holding directly less than 10% of the capital of the distributing company, the tax charged in Israel may not ex­ceed a rate of 15% of the gross distribution.