Australia-Israeli tax treaty

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On 28 March 2019, Australia and Israel signed a new double tax agreement (DTA), which will create further opportunities for bilateral trade and investment between the two countries. The purpose of the DTA is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements.

Key features of the DTA include:

  • Specific rules applying to government bodies, retirement funds, superannuation funds and Isreali REITs in relation to withholding tax concessions and tax residency.
  • Reduced withholding taxes for dividends, interests and royalties to create a more favourable bilateral investment environment and also make it cheaper for Australian business to access foreign capital and technology (and vice versa), as follows:

    Dividends Interest Royalties
    Government bodies (including government investment funds) and central banks 0%
    (if holding no more than 10%)
    0% 5%
    Tax exempt pension funds or Australian complying superannuation funds.
    Also financial institutions, for interest only.
    0%
    (if holding no more than 10%)
    5%
    Companies that hold an interest of 10% or more in the paying company 5% 10%
    Others 15% 10%

  • Business profits will be attributed to permanent establishments on the basis of the 'relevant business activity' approach.
  • A 7-year time limit will generally apply for making transfer pricing adjustments.
  • Exchange of information - The treaty will provide a legal basis for the exchange of taxpayer information between tax officials in respect of taxes covered by the treaty. We note that Israel has already been added to the EOI list for managed investment trusts with effect from 1 January 2019.

The new treaty will enter into force after both countries have completed their domestic requirements and instruments of ratification have been exchanged.