Uk Israel Double Tax Agreement
The revised Israeli-British protocol is now in force in the United Kingdom for withholding taxes and corporation tax. The protocol will enter into force in Great Britain from 6 April 2020 for income tax and capital gains tax. In Israel, the Protocol on Withholding Taxes and Income Tax is currently in force. The agreed protocol to the Israeli-British double taxation agreement was signed on 17 January 2019. It was very well received as an update of the original treaty, signed in 1962 and last amended in 1970. More favourable tax treatment The protocol offers more favourable tax treatment to Israeli investors in the UK and british investors in Israel. For example, Article VI of the Protocol confirms that the maximum withholding tax rate on dividends will be reduced from 15% to 5% of the gross dividend paid to a shareholder in the other country. This is subject to the condition that the shareholder who directly holds at least 10% of the share capital and the beneficial owner of the dividend are a company. At present, the UK does not impose taxes on dividends paid by domestic companies and this change therefore rewards British residents who invest in Israeli companies. Article XI deals with the issue of pension and similar allowances «paid to a natural person established in one of the territories and who may be taxed only in that territory». We note that the protocol does not contain a «taxable» clause. This change will benefit «Olim» (new immigrants to Israel) and «returning residents» who benefit from the 10-year tax exemptions and receive a British pension.
As always, we recommend seeking professional advice, especially from «Olim» or «returnees» and non-UK-based individuals who control taxes on the basis of wire transfers. These favourable tax treatments are in high demand, given the growing trade and commerce relations between Britain and Israel. Amid all the brexit confusion, Israel was strategically the first country to sign a bilateral trade deal with Britain. Investment in Israel continues to increase, with Israel remaining one of the world leaders in high-tech. Bank Leumi recently published a report that bilateral trade between Britain reached a record high of £8 billion in 2018. UK Beneficial Ownership Register Despite recent political and economic uncertainties in the UK, the UK property market is an attractive market for foreign investors. Israelis, in particular, are investing in the British property market and enjoy the benefits of the weakness of the pound sterling, the powerful shekel and lower property market values. UK tax rules applicable to UK property owned by foreign owners have changed in recent years. There are also potential UK inheritance tax issues that foreign owners need to consider….