Capital gains from the sale of publicly traded shares (acquired after 1 January 2009) in an Israeli company by non-residents are exempt from tax, subject to certain exceptions.

 An exemption from capital gains tax also applies on the sale of shares in an Israeli company purchased on or after 1 January 2009 and not traded on a stock exchange, regardless of the non-resident’s percentage holding in the Israeli company, provided the following conditions are met:

• The investment is not in a company in which, on the date of its purchase and in the 2 preceding years, the main value of the assets held by the company, directly or indirectly, are sourced from an interest in the following:
  • real estate or a real estate association;
  • the use in real estate or any asset attached to the land;
  • the exploitation of natural resources in Israel; or
  • produce from land in Israel;
• The capital gains are not derived from the seller’s permanent establishment in Israel; and
• The shares have not been purchased from a relative or by means of a tax-free reorganization.

 However, the non-resident company is not eligible for the above exemption if an Israeli resident is a controlling shareholder or is entitled to 25% or more of the income or profits of the non-resident company, either directly or indirectly.

 No withholding tax applies on capital gains arising from the disposal of chargeable assets by non-residents. The gains from the disposal of chargeable assets are instead subject to net taxation at the corporate tax rate (currently 23%) in Israel.

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains, derived by a resident of a Contracting State from the sale, exchange or other disposition, directly or indirectly, of shares in a company, may be taxed, but only if the resident of the first-mentioned State owned either directly or indirectly at any time within the 12 months period preceding such sale, exchange or other disposition, shares giving the right to 10% per cent or more of the voting power in the company. However, the tax so charged shall not exceed 10% per cent of the net amount of the gains mentioned in this paragraph; and
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Tax is withheld at the rate of 25% on portfolio dividends (less than 10% shareholding) distributed to a non-resident. Where dividends are distributed to a substantial shareholder, i.e., a shareholder holding 10% or more at the time of distribution or within a 12-month period preceding the distribution, the withholding tax rate is increased to 30%.

The dividend withholding tax rate is reduced to 5% with respect to distributions by qualifying Israeli holding companies and to 4%, 5% or 20% with respect to distributions by companies benefitting from an incentive regime (see Sec. 10.1. in Israel Analysis chapter).

Tax is withheld at the rate of 23% on gross interest paid to non-residents. Interest derived from certain public bonds held by foreign residents is exempt from withholding tax. Interest derived from foreign currency deposits held in an Israeli bank is exempt from tax, subject to certain conditions.

Tax is withheld at the rate of 23% on gross royalties paid to non-residents.

Tax is withheld at the rate of 23% on gross royalties paid to non-residents.

Tax is withheld at the rate of 23% on gross royalties paid to non-residents.

The rate shown is based on physical sales which typically do not attract a withholding tax. Note, however, that more and more countries apply various types of taxes to “digital transactions” and similar. For details of such tax in Israel, see Sec. 12.1. in Israel Analysis chapter.

Tax is withheld at the rate of 23% on management service fees paid to non-residents, unless a tax treaty either does not permit source-State taxation of service fees, or allows such taxation but at a reduced rate.

Tax is withheld at the rate of 23% on technical service fees paid to non-residents, unless a tax treaty either does not permit source-State taxation of service fees, or allows such taxation but at a reduced rate.