Israel, Belgium sign tax treaty

Treasury seeks mutual investments as it eyes OECD entry.

March 25, 2010 10:14
2 minute read.

NOECD generic 311. (photo credit: NCourtesy)

Israel has signed a treaty with Belgium for the prevention of double taxation as part of the government’s efforts to boost the competitiveness of Israeli companies and encourage mutual investments.

“The new treaty will improve the competitiveness of Israeli companies active in Belgium,” Finance Ministry Revenue Tax Commissioner Freida Yisraeli said Wednesday. “At the same time, the treaty will create an attractive tax structure aimed at encouraging Belgian companies to invest in Israel.”

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The treaty is part of the Treasury’s policy to promote new tax agreements with key countries that are members of the Organization of Economic Cooperation and Development. Israel is in the process of completing the final stages to join the OECD this May.

A double-taxation treaty, in principle, allows for tax paid in one country to offset tax payable in the other. The agreement is based on the OECD model, which focuses taxation in the country of residence and reduces taxation in the country in which the economic activity is carried out, or from which passive income such as dividends, interest or royalties is paid.

Under the terms of the treaty between the two countries, Israeli companies will pay a reduced tax rate of 5 percent on interest in Israel paid to Belgium. In addition, the treaty promotes the activity of Israeli software-development companies. They will now be able to receive tax-free royalties from Belgium.

The agreement between the two countries also provides for a tax exemption on capital gains collected in the country of origin. In practice, it means that Israeli residents will not have to pay taxes on capital gains generated in Belgium, only in Israel. Taxes on dividends in the country of origin will be deducted at rate of 5%. Company owners and pension holders will be exempted from paying taxes on dividends.

In addition, Belgians immigrating to Israel will be given tax deductions. The treaty stipulates that Israeli citizens will pay a 10% tax on pensions received from Belgium.

Last year, the OECD put Israel on the white list of countries that have substantially implemented international tax standards, which have been agreed to by 52 other countries.

Israel currently has 48 comprehensive tax treaties with other countries including the UK, Germany, Denmark, Vietnam and Taiwan. At the end of last year, Israel signed a tax treaty with Estonia and reached an agreement on new tax-relief clauses with Georgia to provide incentives for mutual investments and facilitate the activities of Israeli companies abroad.

In addition, Israel offers broad tax breaks to encourage investment in industry, technology, tourism and agriculture.

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