Israel and Britain on Monday signed a treaty for the prevention of double taxation, exempting British olim from paying taxes on their UK pensions. The Finance Ministry has now signed tax treaties with 40 countries that belong to the Organization for Economic Cooperation and Development. A double-taxation treaty, in principle, allows for tax paid in one country to offset tax payable in the other. Under the terms of the treaty, a tax exemption or reduced rate on certain receipts will be granted. Taxes on dividends in the country of origin will be deducted at rate of 5 percent. Company owners and pension holders will be exempted from paying taxes on dividends. In addition, a reduced tax rate of 5% will be applicable on interest payments, as well as a tax exemption on interest for government bonds, corporate bonds traded on the stock exchange and pension funds. The treaty also provides for a tax exemption on capital gains and royalties collected in the country of origin. For example, an Israeli citizen will not have to pay taxes on capital gains generated in the UK - only in Israel, and vice versa. The treaty will outline criteria to enable the tax authorities to determine which country is the place of residence for tax settlements and how to tax income.