2019 Protocol to UK/Israel Double Tax Convention comes into force
2019 Protocol to UK/Israel Double Tax Convention comes into force
Mon 18 Nov 2019
The 2019 protocol amending the 1977 UK/Israel DTA entered into force on 28 October, although it takes effect: In both countries:
- For taxes withheld at source for amounts paid or credited on or after 1 January 2020
- In Israel: For Income Tax, 1 January 2020
- In the UK:
- For income tax and capital gains tax, 6 April 2020
- For corporation tax, 1 April 2020
Brand new exchange of information and mutual agreement procedure articles are introduced with retrospective effect. The other key changes are summarised below. Please get in touch with a member of the Mazars international tax team for a further discussion.
Main changes to the treaty
- If both territories consider a person other than an individual to be resident there, residence is to be determined through a mutual agreement procedure, having regard to the place of effective management and any other relevant factors.
- The revised Treaty sets out guidelines on permanent establishments, which accord with OECD BEPS guidelines.There is a new article relating to withholding taxes on dividends. The new article limits the rate of withholding to 5% of the gross amount of the dividends if the beneficial owner of the dividends is a company (other than a partnership or a REIT) which holds at least 10% of the capital of the company paying the dividend throughout a 365 day period that includes the day of payment of the dividends. The rate will be 15% in most other cases (though, of course, dividends paid by UK resident companies do not suffer withholding tax in the UK).
- There is also a new article relating to withholding tax on interest. This limits the rate of withholding tax to 5% of the gross amount of the interest where paid on any loan granted by a bank which is a resident of the other territory. The rate will be 10% in most other cases.
- The article relating to capital gains is amended to allow for the application of the non-resident capital gains tax on UK-situated residential property. In particular, it provides that gains made by a resident of one territory from the sale of shares, except those substantially and regularly traded on a Stock Exchange, may be taxed in the other territory if they derive more than 50% of their value directly or indirectly from immovable property situated in that other territory.
- A new double tax agreement article is introduced to take account of the various domestic tax rules in the UK and Israel introduced since the last protocol (e.g. the part 9A CTA 2009 dividend exemption).
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