An amending protocol to the 1962 Israel-UK tax treaty is effective as of January 1, 2020.
The protocol includes a long list of significant and fundamental amendments and updates to the treaty, among them:
- In case of residency in both states (in accordance with domestic law), the two states will enter into a process of mutual agreement and make efforts to reach a solution whereby one place of residency is established. If Israel and the UK do not reach an agreement, it will be impossible to apply for benefits/exemptions/refunds under the provisions of the treaty.
- Income or profits of entities transparent for tax purposes will be considered income of a resident of one of the states so long as that income is categorized in that state.
- The withholding tax rate for the payment of dividends was updated to 5% if the beneficial owner is a company that directly holds at least 10% of the company’s capital. In all other cases, a rate of 15% shall apply.
- The withholding tax rate for interest paid to a a resident bank of the other state was updated to 5% (10% in other situations). In addition, another exemption for government bonds was updated.
- The withholding tax rate for royalties of any kind was expanded to adopt the provisions of the OECD model tax convention.
- Some of the tax benefits under the treaty are contingent upon an actual tax charge by the other state, so that cases of double exemption in both states are minimized.