The treaty for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income between the government of Israel and the government of the Republic of Serbia is expected to take effect on January 1, 2020.
The treaty, which was signed in November 2018, establishes provisions for the prevention of the double taxation of income linked to both states.
The treaty is primarily based on the OECD model (similarly to other treaties Israel has signed in recent years), and determines that, inter alia, the withholding tax rates in the contracting state shall be as follows:
Interest – The withholding tax rate for interest arising in a contracting state and paid to a resident of the other contracting state shall not exceed 10%.
Dividend – The withholding tax rate for the payment of dividends from a company to a resident of one of the states shall not exceed: (i) 5% if the beneficial owner of the dividend is a company that holds directly at least 25% of the company that distributed the dividend, or (ii) 15% in all other cases.
Royalties – The withholding tax rate for royalties arising in a contracting state and paid to the other contracting state shall not exceed 5–10%.
Capital Gains – The principle established in the OECD model was adopted, whereby a resident of a contracting state is tax exempt from capital gains derived from the alienation of any property in the other contracting state, unless the gain is from the sale of immovable property, or the alienation of shares of a company or the alienation of rights in a partnership or other entity derived more than 50% of its value directly or indirectly from immovable property situated in the other contracting state.
Similar to the OECD model, the Israel-Serbia treaty includes, inter alia, provisions concerning permanent establishment, prevention of double taxation, non-discrimination, mutual agreement procedure, exchange of information, etc. In addition, the treaty includes changes on the subject of base erosion and profit shifting (BEPS).