After close to four years of negotiations, on March 28, Australia and Israel penned their agreement under a first tax treaty for prevention of double taxation; as soon as both parliaments accept the treaty it will go into effect.
The reduced withholding tax rates on interest, dividends and royalties of the new treaty is expected to greatly enhance the bilateral investment environment and will allow Australian businesses and investors improved access to the world-renowned world of Israeli technology. The treaty offers solutions to potential double taxation and essential tax transparency for bi-lateral investment.
Once the treaty goes into effect, withholding tax on dividends from Australia or Israel can be as low as 0% when a recognized pension fund (including in connection with superannuation activities in Australia) invests in shares in an Israeli company. The tax at source is only 5% when a corporate shareholder in the other country holds at least 10% of the paying company's voting power (throughout a 365-day stretch) and 15% in all other cases. Interest is subject to 10% tax at source and as low as 5% when the recipient is a financial institution or a recognized pension fund and in all other cases 10%. Royalties are subject to only 5% and will include also payments for technical assistance enabling the copyright, patent, design or model or other like property or right.
“Israeli technology and innovation across a range of vital industries including healthcare and renewable energy already greatly contribute to business and life in Australia”, explains Advocate Anna Moshe. Moshe is senior partner at the high-tech law firm of Pearl Cohen in Israel and responsible for the recent listings of a number of Israeli companies on the Australian Stock exchange – while she has a few more on the way. “We expect that the tax treaty will allow Australian businesses to be able to finally further exploit opportunities in Israel and take advantage of Israel’s know-how economy, particularly in the fields biotechnology, IP and ICT”, says Moshe. Israel’s ‘Start-up Nation’, takes first place in cybersecurity, autonomous vehicles and AI, counting the largest number of start-ups and NASDAQ-listed companies out of North America. “Israel’s global tech hub capabilities include cutting edge solutions expected to complement Australia’s national economy, including medical technology, agriculture, machine learning, robotics, cybersecurity & digital health and software”.
“To date”, says Pearl Cohen partner Henriette Fuchs, “we would see an Australian investor, whether corporate of high net wealth individuals, interested in Israel, withdraw on a few occasions from investment because of the absence of a tax treaty”. However, in the meanwhile some 20 Israeli companies did find their own way to Australian investors by a listing on the Australian stock exchange. Among them – but not exclusively - Creso Pharma, Deragontail, Elsight, Fluence, Mobilicom, MGC Pharmaceuticals, Roots Sustainable Agricultural Technologies, Sky & Space Global, Shekel Brainweigh, Security Matters, Splitit Payments, UltraCharge and Weebit Nano.
Fuchs, who accompanies the tax structuring of the firms’ Israeli clients on their way to the Sydney exchange, is counting on the treaty bringing great and long called-for tax relief and she is convinced that the treaty will encourage also Israeli companies to revisit the potential of a base in Australia for the supply of high-value Israeli goods and services to clients in the entire Asian region from Australia”. The continent of Australia counts 25 million inhabitants and its economy has been booming. In terms of purchasing power the per-capita GDP in Australia is higher than that of the UK, of Canada, of Germany and of France. In 2018 Australia beat Switzerland when it grabbed the title for ‘highest average wealth per adult’. The Securities Exchange in Sydney is the 16th largest stock exchange in the world measured by domestic market capitalization. “For Israeli businesses the long-awaited treaty now opens the doors to a whole new continent; Australia”.
In 2017-18 total trade between Australia and Israel amounted $1 billion, and investments in Australia by Israeli companies and individuals in 2017 totaled over $30o million. All excellent reasons for the advancement of the new treaty for the prevention of double taxation.