International Taxation

Our pride comes from the quality and special attention

we provide to each and every client.

International Taxation

International Taxation

 

Concept of international taxation in Israel

 

Amendment 132 to the Income Tax Ordinance ( New Version ) , 1961 (hereinafter - "the Ordinance" ) , which will apply from 01 January 2003 , Israel was driven territorial tax system . Territorial tax system imposed a tax on income that was generated by Israel “the Israeli resident or non-resident.

Following the development of globalization and economic plan for recovery following Israel, the method of taxation Israel territorial tax system tax system personal link. Tax system has determined that personal application Israeli resident must pay the tax on income produced or grown in Israel and abroad. In contrast, the non-resident is taxable only on income in Israel produced or grown in Israel

The definition of "Resident of Israel":

  • An individual who is a resident of Israel is the center of life in Israel , most ties accordance with the test prescribed by law and case law. Moreover, there is a strong center of one's life in Israel if Israel spent over 183 days in the tax year or 30 days he spent in Israel during the tax year and a total of 425 days in three years.
  • Connect an Israeli company is a body of persons incorporated in Israel or a group of persons is controlled and managed from Israel enabled him ( exception).

     

    In light of the tax reform, possible that a person (an individual or a group of persons) shall be resident in two or more states to tax liability. Without explicit legislation may happen that, only have double tax on its income. The new command’s international tax provision has been providing credit foreign taxes paid in respect of the foreign income taxable in Israel. So, instead of producing income crucial since only about revenues generated outside of Israel and Israel are taxable, given credit foreign taxes paid

     

International tax agreements

Following attempts to create a mechanism to prevent double taxation treaties or countries aimed to determine a solution to the problem of double taxation , tax distribution between the two countries , providing certainty and encouraging trade between the countries and the prevention of fiscal evasion . Command determined that the tax treaty to avoid double taxation tax legislation prevails over Israel.

Today the State of Israel has signed 52 tax treaties to avoid double taxation with various countries. List of countries with which Israel has signed tax treaty agreements of international taxation:

 

Austria Belgium Belarus Brazil Britain
Bulgaria Canada China Croatia Czech
Denmark Estonia Ethiopia Finland France
Georgia Germany Greece Hungary India
Ireland Italy Jamaica Japan Korea
Latvia Lithuania Luxembourg Mexico Moldova
Netherlands Norway Panama Philippines Poland
Portugal Romania Russia Singapore Slovakia
Slovenia South Africa Spain Sweden Switzerland
Thailand Turkey Ukraine Taiwan USA
Uzbekistan Vietnam      

 

Tax haven is a country where the tax rate is low or nonexistent. Development of the global economy in recent years has led individuals and companies to open that enable companies in tax havens exist and thus avoid paying taxes legitimately.

Offshore countries

Typically, states used tax havens are small countries that lack of economic infrastructure. Following high tax rates and restrictions on local capital markets by increased regulation and supervision in non- tax havens, countries considered tax havens have become particularly attractive and attract many foreign investors due to low tax rates. Although tax cuts led to improve the country's economic infrastructure and create jobs for their residents. In addition, a tax haven is a sanctuary state intervention to private property. For distribution of dividends to the shareholders of the Company no tax liability.

Current treatment costs of the company such as annual fees. It also has to examine additional parameters such as the existence of tax treaties , foreign currency free market , the availability of suitable labor , climate , and other parameters that may vary depending on the characteristics of the company. Legally, there is no problem to set up a company, partnership or any other association form and comes to tax planning is legitimate. However, industrialized countries are trying to block and reduce the scope of the state’s tax haven by trade restrictions, not signing tax treaties with those countries, the disallowance of invoices of companies resident in tax havens as an expense, a policy of transfer prices and preventing bank transfers.

Please note that after the reform of the Israel Tax Authority, the obligation to pay tax rests with the method of taxation personal application, therefore, not tax charge in respect of the income generated in tax havens such revenues not driven to commit Israel.

Samples of the offshore countries

Countries tax havens:

Andorra, Anguilla, Bahamas, Belize, Bermuda, Cayman Islands, Cook Islands, Cyprus, Delaware, Isle of Man, Jersey, Lichtenstein, Luxembourg, Malta, Panama, Virgin Islands.

Avoidance of Double Taxation Conventions

Conventions for the avoidance of double taxation are bilateral agreements in which the contracting countries establish the tax rules that will apply to income and assets associated with both countries. The convention solves the problem of double taxation in both countries, in one of two ways: either by granting exclusive taxation rights to one or the other country, or by providing that one country – generally the source country in which the income was derived – will have the "primary taxation right," while the other country – the country of domicile of the person deriving the income – will have a "residual taxation right," i.e. it will have the right to tax the income alongside the duty to prevent double taxation by allowing a credit on the tax that was paid in the country with the primary taxation right.

These rules are in addition to the tax rules applying under the domestic tax laws of each country. A convention for the avoidance of double taxation takes precedence over the domestic law. Thus, if the provisions of the convention are more lenient than those of the domestic law, the former will apply; if the provisions of the convention are more stringent than those of the domestic law – a situation that is possible in older conventions – the latter will apply. In other words, the provisions of the convention can only have mitigating effects for the taxpayer.

The majority of the world's tax conventions are based on one of two main prevailing models, or a combination of both: the OECD model – Organization for Economic Cooperation and Development, Model Double Taxation Convention on Income and on Capital, and the UN model – UN Department of International Economic and Social Affairs, United Nations, Model Double Taxation Convention Between Developing and Developed Countries.

In general, conventions that allow tax credits as a means of avoiding double taxation operate by recognizing the tax credit laws in the domestic law of each country and providing that each country will determine the amount and scope of the credits allowed by it and the conditions for their application in accordance with its internal laws. Nevertheless, the convention may contain specific regulatory provisions on the subject of tax credits.

Tax Credits under the Domestic Law

When income is earned in a country with which Israel does not have a double taxation avoidance agreement, the solution to double taxation is provided under Israel's domestic law. Starting from January 1, 2003, Israeli law grants a credit on foreign tax that was paid to another country by way of a deduction from the tax levied on the income in Israel, where the tax liability in the foreign country arises due to the fact that the income accrued in that country. The law establishes various rules regarding the place of income accrual (see the section below on the taxation of foreign residents).

When income is earned in a country with which Israel has a double taxation avoidance agreement that requires Israel to grant a tax credit, reference must be made to the Income Tax Ordinance to determine the taxpayer's entitlement to a tax credit and the method of calculating the credit.