UK agreement with Israel cuts dividend tax

The UK has signed a new Israel tax agreement to update the double taxation convention (DTC) with the country, offering reduced dividend tax rates for inward investors

The protocol to the UK/Israel double taxation convention will facilitate investment in Israel by UK companies in a number of ways, including a reduction in the rates of Israeli tax payable on dividends paid from Israeli companies to the UK. Israeli investors into the UK will benefit from the same reductions on UK tax.

The new Protocol provides UK companies with reduced rates of Israeli tax on dividends, interest and no Israeli tax on royalties, while UK Pension Schemes will suffer no Israeli tax on payments of dividends and interest. It also implements standards agreed as per the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.

It also introduces anti-avoidance provisions  that ensure only those companies engaged in genuine business activity can benefit from the treaty, and allows for the exchange of information between the UK and Israel.

Mel Stride, financial Secretary to the Treasury, said: ‘This agreement will facilitate UK investment into Israel by removing tax barriers to cross-border trade. It will also provide important protections against those who seek to use the treaty for tax avoidance purposes.’

Total trade in goods and services between the two countries increased by 2% last year, reaching £3.9bn in the year to July 2018. The UK’s leading exports to Israel are machinery and electrical equipment, while pharmaceuticals account for more than 70% of Israeli exports to the UK. Israeli companies are major suppliers to the NHS.

The new protocol provides UK companies with reduced rates of Israeli tax on dividends, interest and no Israeli tax on royalties, while UK pension schemes will suffer no Israeli tax on payments of dividends and interest.

The confirmation of this agreement follows the signing of a separate protocol to the UK’s double taxation convention with Cyprus. Former government staff, including ex-servicemen and women, drawing a pension in Cyprus were due to pay higher rates of tax from this year, under an agreement signed last March. Treasury ministers agreed in December to a five-year delay to the tax changes.

Stride said of the Cyprus protocol: ‘This agreement is great news for many of our highly valued ex-servicemen and women in Cyprus, who would otherwise have faced a big tax rise this year.

‘This protocol addressed concerns about how the DTC would apply to some individuals and so allows individuals to choose which basis of taxation they want to apply to their government service pensions.’

By Pat Sweet, Sara White

 

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