Tax Treaty Relief in Israel

How many double-tax treaties does Israel have, and who are the main partners?

Israel operates approximately 60 double-taxation agreements (DTAs) in force as of mid-2026, covering all major OECD members and a wide range of emerging markets. Treaty partners include the United States (signed 1975, in force 1995 following a 1993 protocol), the United Kingdom (1962 base treaty, substantially revised by a 2019 protocol effective 1 January 2020), Germany (superseded treaty replaced by the 2014 convention, effective 1 January 2017), France, Canada, Japan, India, China, Australia, Singapore, the Netherlands, Sweden, Switzerland, Spain, Italy, Poland, Czech Republic, Hungary, Romania, Bulgaria, Greece, Portugal, Austria, Belgium, Denmark, Finland, Norway, Ireland, Luxembourg, Malta, Cyprus, Russia, Ukraine, Belarus, Georgia, Armenia, Azerbaijan, Moldova, Uzbekistan, South Africa, Turkey, Thailand, Philippines, South Korea, Brazil, Mexico, Panama, and others. The full authoritative list is published by the Israel Tax Authority (ITA) and the Ministry of Finance international-taxation portal. [1] Because the OECD Multilateral Instrument (MLI) entered into force for Israel on 1 January 2019 following deposit of Israel's ratification instrument on 13 September 2018, many of these treaties now carry MLI modifications through synthesised-text mechanics wherever the counterpart state is also an MLI party. [2]

How does the credit method work under Israeli domestic law?

Israel's primary mechanism for relieving double taxation is a credit against Israeli income tax for comparable taxes paid to a foreign jurisdiction. The credit is calculated on a basket-by-basket basis -- foreign-source income is separated into categories (for example, dividends constitute one basket, business income another), and the credit available for each basket cannot exceed the Israeli tax attributable to that basket's income. Excess credits cannot be shifted to a different income category but may be carried forward for up to five subsequent tax years. [3] This basket approach, drawn from Section 200 of the Income Tax Ordinance (ITO), prevents taxpayers from using high-taxed passive income to shelter low-taxed active income and vice versa.

Where an applicable DTA exists, the treaty's relief-from-double-taxation article typically mirrors this credit structure. Residents may claim the credit via Form 1301 (annual Israeli income-tax return) with supporting foreign-tax-payment documentation -- foreign withholding statements, Form 1042-S for US-source income, or equivalent partner-jurisdiction certificates. The credit is unilaterally available even without a treaty, subject to the basket cap and the five-year carryforward.

What is the centre-of-life test and how does the treaty tie-breaker operate?

Israeli tax residence under Section 1 of the ITO turns primarily on the "centre of life" -- a multi-factor assessment of an individual's personal, economic, and social connections. Two rebuttable day-count presumptions assist determination: presence in Israel for 183 days or more in a tax year creates a presumption of residency; presence for 30 days or more in the year combined with an aggregate of 425 days across that year and the two preceding years creates a secondary presumption. Either presumption can be rebutted by demonstrating that the true centre of life lies elsewhere. In July 2025 the ITA published a draft bill to codify these criteria further, though the existing centre-of-life framework remains operative law pending any amendment. [4]

When an individual meets residency criteria under both Israeli domestic law and the domestic law of a treaty partner, the treaty's tie-breaker article (following OECD Model Article 4) determines which state has primary taxing rights. The cascade is sequential: first, permanent home (the state in which the individual has a permanent home available); second, centre of vital interests (the state with which personal and economic relations are closer -- family location, primary employer, bank accounts, social and cultural affiliations); third, habitual abode; fourth, nationality; fifth, mutual agreement of the two competent authorities. Treaty residence overrides Israeli domestic-law residence for treaty purposes, meaning an individual who ties to the partner state under this cascade may be treated as a non-resident of Israel for purposes of that treaty's income articles.

What are the reduced withholding rates with key partners?

Israel's domestic withholding-tax rates on payments to non-residents are: dividends 25% (30% for shareholders holding 10% or more), interest 23%, royalties 23%. Treaties reduce these materially. The table below summarises maximum treaty rates on outbound payments from Israel to residents of selected partner states, based on PwC Worldwide Tax Summaries and official treaty texts. [5]

Note: rates reflect treaty ceilings and are subject to beneficial-ownership conditions, shareholding thresholds, and holding-period requirements set out in each treaty. The UK-Israel rates reflect the revised protocol effective 1 January 2020. [6] The US-Israel treaty has not been modified by the MLI since the United States has not signed the MLI; that treaty remains on its original 1975/1995 framework.

How does a foreign resident claim treaty relief on Israeli-source payments?

Under Israeli law, payers of Israeli-source income to non-residents are required to withhold at the domestic rate unless a certificate from the ITA authorises a lower rate or exemption. The mechanism for obtaining that authorisation is Form A/114 ("Claim for Reduced Rate of Withholding Tax / Exemption" -- periodically revised, most recent version dated 2019). [7] The foreign-resident recipient submits Form A/114 to the ITA together with: a certificate of tax residency from the competent authority of the treaty-partner state, the relevant contract or transaction documents establishing the nature of the payment (dividend, interest, or royalty), and any additional evidence supporting the claimed treaty position.

The ITA reviews the application -- typically within one to two weeks for straightforward cases -- and issues a certificate specifying the authorised withholding rate. The Israeli payer (company, financial institution, or agent) then applies that rate instead of the domestic rate. Electronic submission of Form A/114 and scanned residency certificates is accepted by the ITA. [8] Where no advance certificate is obtained, the payer withholds at the domestic rate and the non-resident must file a reclaim, a more time-consuming process. Practitioners coordinating cross-border payment flows (particularly on dividend distributions, intra-group royalties, or debt instruments) typically obtain the certificate in advance of the expected payment date.

How does the 10-year new-immigrant exemption interact with treaties?

New immigrants (olim) and veteran returning residents (absent from Israel for at least 10 consecutive years) are entitled under Article 14(a) of the ITO to a 10-year exemption from Israeli tax on foreign-source income -- covering dividends, interest, rental income, royalties, capital gains on overseas assets, and income from overseas business activities. [9] The exemption runs from the date of becoming an Israeli resident.

The interaction with treaty provisions operates on two distinct levels. First, the 10-year exemption relieves Israeli tax on covered foreign income -- but it does not prevent the source country from levying its own withholding tax. A new immigrant who receives US dividends, for example, owes no Israeli tax on them but may still face US withholding at up to 25% under the US-Israel treaty (or at the 30% US domestic rate if treaty benefits are not claimed). Treaty-based reduced withholding from the source country therefore remains highly relevant to new immigrants during the exemption period -- the treaty reduces the foreign bite even though there is nothing to credit against in Israel. Second, because the foreign income is exempt from Israeli tax during the 10-year window, no Israeli-side foreign tax credit arises on it (there is no Israeli tax against which to offset). This means the foreign withholding tax paid during the exemption period is a real economic cost that cannot be recovered through the credit mechanism.

From 1 January 2026 a material reporting change applies: new residents becoming Israeli residents on or after 1 January 2026 must report worldwide income and foreign assets to the ITA even though those items remain tax-exempt during the 10-year window. The tax exemption itself is preserved; it is the prior reporting exemption that was removed by an April 2024 amendment. [10] Separately, a 2026 incentive measure grants eligible new immigrants and returning residents (10+ years abroad) a further Israeli-income exemption phased over 2026-2030 (NIS 1 million cap in 2026-2027, declining to NIS 150,000 in 2030) on top of the existing foreign-income exemption. [11]

After the 10-year exemption period expires, all foreign-source income becomes subject to Israeli tax in the ordinary way, and the credit method applies with full basket-by-basket mechanics. At that transition point, treaty-based withholding-rate reduction in the source country directly reduces the foreign tax available for credit -- a planning consideration that qualified practitioners regularly address for high-net-worth olim approaching the 10-year boundary.

For a detailed overview of Israeli residence rules and the centre-of-life test see Israel country overview. For dividend and interest tax rates applicable after the exemption period, see Israel dividend and investment tax. Individual circumstances vary significantly; consult a qualified tax professional with experience in Israeli and cross-border taxation before making decisions about treaty elections, withholding-rate applications, or the timing of Israeli residency.