Germany-Israel Update Double Tax Arrangements
Israeli Finance Minister Yair Lapid and his German counterpart, Wolfgang Schäuble, signed a revised German-Israeli double taxation agreement in Berlin on August 21, 2014, according to a recent announcement from the German finance ministry.
The convention, which was last amended in 1977, has been adapted to make it correspond to modern international tax law and current economic relations between Israel and Germany.
The revised agreement now expressly stipulates that pensions that are paid as compensation for political persecution or for injury or damage sustained as a result of war (including restitution payments) will not be taxed in either of the two states. Previously, this arrangement was only regulated by an exchange of notes between Israel and Germany.
The convention is based on the Organisation for Economic Cooperation and Development’s model for international agreements for the avoidance of double taxation.
The revised convention will facilitate international investment activity between Germany and Israel and will promote bilateral economic ties. For example, the rate of withholding tax on interest and dividends has been reduced from 25 percent to 10 percent and even to 5 percent under certain circumstances. In addition, the source state’s right to tax royalties has been completely eliminated.
The agreement also improves the exchange of information on tax matters between the two states, bringing it into line with international standards.
