The Israel-Australia tax treaty

As of 2019, the trade volume between Israel and Australia stands at over a billion dollars, which accelerated the signing of the tax treaty between the countries. How will the tax treaty impact business activities, and how will the tax benefits affect Israeli companies? Everything is covered in this article.

At the beginning of 2020, the Israel-Australia tax treaty was officially signed, marking a significant milestone in the trade relations between the two countries. According to estimates, the treaty will expand business activities, and already, around 20 Israeli companies have been listed on the Australian Stock Exchange in Sydney (ASX), with dozens more in advanced stages of listing. But let’s not forget the business collaborations between the countries, especially among technology and high-tech companies. Moreover, an Australian innovation hub was established in Tel Aviv to promote the arrival of Australian startups, allowing them to receive top-tier Israeli support.

Why is a double taxation treaty necessary between the countries?

A tax treaty generally aims to prevent double taxation on capital gains between countries. The treaty ensures that a person’s place of residence allows them to receive credit for taxes paid in a country that is not their country of residence and/or that income sourced from a country other than their country of residence will be tax-exempt. Essentially, the purpose of the tax treaty is to eliminate double taxation on income and capital, ensuring that businesses and individuals do not end up paying taxes twice or, alternatively, evade taxes through illegitimate planning.

Taxes covered by the treaty in Israel (excluding VAT):

• Israeli income tax and corporate tax

• Tax on profits from the transfer of real estate

• Tax imposed on oil profits

Taxes covered by the treaty in Australia (excluding VAT):

• Income tax

• Taxes on rental income

• Taxes on employee benefit plans

What does the treaty determine?

Exchange of Information Between the Countries:

Within the framework of the tax treaty, information can be exchanged between the countries in various areas, and according to specific requests if needed.

Withholding Tax:

Reduction of withholding tax rates on payments, when both countries are parties to the payment, as follows:

• The tax treaty sets reduced withholding tax rates for dividends and interest ranging between 0-15%, aiming to encourage business activities and investments between Israel and Australia and vice versa, as well as to ease access to foreign capital and technology.

• Dividends received by companies with significant control (10% or more) will be subject to a 5% withholding tax (with exceptions). In other cases, a 15% withholding tax will be required.

• Royalties will be subject to a 5% withholding tax, although this differs from the OECD treaty signed by Israel, which grants full exemption.

• Interest will be subject to a 10% withholding tax, except in cases related to banks or other ventures whose profits stem from lending, deposits, pension funds, etc.

Relocation:

The tax treaty allows Israelis wishing to relocate to Australia, and vice versa, to benefit from capital gains tax on the profits they accumulated up to the replacement date in case of selling an asset within five years of the move.

Lynden Group is a leader in providing business development services to Israeli companies looking to establish roots in Australia and take advantage of the tax benefits created following the signing of the tax treaty. The group has offices in Israel and Australia, with Israeli and international experts providing solid support in stock listings, partnerships, and creating long-term business relationships.

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