preface

BDO Israel
DOING BUSINESS IN ISRAEL
Generally, according to the OECD Model Tax Convention
Capital gain from the sale of property located in a certain
country by a resident of another country will be liable to tax
only in the other country (the seller’s country of domicile and
not the country where the property is located). As a rule, Israel
has adopted this principle in the treaties signed over the past
years.
8.2.4.2. The 2009 Amendment
In addition, as of January 1st, 2009 a new legislation elaborates
on the tax exemptions for foreign residents, prescribing as
follows: (a) an exemption for foreign residents on interest
income, discount fees and exchange differentials derived from
corporate bonds on the Tel Aviv Stock Exchange (if the income
is not derived from the foreign resident’s permanent
establishment in Israel; (the exemption applies to any foreign
resident on the day of payment even if the bonds were acquired
prior to January 2009); (b) a foreign resident will be exempt
from capital gains tax due on the sale of marketable securities, if
the capital gain is not derived from that resident’s permanent
establishment in Israel. Under the recent tax reform, the above
exemption will also apply to securities purchased prior to being
listed. Tax will be charged at the time of sale only on that part of
the capital gains generated until their listing (capital gains on a
notional sale); c) capital gains exemption on the sale of Israeli
non-tradable securities acquired after January 2009, if the capital
gain is derived from the foreign resident’s non-Israeli permanent
establishment in Israel. Prior to the 2009 Amendment, a foreign
resident was exempt from tax on capital gains derived from the
sale of shares allocated to a foreign resident during 2003
onward, in a R & D designated company as of the date of the
allocation, in consideration for monetary investments in the
company.
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