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International Agreements

Following is a list of several economic international agreements Israel is signed on, divided by type of agreement.

Note: This page contains only major economic agreements related to or under the supervision of the Ministry of Finance. A complete list of Israel's Bilateral Agreements and International Agreements is available in the Ministry of Foreign Affairs website.

Avoidance of Double Taxation Conventions

Conventions for the avoidance of double taxation are bilateral agreements in which the contracting countries establish the tax rules that will apply to income and assets associated with both countries. The convention solves the problem of double taxation in both countries, in one of two ways: either by granting exclusive taxation rights to one or the other country, or by providing that one country – generally the source country in which the income was derived – will have the "primary taxation right," while the other country – the country of domicile of the person deriving the income – will have a "residual taxation right," i.e. it will have the right to tax the income alongside the duty to prevent double taxation by allowing a credit on the tax that was paid in the country with the primary taxation right.

These rules are in addition to the tax rules applying under the domestic tax laws of each country. A convention for the avoidance of double taxation takes precedence over the domestic law. Thus, if the provisions of the convention are more lenient than those of the domestic law, the former will apply; if the provisions of the convention are more stringent than those of the domestic law – a situation that is possible in older conventions – the latter will apply. In other words, the provisions of the convention can only have mitigating effects for the taxpayer.

The majority of the world's tax conventions are based on one of two main prevailing models, or a combination of both: the OECD model – Organization for Economic Cooperation and Development, Model Double Taxation Convention on Income and on Capital, and the UN model – UN Department of International Economic and Social Affairs, United Nations, Model Double Taxation Convention Between Developing and Developed Countries.

In general, conventions that allow tax credits as a means of avoiding double taxation operate by recognizing the tax credit laws in the domestic law of each country and providing that each country will determine the amount and scope of the credits allowed by it and the conditions for their application in accordance with its internal laws. Nevertheless, the convention may contain specific regulatory provisions on the subject of tax credits.

Tax Credits under the Domestic Law

When income is earned in a country with which Israel does not have a double taxation avoidance agreement, the solution to double taxation is provided under Israel's domestic law. Starting from January 1, 2003, Israeli law grants a credit on foreign tax that was paid to another country by way of a deduction from the tax levied on the income in Israel, where the tax liability in the foreign country arises due to the fact that the income accrued in that country. The law establishes various rules regarding the place of income accrual (see the section below on the taxation of foreign residents).

When income is earned in a country with which Israel has a double taxation avoidance agreement that requires Israel to grant a tax credit, reference must be made to the Income Tax Ordinance to determine the taxpayer's entitlement to a tax credit and the method of calculating the credit.

The OECD model serves as the basis for the formulation of Israel's tax conventions, subject to adjustment to its domestic law, its special circumstances and its policy regarding tax conventions

Conventions

For additional information, please contact:

Rebecca Lapiner, C.P.A
Senior deputy of the General Director
State Revenue Administration
Ministry of Finance
Israel
rebeccala@mof.gov.il

Bilateral Investment Treaties (BIT)

Israel provides a legal framework for protecting Israeli private overseas investments through a global network of Bilateral Treaties for the Reciprocal Promotion and Protection of Foreign Investments which express the signatories' commitment to the promotion of bilateral investment.

Investment Agreements are intended to protect and encourage investment by reducing political risks associated with the investment climate in foreign markets. The agreement guarantees the repatriation of both initial investment and returns in case of nationalizations, expropriations, and damages resulting from armed conflict, and provides foreign investors with treatment equitable to that received by local, and third party, investors. Furthermore, the agreement assures the free transferability of investment related funds convertible at market exchange rates. The agreements' significance stems from the arbitration clause which commits national governments to unconditional international arbitration in case of disputes with private investors. Disputes are to be brought before ICSID- the International Centre for Settlement of Investment Disputes, an organization dedicated to the resolution of legal disputes, operating as part of the World Bank Group.

Israel's BIT Background

Israel's strategy of globalization and liberalization led to a process of specialization and increased efficiency in which uncompetitive industries were relocated to emerging markets, allowing the economy to focus on its core sectors. Furthermore, Foreign Exchange liberalization enabled Israeli enterprises to invest in, and establish subsidiaries abroad, in both the manufacturing and services sectors. These reforms, implemented in the 1990's and early 2000's, including liberalization, deregulation and global integration, increased the Israeli economy's growth rate, consequentially, causing a substantial increase in the stock of Israeli outward investment. Israel views its Bilateral Investment Protection Agreements, along with its Double Taxation and Free Trade Agreements, as a prime tool for the achievement of economic growth via integration with global real and financial markets.

Israel negotiates Bilateral Investment Treaties on the basis of a model text from 2003 which replaced the model text from 1994. For further information:

For additional information, please contact:

Mr. Boaz Fleischman
International Affairs Department
Ministry of Finance
Israel
boazf@mof.gov.il

Agreements:

Free Trade Area (FTA) Agreements and Qualified Industrial Zones (QIZ) Agreements

Israel's Free Trade Area (TFA) and Qualified Industrial Zones (QIZ) agreements are signed by the Foreign Trade Administration in the Ministry of Industry, Trade and Labor.

The responsibilities of the Bilateral Division in the Foreign Trade Administration include:
  • Conducting feasibility studies of new Free Trade Area Agreements (FTAs) and assistance in the determination of trade policy.
  • Maintaining and updating existing trade agreements.
  • Initiating and managing trade agreements' negotiations of all types – FTA, standardization, services, government procurement, etc.
  • Addressing problems relating to trade barriers and other trade issues.
  • Maintaining trade relations and addressing various industrial cooperation issues with the institutions of the European Commission.

See more:

Free Trade Area (FTA) Agreements

Information on each agreement can be found in the Bilateral Agreements Division in Foreign Trade Administration website in the Ministry of Industry, Trade and Labor.

  • Canada
  • Colombia (Yet to be ratified)
  • European Free Trade Association (EFTA)
  • European Union (EU)
  • India
    Under negotiations
  • Mercosur (Southern Common Market)
  • Mexico
  • Turkey
  • United States of America (USA)

Qualified Industrial Zones (QIZ) Agreements

Information on each agreement can be found in the Bilateral Agreements Division in Foreign Trade Administration website in the Ministry of Industry, Trade and Labor.

  • Egypt
  • Jordan

Funds for Cooperation in Industrial R&D Agreements

The Ministry of Finance supports R&D and innovation as crucial driving engines in the Israeli economy. Funds for Cooperation in Industrial R&D Agreements are under the responsibility of MATIMOP, in the Office of the Chief Scientist, in the Ministry of Industry, Trade and Labor.

MATIMOP is a government agency that generates and implements international cooperative industrial R&D programs between Israeli and foreign enterprises.

MATIMOP, the executive agency of the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of Israel (OCS), is the official National Agency for industrial R&D cooperation charged with promoting highly supportive policies to build Israel's industrial infrastructure, and nurturing industrial innovation and entrepreneurship.

In recognition of its distance from global markets, the State of Israel enters into international agreements and has charged MATIMOP to aggressively expand opportunities for Israel’s industry to engage in mutually beneficial international collaboration. The development of innovative new commercial technologies, products and services is a high risk expensive proposition, often exceeding the capacity and capabilities of individual firms and even countries, therefore necessitating the OCS’s intervention and support.

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