New Israel–Germany tax treaty

[you can find the full International Tax Insights Q3, 2016]

On 8 May 2016, Israel ratified the agreement between Israel and Germany for the avoidance of double taxation and prevention of evasion with respect to taxes on income and capital which was signed on 21 August 2014 (replacing the earlier treaty of 9 July 1962). The main changes in the new treaty, which comes into effect from tax year 2017, relate to a significant reduction in the withholding tax on payments transferred between countries: 

The rate of withholding tax on dividends reduces from 25% to 10% (or 5% while distribution of dividends to the holding company holding more than 10% of the shares of the company distributing the dividend)The rate of withholding tax on interest payments is reduced from 25% to 5%. (It should be noted that under German law, there is an exemption from withholding tax for interest payments, so this reduction is relevant only to interest payments from Israel to Germany)The rate of withholding tax on income from royalties will be 0% (currently 0% or 5%, depending on the nature of the royalties).