Israeli Withholding Taxes on Dividends to Foreign Residents
Dr. Avi Nov, Adv.
Dividends distributed by an Israeli company to non-Israeli residents are generally subject to a 20% tax to be withheld at the source (generally 15% in the case of dividends distributed from taxable income attributable to an Approved Enterprise under the Encouragement of Capital Investments Law), unless a lower rate is provided in a treaty between Israel and the shareholder’s country of residence.
A non-resident of Israel who has interest or dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer.
Dividends to U.S. Residents
Under Article 12 of the U.S. Israel tax treaty
, the maximum Israeli tax and withholding tax on dividends paid to a holder of ordinary shares who is a resident of the United States is generally 25%, but is reduced to 12.5% if the dividends are paid to a corporation that holds in excess of 10% of the voting rights during taxable year preceding the distribution of the dividend.
Dividends of an Israeli company derived from the income of an Approved Enterprise will still be subject to a 15% dividend withholding tax; provided that, if the dividend is attributable partly to income derived from an Approved Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. The withheld tax is the final tax in Israel on dividends paid to non-residents who do not conduct business in Israel.
Dr. Avi Nov Law Offices, Israeli & international tax law
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*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion