TAIWAN-ISRAEL DOUBLE TAX AGREEMENT APPLIES TO INCOME OBTAINED FROM 1 JANUARY 2010 ONWARDS

03/01/2010

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In order to strengthen bilateral investment, trade, capital flow and taxation cooperation between Taiwan and Israel, the Taipei Economic and Cultural Office in Tel Aviv and the Israel Economic and Cultural Office in Taipei signed the double tax agreement ("DTA") in December, which applies to income obtained from 1 January 2010 onwards.
The key points in the DTA which are beneficial to bilateral trades and investments include the following:
l	Business Profits: Business profits of an enterprise of a territory shall be taxable only in that territory provided that such enterprise does not have a permanent establishment ("PE") in the other territory. If the enterprise carries on business through a PE situated in the other territory, the profits of the enterprise may be taxed in the other territory but only so much of them as is attributable to that PE.
l	Shipping and Air Transport: Profits derived by an enterprise of a territory from the operation of ships or aircraft in international traffic are exempt from income tax of the other territory.
l	Dividends: The tax imposed by the source territory on dividends received by the beneficial owner resident in the other territory shall not exceed 10% of the gross amount of the dividends. [Note that according to the Income Tax Act (ITA) and the Standards of Withholding Rates for Various Income (WHT Standards), dividends distributed to individuals who are not residents of Taiwan or to foreign profit-seeking enterprises are subject to 20% withholding tax.]
l	Interest: The tax imposed by the source territory on interest received by the beneficial owner resident in the other territory shall not exceed 10% of the gross amount of the interest. Furthermore, for interests generated from a bank loan, the tax imposed by the source territory shall not exceed 7% of the gross amount of the interest. [Note that according to the ITA and the WHT Standards, interest received by individuals who are not residents of Taiwan or by foreign profit-seeking enterprises without a fixed place of business in Taiwan are subject to 15% or 20% withholding tax, depending on the category of the interest derived.]
l	Royalties: The tax imposed by the source territory on royalties received by the beneficial owner resident in the other territory shall not exceed 10% of the gross amount of the royalties. [Note that according to the ITA and the WHT Standards, royalties derived by individuals who are not residents of Taiwan or by foreign profit-seeking enterprises without a fixed place of business in Taiwan are subject to 20% withholding tax.]
l	Elimination of Double Taxation: Both Taiwan and Israel adopt the method of foreign tax credits to eliminate the double taxation.
Taiwan has entered into double tax agreements with 16 jurisdictions so far, including the United Kingdom, the Netherlands, Denmark, Singapore, etc. Israel is the 17th country which has entered into a comprehensive double tax agreement with Taiwan.