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For the first time, the Government of England has undertaken not to levy tax on pensions to new immigrants to Israel from England.

Background:
As part of the Ministry of Finance’s policy to sign new tax treaties with central governments of countries that are members of the OECD, a new treaty was initialed between Israel and England, to avoid double taxing.

Among other things, the treaty determines:

• a tax deduction of 5% from the dividend
• a tax exemption on the dividend owned by a controlling shareholder in a company and by a retirement fund (including long-term savings for retirement by an insurance company),
• a 5% deduction of tax from interest
• a tax exemption from:
  
  • interest on State bonds,
  • on concern bond that is traded at the stock exchange
  • on interest owned by a retirement fund
  • exemption from tax deduction from capital gains and from compensations at the source country (i.e., an Israeli resident will not have to pay tax in England for capital gains accumulated in England, rather only in Israel, and vice versa).

Within the framework of the treaty, it was agreed that new immigrants who choose to immigrate from England to Israel will be given a benefit; for the first time, the British Government has undertaken that no tax on pensions accorded to new immigrants to Israel from England would be levied.

New Reference in the treaty:

1. The treaty gives reference, for the first time to the income of a shareholder in a REIT (Real Estate Investment Trust), and it differentiates between someone holding up to 10% of the stock capital in the trust, to someone holding more than 10%:

• Anyone holding up to 10% of the stock capital – his income will be taxed at a rate of 15% only.
• Anyone holding 10% or more – his income will be taxed as income from real estate in Israel.

2. Another innovation in this treaty is the setting of directive criteria to both countries’ tax authorities that would help them determine which country would be considered for tax purposes as the trust arrangement’s place of residence, and how the revenues would be taxed (e.g., an Israeli resident’s revenues or properties managed in England would be taxed according to the criteria determined in the treaty).

This is a free translation of the message of the Israeli Ministry of Finance.