Dubai: The deals are being signed, takeover bids made, and funds starting to flow in and out ÔÇô but how soon will the ═■┐═Ášż║ and Israel enter a double-taxation avoidance treaty? Because how soon this is done will matter for those businesses wanting a direct presence in a new market.
Typically, such treaties ÔÇô which essentially removes the chances of a business or an individual getting taxed on the same income in both countries ÔÇô take time to come into being. There are long-winded negotiations to go through before signatures get put to paper.
But this time, the chances are that the processes will be speeded up. ÔÇťThere is a big difference in applying a double-taxation avoidance with a country that is in a normal relationship with the ═■┐═Ášż║ and a country that had no relationship at all and is now building that, said Samuel Shay, Chairman Israel ÔÇô ═■┐═Ášż║ Business Forum. ÔÇťBecause of that, as part of the peace agreement, the great expectation from the [upcoming] trade agreement is that it will expedite laws for free and smooth business transactions between the countries.
ÔÇťMost likely, double-taxation avoidance will be a high priority since this combines a peace agreement as well as all settle other issues between these nations.ÔÇŁ
ShayÔÇÖs got a point ÔÇô because the foundation will be built on the Abraham Accords, all individual pacts concerning co-operation on taxes, various individual sectors will be brought forward rather than pushed to a later date.
Alliance is gathering pace
Business-to-business deals are also being cut, but Prism Advance SolutionsÔÇÖ offer to take on troubled Finablr ÔÇô along with a promise that Prism will settle all of its debts ÔÇô has to be the most significant. The deal, if met with approval by FinablrÔÇÖs board as well as ═■┐═Ášż║ authorities will set an early marker for what is to come in terms of fast-track business investment decisions.
ÔÇťAs the world continues to evolve into the digital era, there appears to be more need for double-taxation agreements to ensure fair taxing rights and the avoidance of double taxation on transactions and corporate revenues,ÔÇŁ said Joanne Clarke, Tax Director at Pinsent Masons M. E., the law firm.
ÔÇťWe see this visibly as countries sign up to the BEPS (Base Erosion and Profit Shifting) initiatives, including the MLI (multilateral instrument). As a result of the MLI, we have seen many double-taxation agreements updated and aligned with BEPS.
ÔÇť[This would] inevitably should result in more consistent and fairer approach to taxing cross-border transactions and businesses who trade internationally. We have also seen many new DTAs, including the ═■┐═Ášż║ and Saudi Arabia, which was the first of its kind between GCC states.ÔÇŁ (The BEPS scheme Clarke is referring to how countries are co-operating to cut down on tax avoidance strategies that exploit differences in tax rates between countries.)
Got quite a few
The ═■┐═Ášż║ as of now has 117 doubleÔÇôtaxation treaties, and the one with Saudi Arabia was the latest and went into effect January 1, 2020. So, itÔÇÖs a given that there will be such a pact on taxation with Israel ÔÇô but for all stakeholders, itÔÇÖs about bringing it forward.
But sources are advising caution against taking it up before all the elements of the main accord are not in place. ÔÇťIsrael would be ready to make immediate progress ÔÇô however, negotiating, agreeing and signing a tax treaty can be a long process,ÔÇŁ said Ofir Bar-Noy of Emirates Israel Investment Group.
ÔÇťHaving said that, we think that in order to do business together, we donÔÇÖt need to wait for the double tax treaty. There are other ways to minimize the taxes when the two countries are working together, including using ÔÇśtransfer pricingÔÇÖ methodology to make sure that most of the profits stays in the ═■┐═Ášż║ with 0 per cent tax and only a smaller part of it is taxed in Israel.ÔÇŁ
*The ═■┐═Ášż║ free zones have also frequently offered businesses CIT exemptions, at times for up to 15 years, for establishing with their free zone authority.
- Pinsent Masons
On the higher side
IsraelÔÇÖs corporate tax rates are split into multiple slabs ÔÇô a ═■┐═Ášż║ business wanting to set up there can aim for a lower payout by trying to be a ÔÇśpreferred enterpriseÔÇÖ.
Then, it can apply for a reduced tax rate of 16 per cent, 12 per cent or even 7.5 per cent as opposed to the base rate of 23 per cent. ÔÇť═■┐═Ášż║ citizens and companies can form Israeli corporations and be shareholders (including 100 per cent shareholders) of them,ÔÇŁ said Bar-Noy. ÔÇťSome corporations may qualify for, and benefit, from certain tax incentives depending on certain conditions.
ÔÇťFor example, under the Law for Encouragement of Capital Investments, a corporation can qualify as a preferred enterprise.ÔÇŁ
As an example, the OECD average statutory CIT rate across a sample of 109 countries for 2020 was 20.6 per cent, with only 12 of these countries having no CIT regime or a statutory rate of 0 per cent, which includes the ═■┐═Ášż║.
- Pinsent Masons
Aim for these tax breaks
To pay corporate tax lower than 23 per cent, a ═■┐═Ášż║ business operating in Israel can do the following:
ÔÇó Being involved in exports outside of Israel. Or at least 25 per cent of its revenue should go as sales outside of Israel;
ÔÇó A corporation that is in the technological space. Companies would have to show that they have the required investments and R&D; and
ÔÇó Being located in certain areas.