Current Issues in Cross Border Taxation and Investment in the State of Israel

International Tax & Development: A Comparative Study (Karen B. Brown Ed, Springer Publishing) (2015)

24 Pages Posted: 25 Nov 2016 Last revised: 3 Jan 2018

See all articles by Tamir Shanan

Tamir Shanan

College of Management

Sagit Leviner

Ono Academic College Faculties of Law & Business Administration

Moran Harari

Tax Justice Network

Date Written: August 1, 2015


In 2003, Israel’s international income tax regime undergone a transformation from territorial to one of worldwide taxation. This shift was viewed as a timely one reconciling forces of economic globalization with commonly accepted distributional principles. Under this system, individuals are taxed where they reside and corporations are taxed where incorporated or in the country from which management and control are exercised. A credit is allowed against Israeli tax liability for foreign taxes paid by residents on foreign source income. Since 2003, this is true even when income is produced in a country with which Israel does not have a treaty. As in the case of most countries, the credit is limited to the size of the Israeli tax on foreign source income. While residents are taxed world-wide, nonresidents are taxed only on income earned or produced in Israel. This places considerable importance on the determination of the source of a nonresident’s income.

Israel is signatory to 53 bilateral treaties with foreign countries. Most of the treaties follow the OECD Model Convention. These treaties provide Israel a valuable tool in an effort to enhance taxpayer compliance, ease tax collection and advance trade. Although the scope of information exchange, one of the primary benefits derived from treaties, varies from treaty to treaty, Israel commonly provides for information upon request of the other contracting state. Importantly, in view of recent global trends and pressures, the Israeli Tax Authority currently works to amend the Income Tax Ordinance to allow and to exercise ratification of international information-sharing agreements, regardless of whether a bilateral or multilateral treaty exists. Over the long run, this is expected to drastically change the scope and quality of information that the Israeli Tax Authority shares and receives.

Israel has retained the remnants of a territorial regime in the income tax exemption for foreign source income for immigrants and returning Israeli residents. It also exempts these taxpayers from key filing requirements, including income tax returns and capital statements. The exemption is available for a 10–20 year period. The efforts of fellow OECD member countries to force repeal these provisions (designed to attract investments to Israel, but viewed as unfairly competitive by trading partners) have been largely unsuccessful. A long standing Investment Law, providing government grants and lucrative tax benefits to eligible corporations, was significantly modified in 2010. At that time, incentives failed to provide economic development in targeted areas and often exceeded the benefit obtained by the Israeli government. In the post-2010 Investment Law, qualification for benefits is tied to proven measures of industry competitiveness and the demonstration of an impact on exports and on Israel’s GDP. Only time will tell whether and the extent to which these revisions are successful.

Keywords: International Tax, Tax and Development, Comparative Tax Law, Comparative Law, Cross Border Taxation, Israel Investment Law

JEL Classification: A00, F00, F01, H00, H19, H2, H20, H25, H29, H3, H30, H39, H69, H89, O1, O10, O11, O16, O17, O19, O2

Suggested Citation

Shanan, Tamir and Leviner, Sagit and Harari, Moran, Current Issues in Cross Border Taxation and Investment in the State of Israel (August 1, 2015). International Tax & Development: A Comparative Study (Karen B. Brown Ed, Springer Publishing) (2015) , Available at SSRN: or

Tamir Shanan

College of Management ( email )

7 Yitzhak Rabin Boulevard
P. O. Box 9141
Rishon LeZion, 75190

Sagit Leviner (Contact Author)

Ono Academic College Faculties of Law & Business Administration

104 Zahal St.
Kiryat Ono, 55000


Moran Harari

Tax Justice Network ( email )

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