Article 1 of the Israel U.S. Tax Treaty - Taxes Covered

1. The taxes which are the subject of this Convention are:

(a) In the case of the United States, the Federal income taxes imposed by the Internal Revenue Code, and

(b) In the case of Israel-

(i) The income tax (including capital gains tax),

(ii) The company tax,

(iii) The tax on gains from the sale of land under the land appreciation tax law,

(iv) The tax on income levied under the services tax law (banking institutions and insurance companies), and (v) The war loans and security loans, hereinafter referred to as "compulsory loans".

2. This Convention shall also apply to taxes substantially similar to those covered by paragraph (1) which are imposed in addition to, or in place of, existing taxes after the date of signature of this Convention.

3. For the purpose of Article 27 (Nondiscrimination), this Convention shall also apply to taxes of every kind imposed at the national level.

4. The competent authorities of the Contracting States shall notify each other of substantial amendments of the tax laws referred to in paragraph (1) and of the adoption of any taxes referred to in paragraph (2) by transmitting the texts of any substantial amendments or new statutes.

5. The competent authorities of the Contracting States shall notify each other of the publication by their respective contracting States of any material concerning the application of this Convention, whether in the form of regulations, rulings, or judicial decisions by transmitting the texts of any such materials.

Commentary to Article 1 of the Israel - U.S. Tax Treaty

Paragraph (1) designates the taxes of the Contracting States which are the subject of the Israel - U.S. Tax Treaty. With respect to the United States, the subject taxes are the Federal income taxes imposed by the Internal Revenue Code (“Code”). The Israel - U.S. Tax Treaty also applies to the excise tax on insurance premiums paid to foreign insurers, under section 4371 of the Code. However, the excise tax on insurance premiums is covered only to the extent that the foreign insurer does not reinsure the risks, directly or indirectly, with a person who is not entitled to exemption from such tax under this or another United States tax convention. This limitation on coverage is intended to

clarify that persons not entitled to the benefits of this or another convention may not use an insurer in Israel as a conduit for the purpose of obtaining convention benefits.

The United States reserves the right to impose taxes under Code sections 531 (accumulated earnings tax) and 541 (personal holding company tax), except as provided in such paragraph (5).

United States taxes not generally covered by the Israel - U.S. Tax Treaty include the estate, gift and generation skipping transfer taxes, the Windfall Profits Tax, Federal unemployment taxes and social security taxes imposed under sections 1401, 3101 and 3111 of the Code.

In the case of Israel, paragraph (1) provides that the Israel - U.S. Tax Treaty applies to the income tax (including capital gains tax); the company tax; the tax on gains from the sale of land under the land appreciation tax law; the tax on profits levied on banking institutions and insurance companies under the Value Added Tax Law; and compulsory loans made with respect to taxable

years ending before April 1, 1988, with respect to corporations that became subject thereto before April 1, 1977. This reflects the fact that compulsory loans are being phased-out from Israeli law.

Pursuant to paragraph (2), the Israel - U.S. Tax Treaty will also apply to taxes substantially similar to those covered by paragraph (1) which are imposed in addition to, or in place of, existing income taxes, after November 20, 1975 (the date of signature of the Israel - U.S. Tax Treaty).

Under paragraph (3), for purposes of Article 27 (Nondiscrimination), the Israel - U.S. Tax Treaty applies to taxes of every kind imposed at the national level.

Paragraph (4) provides that the competent authority of each Contracting State will notify the competent authority of the other Contracting State of any substantial amendment of the tax laws referred to in paragraph (1), or of the adoption of substantially similar taxes imposed in addition to, or in place of, those taxes by transmitting the texts of such amendments or statutes.

Paragraph (5) provides for a similar exchange with respect to the publication of material concerning the application of the Israel - U.S. Tax Treaty, whether in the form of regulations, rulings or judicial decisions.

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Dr. Avi Nov Law Offices, Israeli & international tax law 

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The above is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion. It is important to consult with an Israeli tax lawyer on the practical application of the Israel US tax treaty.


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