The Israel Tax Treaty with Panama will come into effect onJanuary 1, 2015. The Treatyis based on the OECD model and applies to residents liable to tax in either country.
A corporation either from Israel or Panama may be considered a resident of one of the countries and may be taxed in that country if it has a Permanent Establishment in that other country.
A Permanent Establishment is generally a fixed place of business. According to the Israel Tax Treaty with Panama, a Permanent Establishment also includes a construction, assembly or installation project.
According to the Israel Tax Treaty with Panama, a service PE exists when there is rendering of services (as well as consulting services) by employees or other engaged personnel when those employees are present in the other contracting state for the performance of the same or connected project, during a period or periods exceeding more than 270 days in any twelve month period.
The tax authorities of Israel and Panama shall attempt to determine the residence of a trust taking into account all relevant factors, including: governing law, place of asset, the settlor’s residence and the beneficiary's residence.
See also: Taxation of Trusts in Israel
According to the Israel Tax Treaty with Panama, dividends paid to a resident of the other country (Israel or Panama) will generally be subject to a 15% withholding tax. In the case of real-estate investment companies, distributions are taxed according to domestic law, but no more than 20% if the recipient holds less than 10% of the REIT’s capital.
According to the Israel Tax Treaty with Panama, interest paid to a resident of the other country (Israel or Panama) will be subject to a 15% withholding tax. However, an exemption applies in relation to interest payments to specific entities and interest paid on traded corporate bonds.
According to the Israel Tax Treaty with Panama, royalties paid to a resident of the other country (Israel or Panama) will besubject to a 15% withholding tax, including payments for the use or right to use software.
The Israel Tax Treaty with Panama provides that capital gains will be exempt from tax in the source state unless the seller is not subject to tax in his state of residency, except in the some cases, such as the alienation of immovable property, or the alienation of shares in a company whose assets mainly consist of immovable property.
Dr. Avi Nov Law Offices, Israeli & international tax law
*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion