November Special Edition 2021

24 What about corporate tax? Royalties 12% of the gross amount of the royalty in all cases. Capital gains Each state preserves its right to tax capital gains from the sale of real estate or rights in entities in which more than 50% of the value is derived, directly or indirectly, from local real estate, in accordance with domestic law. If the capital gains derived from the sale of shares or other interests in entities which are not traded in a recognised stock exchange, resident in one contracting state, the withholding tax rates are as follows: 0% if the capital gains derived by a government of the other state, provided that the government holds – at any time during the 12-month period preceding the sale – less than 10% of the voting power of the sold entity. 5% if the capital gains derived by a government of the other state, which holds – at any time during the 12-month period preceding the sale – 10% or more of the voting power of the sold entity. 10% if the capital gains are derived by a resident the other state, provided they hold – at any time during the 12-month period preceding the sale – less than 10% of the voting power of the sold entity. Otherwise, capital gains will be taxable only in the contracting state where the seller resides. Note that Israeli law provides for an exemption from capital gains tax to non- Israeli residents on capital gain generated from a sale of shares in a company under certain circumstances, and provided that the shares were acquired after 1 January 2009. The UAE only imposes corporate taxes on branches of foreign banks, and companies that produce oil and gas, so the Treaty clearly favours those investing in Israel. That said, the Treaty includes strict anti-avoidance and limitation on benefits provisions designed to limit the ability of non-UAE residents to benefit from it. For example, a UAE resident is defined as an