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Explanation of the agreement
fiscal France-Israel
On July 31, 1995, France and Israel signed an agreement in Jerusalem for the avoidance of double taxation and the prevention of fiscal evasion and fraud with respect to taxes on income and capital. This France-Israel tax treaty was published in the Journal Officiel on June 12, 1996, and is now in force. came into force on July 18, 1996.
The treaty provisions, which take precedence over the provisions of domestic law under Article 55 of the French Constitution, allocate between the two States the right to tax income received by their respective residents.
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Scope of the agreement
The Franco-Israeli tax treaty applies to residents of both countries for income and wealth tax purposes.
Taxes concerned (article 2)
In France, this agreement applies to income tax, corporation tax, payroll tax and wealth tax.
In Israel, this agreement applies to income tax, capital gains tax on the sale of real estate, property tax and employer tax.
Notion of residence (article 3)
A "resident of a State" means any person who, under the laws of that State, is liable to tax therein by reason of the person's domicile, residence, place of management or any other criterion of a similar nature.
Some people may be declared residents of both countries, in which case the French-Israeli tax treaty defines the rules that apply.
Contractual provisions concerning certain categories of income
Property income (article 6)
Income from immovable property (including income from farming or forestry) shall be taxable only in the Contracting State in which such property is situated.
Company profits (article 7)
The profits of an enterprise in a State are taxable only in that State.
However, if an enterprise of one State carries on business in the other State through a permanent establishment situated there (as defined in Article 5 of the Convention), the profits attributable to that establishment may be taxed in the State where it is situated.
Dividends (article 10)
For the purposes of this agreement, the term "dividend" means income from shares, "jouissance" shares or "jouissance" warrants, mining shares, founders' shares or other profit shares, with the exception of debt claims, as well as income subject to the distribution regime under the tax legislation of the State of which the distributing company is a resident. The term dividend does not include directors' fees.
The general principle is that dividends paid by a company resident in one of the two States to a resident of the other State may be taxed in that other State. However, such dividends may also be taxed in the State in which the company paying them is resident (cases detailed in paragraphs 2 et seq. of Article 10). Such taxation shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
Interest (article 11)
For the purposes of this convention, the term interest means income from claims of all kinds, and in particular income from public funds and bonds, including premiums and prizes attached to these securities.
Interest arising in one State and paid to a resident of the other State may be taxed in that other State. However, such interest may also be taxed in the State in which it arose, up to a limit of 10%. Certain special provisions exist, which are detailed in paragraphs 2 et seq. of Article 11 of the Convention.
Royalties (article 12)
For the purposes of this convention, the term royalties means remuneration of any kind paid for the use of, the right to use or, by extension, the assignment of an intellectual property right.
Royalties arising in one State and paid to a resident of the other State may be taxed in that other State. However, such royalties may also be taxed in the State in which they arise, up to a limit of 10%. Certain special provisions exist, which are detailed in paragraphs 2 et seq. of Article 12 of the Convention.
Capital gains (article 13)
In general, gains from the sale of property are taxable only in the State of which the seller is a resident.
However, there are exceptions depending on the situation and the assets transferred (non-exhaustive list, see paragraphs 2 et seq. of article 13 of the convention):
- Gains from the sale of real estate: taxable in the state where the real estate is located;
- Gains from the sale of shares forming part of a substantial interest in a company resident in one of the States: taxable in that State up to a limit of 18 %.
Independent professions (article 14)
Self-employment income derived by a resident of a State shall be taxable only in that State.
However, if the professional concerned also habitually carries out his activity in the other State (more than six months a year, or in a "fixed base" established in the other State), he will then have to pay income tax in the other State on the portion of activity he carried out there.
Salaried professions (article 15)
Salaries, wages and other similar remuneration derived by a resident of a State in respect of an employment shall be taxable only in that State.
If the activity is carried out in the other State, this income is taxable only in that other State (with certain exceptions, see article 15 paragraphs 2 and 3 of the convention).
Directors' fees (article 16)
Directors' fees and other similar payments received by a resident of a State in his capacity as a member of the board of directors or supervisory board of a company resident in the other State may be taxed in that other State.
Artists and sportspeople (article 17)
Income derived by a resident of a State from his activities as an artist or sportsman exercised in the other State may be taxed in that other State, except where such income is financed principally by public funds of his State of residence, in which case it may be taxed only in the latter State.
These provisions also apply if the income is not paid directly to the artist or sportsperson, but to an intermediary, regardless of his or her state of residence.
Pensions (article 18)
Pensions, life annuities and other similar remuneration are taxable only in the State of residence (except in the special case of pensions paid by a State or one of its public-law entities as detailed in article 19, paragraph 2 of the treaty).
Public remuneration (article 19)Remuneration, other than pensions, paid by a State (or one of its public law entities) to a person in respect of services rendered shall be taxable only in that State (subject to exceptions in certain cases where the services have been rendered in the other State).
If the public remuneration for services rendered is part of an industrial or commercial activity, the general provisions of articles 15 (employees), 16 (directors' fees) and 18 (pensions) apply.
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Teachers and students (article 20)
A resident of a State who is present in the other State solely for the purpose of teaching or research in the public interest at an officially recognized educational institution of that other State shall be taxable only in his State of original residence on remuneration derived from such work. This provision shall apply for a period of up to two years after the first arrival of such person in the State for such work.
A resident of one State who stays in the other State for the sole purpose of pursuing his education or training (including as a trainee) shall be taxable on the sums he receives to cover his maintenance, education or training expenses only in his State of initial residence, provided that they originate there.
Other income (article 21)
Items of income, wherever arising, which are not specifically dealt with by an article above shall be taxable only in the State of residence of the person receiving them.
Assets (article 22)
The capital of a resident of one of the States shall be taxable only in that State, with the exception of the following assets:
- immovable property is taxable only in the State in which it is situated, even if it is held through a company of which it is the main asset
- shares and other rights forming part of a substantial holding in a company resident in a State may be taxed in that State
- movable property forming part of the business property of a permanent establishment which an enterprise of one State has in the other State shall be taxable in the State in which the establishment is situated (as shall fixed bases used for the performance of independent personal services in the other State).
Elimination of double taxation
The elimination of double taxation for residents in France is made by means of the tax credit (capped) under the terms of paragraph 1 of article 23 of the agreement.
In Israel, subject to provisions to the contrary in certain cases of local legislation, French tax paid on income from France or on assets located in France is deducted (with a ceiling, see paragraph 2 of article 23 of the treaty) from the Israeli tax due on such income or assets.
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