Entry into Force of the Israel Malta Tax Treaty

Israel is a signatory to a large number of "double taxation" treaties with various countries. A tax treaty is a sort of an international agreement between countries reflecting their agreement, among other things, as to the distribution of taxing rights with regard to different types of income. The tax treaty signed between Israel and Malta in 2011, ratified December 19, 2013, will become effective January 1, 2014, and aims to ensure that no double taxation will be imposed on international transactions between the two countries. This makes Malta an attractive destination for the Israeli investor.
A Maltese holding company may enjoy a tax exemption on dividend income (and other kinds of incomes). The treaty exempt such company from the 25% withholding tax in Israel. Moreover, Malta does not imposed withholding tax at distribution of dividends and upon payments of royalties, regardless the geographical location in which research and development was conducted. Corporation tax is relatively high (35%) but is subject to benefits that may reduce it significantly (as low as 5%) when it comes to activities outside Malta.
The treaty stipulates that Israeli withholding on interest will be up to 5% (Malta has no withholding tax on interest) and sets exclusive tax rights in the taxpayer's country of residence .
In addition to being a European Union member entitled to benefit from the provisions of the EU Directives, Malta is a signatory to more than fifty double tax treaties that may ease the tax burden when making investments and providing services worldwide.
It is important to emphasize that it is vital to maintain ongoing legal and accounting consultation by an expert in international transactions, both because of the anti tax-planning provisions in the treaty and because of the fact that the establishment of a company in a foreign country is not sufficient for the purpose of avoiding the tax liabilities of the company in Israel, and it is to ensure that the management and control of the company is done outside of Israel, so as not to be considered a Company taxable in Israel. We note that just recently the ruling in the case of Yanko Weiss Holdings 1999 Ltd, showed that even the employment of directors in a particular country does not prevent a determination that the management and control remained in Israel.