background image
The first-time income tax treaty and protocol between Brazil and Israel, signed on 12 December 2002, entered into force on 16 September 2005. — Orbitax Tax News & Alerts

The treaty will generally apply from 1 January 2006. The maximum rates of withholding tax are:

15% on dividends, in general, and 10% if the beneficial owner is a company that holds directly at least 25% of the capital in the company paying the dividends
-   15% on interest. There are exemptions for interest paid (i) to the government or a political subdivision thereof, central bank or any wholly owned agency (including a financial institution), and (ii) on bonds or securities issued by the government or a political subdivision thereof, central bank, or any wholly owned agency (including a financial institution). Interest paid as a return of capital (remunerao sobre o capital prprio), in accordance with Brazilian tax law, is regarded as interest; and
-   10% on royalties, in general, and 15% on royalties arising from the use of, or the right to use, trade marks. Royalties include payments for technical assistance and technical services. A most-favoured nation clause is, however, included under which, if Brazil concludes any treaty with a non-Latin American country in which it agrees that technical assistance and technical services should fall outside the scope of the royalties article or agrees to a lower rate, such provision will apply automatically under the same conditions as if it been agreed in this treaty.

The treaty allows a branch profits tax of 10% on profits remitted by a permanent establishment to its head office

Capital gains from the sale of a substantial interest in a company (i.e. direct or indirect ownership of more than 10% of the voting rights of a company held during at least for a 12 months period preceding the sale) may be taxed in the source state but the tax is limited to 15% of the capital gain.

Both states provide for the ordinary credit method to avoid double taxation. If the income derived by a resident of one state is, under the treaty, exempt from tax in that state, the state may nevertheless take into account the exempt income in calculating the amount of tax on the resident's other income (exemption with progression)