Israel – Netherlands Tax Treaty

Israel Tax Treaty Netherlands

Israel – Netherlands Tax Treaty

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+ 1
Amsterdam
Dutch
17.2 million
Euro
 +31
.nl

Israel-Netherlands relations

Israel and the Netherlands have maintained diplomatic relations since the establishment of Israel. the Netherlands was even the first country to open an embassy in Jerusalem, and over the years the countries have become trading partners on a very high scale.

The close relationship between the Netherlands and Israel is also reflected in the way the Netherlands represented Israeli interests for almost 25 years, during which diplomatic relations between the Soviet Union and Israel were severed. In addition, Dutch delegations regularly come to Israel, and vice versa, to consult and learn from each other’s experience.

Details of the Embassy of Israel in Netherlands

Address: Johan de Wittlaan 5, 2517 JR Den Haag
Phone: +31 0703760500
Website: https://embassies.gov.il/hague-en/Pages/default.aspx
Email address: info@hague.mfa.gov.il

Embassy of Netherlands in Israel

Address: Beit Oz, 13th floor, 14 Abba Hillel Street, Ramat Gan
Phone: +97237540751
Website: https://www.netherlandsandyou.nl/your-country-and-the-netherlands/israel
Email address: tel@minbuza.nl 

Business activity in the Netherlands

The Netherlands has an advanced economy, it is considered an export giant, mainly in the oil industries, electronics, heavy equipment, pharmaceuticals, and agricultural products. Over the years, the Netherlands has become an international business center of utmost importance, and many local and foreign companies have decided to locate their headquarters there, thanks to the competitive and free business environment, a high-level local workforce, and low taxation rates. The Dutch economy is known for having stable industrial relations, moderate unemployment and inflation rates, and a very important role as a transport hub in Europe.

Our office has extensive business relationships in the Netherlands, both with accountants and lawyers, and with entities that allow us to assist clients in business activities. Our office specializes in helping to establish a company in the Netherlands, opening a Dutch bank account and linking to various Dutch businesses.

Many Israelis invest in real estate in the Netherlands and purchase holiday apartments, residential apartments, and business real estate. Specific information on real estate investments in the Netherlands can be found on the Global Real Estate website.

Several agreements were signed between Israel and the Netherlands:

  1.  Convention on Social Security (National Insurance);
  2. Convention for the Prevention of Double Taxation.

The Social Security Agreement between the State of Israel and the Kingdom of Netherlands, is intended to ensure and regulate the social rights of those moving from Israel to the Netherlands and vice versa. The agreement entered into force in November 1963 and was amended in November 1997. Under the agreement, double payment of insurance premiums is avoided, so that they would only be paid in one country, and continued payment of benefits (among them; old age, disability and surviving relative allowance) from Israel, even after moving to the Netherlands.

To read the full treaty in click here.               

Convention for the Prevention of Double Taxation between Israel and the Netherlands

The tax applied to a certain activity depends on the internal taxation in each of the countries. The tax treaty or the bilateral agreement between the two countries and the multilateral agreement that imposes changes to the bilateral agreement, such as a tax treaty.

As part of the treaty for the prevention of double taxation, the two countries determine the tax rules that will apply to income and assets related to the two countries. In addition, the treaties include principles for the exchange of information on tax matters between the two countries. The bilateral tax treaty between Israel and the Netherlands entered into force in April 1970.

You can read the full agreement to prevent double taxation between Israel and the Netherlands, here.

The Applicability Of The MLI

The MLI is an automatic mechanism for amending bilateral tax treaties, which will apply only after both countries have signed and ratified its application in their domestic law. Both Israel and the Netherlands signed the multilateral treaty in 2017 and ratified it in 2019. This means that once the two countries ratified the agreement in 2019, the bilateral agreement between the countries automatically changed in accordance with the content of the MLI agreement, subject to the reservations set by the two countries.

List of MLI treaty clauses that will apply and affect the bilateral treaty between the Netherlands & Israel:

  • Section 3 – Transparent entities.
  • Section 4 –Dual Residency for anyone who is not single.
  • Section 5 – Implementation of methods to prevent double taxation.
  • Section 7 – Prevention of abuse of the treaty.
  • Section 8 – Dividend transfer transactions.
  • Section 10 – Prevention of abuse of a permanent establishment located in the jurisdiction of a third country.
  • Section 13 – Artificial avoidance of the existence of a permanent establishment through specific exempt activities.
  • Section 14 – Splitting contracts.
  • Section 15 – Definition of a person close to the enterprise.
  • Section 16 – Mutual agreement process.
  • Section 17 – Mandatory adjustments.

Residency for tax purposes in the Netherlands

Residence of an individual – When a person stays for more than 183 days in the Netherlands in a period of one year, he is required by law to pay taxes in the Netherlands. Also, this is not enough to determine residency, and one must additionally examine where the person’s “life center” is.

To learn about how an individual is considered a resident of Israel read here.

Residency of a company – According to the tax law in the Netherlands, a company will be considered a resident of the Netherlands according to its place of effective management. Likewise, if a company was not incorporated in the Netherlands but in Israel, it can be considered a resident of the Netherlands for tax purposes when it is proven that the effective management of the company is located there. The utmost importance in determining residency, is the criteria of the location of the company’s offices, and the location of the company’s bank accounts.

To learn about how a company is considered a resident of Israel read here.

Netherlands tax regime

Types of taxes that exist in the Netherlands. The tax authority of the Netherlands is called the Dutch Tax and Customs Administration (Belastingdienst). Income tax: progressive at a rate of 9.7%-49.5%.

In the Netherlands, income from all over the world is divided into three different types of taxable income, so each type of income, known as a “box”, is taxed at different rates. The taxable income of an individual consists of the tax payable in these three boxes.

Box 1 mainly refers to taxable income from work and ownership of a residence:
  • Income from work (salary);
  • Ownership of an apartment in a main residence (considered income);
  • Receipts and periodic payments.
  • Benefits related to provisions for income.
Box 2 refers to taxable income from material interest.
Box 3 refers to taxable income from savings and investment.

Income tax for companies and branches: 25.8%; There is a lower rate of 15% for taxable income up to €395,000.

VAT: 21%. A special rate of 9% applies to many common products or services, such as food , agricultural products and services, medicines and more. A rate of 0% applies to intra-European supplies, medical, cultural, social, and educational services. In addition, a rate of 0% applies to (foreign) entrepreneurs who conduct business in foreign countries.

Capital gains tax: 0% for individuals.

Withholding tax

 

Netherlands Internal tax rate

Israel Internal tax rate

Treaty Withholding Tax

 

Personal Income tax (Tax brackets)

0 – 35,472 EUR = 9.42% /

35,472 EUR – 69,398 EUR = 37.07%

69,398 EUR or more = 49.50%

0%-50%

Corporate income tax

Standard CIT is 25.8%; a lower rate of15% can apply for taxable income up to 395,000 EUR.

25%-30%

Individual capital gains tax rate

There is no individual capital gains tax in Netherlands.

25%-30% (plus exceptional income tax for high earners at 3%)

10%-25%

Branch tax

23%

Withholding tax on Dividends

(Non-Resident) – receiver is a corporation

 

15%

 

25%/30%

5%; Reduced rate for dividends between companies in substantial holding – 10% for an approved enterprise

Withholding tax on Interest

(Non-Resident) – receiver is a corporation

25.8%

 

23%/25%/15%

15%; Reduced interest rate – 10% for a financial institution

Withholding tax on Royalties

(Non-Resident) – receiver is a corporation

25.8%

23%

5% /10%

VAT

21% (Normal) / 9% (Reduced) / 0% (Special)

17%

Inheritance tax

10%-40%

NA

Inheritance and estate tax in the Netherlands

In the Netherlands, individuals who inherit assets are required to pay inheritance tax, even if they do not reside in the country, as long as the deceased was a tax resident of the Netherlands or was deemed so. Nevertheless, there are specific exemptions based on the inheritor’s relationship to the deceased, allowing for a tax-free allowance. Furthermore, the executor designated for the estate has the option to pay the owed inheritance tax using the assets from the estate before distribution to the beneficiaries.

The Dutch inheritance tax rates vary according to the nature of the relationship between the deceased and the purchaser of the assets:

  • Spouse and children – 10% on inheritance below 126,723 euros, and 20% above this amount;
  • Grandchildren and great-grandchildren – 18% on inheritance below 126,723 euros, and 20% above this amount;
  • Third party – 30% on inheritance below 123,723 euros, and 40% above this amount.

It is possible to get an exemption from a certain amount from the inheritance depending on your relationship to the testator:

  • Spouse – exemption up to 680,645 euros;
  • Children – exemption up to 21,559 euros;
  • Grandchildren – exemption up to 21,559 euros;
  • Grandchildren – exemption up to 2,274 euros;
  • A child with a disability – exemption up to 64,666 euros;
  • Parents – exemption up to 51,053 euros;
  • Another heir (e.g., brother/sister) – exemption up to 2,274 euros.

Transfer prices in the Netherlands

On July 1, 2022, a new order was published regarding the pricing of transfers in the Netherlands and the interpretation of the Arm’s Length” principle. The order presents the official position of the Dutch tax administration, but it is not legally binding on taxpayers.

In certain issues of transfer pricing, a gap may arise between the OECD guidelines and the Dutch case law. The order recognizes this and states that the OECD guidelines will be the starting point in all cases were taxpayers request certainty in advance even in international transactions. In addition, the order states that if the application of the OECD guidelines leads to a mismatch in transfer prices that will result in some profits that will not be taxed, the Dutch tax administration reserves the right to deviate from the guidelines.

The order also states that transfer price corrections can be made, if the following conditions is provided: an entity participates in the management, supervision, or capital of another corporate body indirectly or directly; or when that person participates in the management, supervision, or capital of two competing corporate entities.

Transfer prices in the Netherlands are regulated by internal legislation and sometimes contradict the OECD guidelines. Our firm has carried out many transactions of transfer pricing,  involving companies in the Netherlands, and we will be happy to assist you as well.

For more information on transfer prices in the Netherlands click here.

Relocation

According to the Central Bureau of Statistics in the Netherlands, over 40 thousand Jews lives in Netherlands, and about ten thousand of them are Israelis. The representative body of the Dutch Jewish community is the organization of Jewish communities in the Netherlands, which is the Dutch branch of the World Jewish Congress.

Israelis who wish to stay more than 90 days in the Netherlands needs a residence permit, unless they hold an European passport by virtue, of which they will be entitled to work and study in the Netherlands due to being citizens of the European Union.

A comprehensive study conducted (2022) by the Association of Jewish Organizations in Europe (EJA) in collaboration with the British Institute for European Jewish Policy Research examined the performance of governments in Europe in relation to the key parameters required for the existence and prosperity of Jewish life.

The study found that the public’s attitude towards Jews and Israel in the Netherlands is very positive, which makes it an attractive destination for cultural relocation.

More information on preparing for relocation can be found here.

Business activity between Israel and the Netherlands

The volume of trade between Israel and the Netherlands in 2021 increased by 22% compared to 2020 and stands at approximately 1,329 million dollars. In addition, there was an 11% increase in the export of goods and services and a 25% increase in the import of goods and services.

Our office specializes in providing legal advice to our clients in the Netherlands. Our many connections with accountants and lawyers help clients by establishing businesses, opening bank accounts, and connecting the Netherlands to Israeli companies.

Transfer of funds:

Transfer of funds from Israel to the Netherlands

According to Section 170(a) of the Income Tax Ordinance, most money transfers from Israel will require prior approval from the Tax Authority.

In providing advice regarding money transfer, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks procedures can be very difficult, in addition to high fees for converting the shekels into euros, so it is important to consult before transferring the funds. Contact us.

Business entities in the Netherlands

  1. Trader/sole proprietorship (eenmanszaak) – This is a legal structure without a legal personality. A sole trader is solely responsible for the company, its finances, and its debts. While there is a limit to establishing a single sole proprietorship, it is possible to operate under several different trade names, perform different commercial activities and work from several sites. In order to register as a sole trader, you must register with the Dutch Chamber of Commerce at a cost of 50 euros. There is an obligation to pay income tax and VAT on profits, but if the profit is below €20,000 per year, you can apply a request to not pay VAT through the Small Business Program (KOR).
  1.  Private limited company (bv or besloten vennootschap) – The meaning of the word “limited” is that the company is responsible for all debts (instead of the privet person who established the company). The company’s equity is divided into shares owned by the shareholders. To establish such a company, a notary service must be used, and the cost ranges from 500 to 1,000 euros.
  2. General partnership (vof or vennootschap onder firma) – In a general partnership there are at least two people working together under one common name. Each partner must contribute something to the company: money, goods, or work. The partners are the ones who are personally responsible for the debts. Register your partnership with the Dutch Chamber of Commerce at a cost of €50. A condition for partnership is a partnership agreement detailing agreements regarding powers, equity, profit sharing, and more. General partners will of course pay income tax on their share of the profits.
  1. Cooperative (coöperatie) – is a term for a group of people that brings together the business efforts of each one of the cooperatives. A cooperative can be established with a minimum of two partners, and it will be controlled by a “general meeting of members”. It is necessary to use a notary to draw up a deed and register the company in the Dutch commercial register. All members of the cooperative will pay income tax on their profits from the partnership, and the cooperative must also pay membership tax. An entrepreneur cooperative is a business structure that is great for freelancers who want to join other freelancers to take on a larger project.

Incentive laws in the Netherlands

Companies that invest in energy-saving facilities, or that use sustainable energy, are entitled to deduct certain rates from taxable profits, up to 45.5%. The minimum investment in this area will be 2,500 euros. The maximum investment amount for which a deduction is given, is 126 million euros per calendar year.

Similarly, there is a program called MIA that allows companies to deduct up to 36% of the cost of an Eco – Friendly investment from their taxable profits. The investment amount must be at least 2,500 euros per property invested.

The maximum investment amount for which a deduction is given is 25 million euros per calendar year.

In addition, there is a special incentive program for workers recruited from foreign countries, whose special skills are not available in the Netherlands. The program, known as the “30% rule”, allows a tax-free refund of 30% of the employee’s salary in the first five years of his work in the Netherlands.

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