Israel Backs Off Capital Gains Tax Parity For Foreign And Domestic Instruments

by Lorys Charalambous, Tax-News.com, Cyprus

20 October 2004

The Israeli parliament on Monday voted to accept a plan that will see capital gains tax on foreign securities reduced from next year, although the government has abandoned the original proposal to equalise tax rates between foreign and domestic instruments.

Bringing forward the tax cuts scheduled initially for 2007, Finance Minister Benjamin Netanyahu has announced that gains from the sale of foreign stock will be reduced to 15% from 35% from January 1 next year – the same rate as for domestic stocks.

However, this particular tax cut will only apply to instruments traded on the floor of an exchange. This means that bonds traded over the counter between banks and investment houses, which represent the bulk of internationally traded bonds, will be taxed at a higher rate of 25%.

Furthermore, in a bid to deter capital outflows from Israel, interest from foreign bonds will be taxed at a rate of 50%.

Other instruments that are considered non-negotiable will also be taxed at 25%, including foreign mutual funds and bank deposits.

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