Israel as a Tax Haven for the European Corporate Investor?

The paper examines some of the factors which may make Israel a tax haven for European companies interested in carrying out direct investments in Israel. After a brief introduction to the main features of the Israeli tax system and the different types of possible investments in Israel and their related incentives, an examination of an hypothetical case involving a Belgian company seeking location for a foreign direct investment, active or passive, is undertaken. Through this examination, the consequences of carrying out an investment in Israel are evaluated from the point of view of income taxation and international taxation, in the light of both the tax treaty for the elimination of double taxation between Belgium and Israel and the internal systems of corporate income taxation in the countries concerned.
In particular, the analysis addresses the tax consequences of investing in Israel both from the perspective of the repatriation of profits following direct investments in Israel, and from the perspective, alternative to repatriation, of investments geared at using Israel as a bridge to the US taking advantage of Israel's Free Trade Agreements with the European Union and with the United States. It concludes that although per se Israel could not be considered as a "tax haven", having taxes which are comparable to those of most EU Member States, its taxation climate is favourable to foreign investments and, when the foreign investor can benefit from a treaty for the elimination of double taxation, Israel may become for the European investor also a reliable, productive and profitable tax haven.