The Israel-Switzerland convention for preventing double taxation signed yesterday will apply to all types of direct taxes, including the Swiss tax on capital. The convention exempts foreign investors' capital gains, as economic agreements between developed countries usually do.
As a result of this crucial clause, Swiss investors in Israel will be exempt from Israeli capital gains tax, providing a substantial incentive for Swiss investments in Israel.
The Ministry of Finance said that Swiss companies, such as Ares-Sereno, Novartis AG (NYSE: NVS; LSE: NOV; SWX: NOVN), Roche (SWX: RO; LSE: ROG), Movenpick, ABB, and UBS had promised to expand their investments in Israel after the the signing of the convention.
The ministry added that Nestle (SWX: NESN) was expected to set up an R&D center in Sderot, which will serve as its global center for salty snacks, at an investment of several million dollars. The convention will also encourage and make possible activity by Israeli companies in Switzerland, including expanded activity by Israel companies already operating in Switzerland, such as Oridion (SWX: ORIDN), Card Guard (SWX: CARDG), and SHL Telemedicine (SWX: SHLTN).
In addition to the tax convention, on his visit to Switzerland, Minister of Finance Silvan Shalom also signed a special tax exemption for Swiss airlines operating in Israel, which will also apply to both countries. This treaty is essential in order to enable Swiss company Cross Air, scheduled to replace Swissair shortly, to fly to Israel without incurring tax obligations in Israel.
Under the convention, the full tax exemption will apply not only to investments, but also to most Swiss-Israeli trade. Furthermore, special low tax rates will apply to other types of revenue, such as a 5% rate on royalties and dividends and rates varying from 0% to 10% on interest. Most service providers resident in one of the countries will be exempt from taxes in the other country.
Published by Israel's Business Arena on January 23, 2002