On December 9 2015, FYR Macedonian Government representatives signed a double tax treaty (DTT) with Israeli officials in Jerusalem.
Pending approval from both countries' authorities, the treaty will be effective from the calendar year following the one during which ratifications will take place.
The DTT covers personal income tax and profit tax in FYR Macedonia and income tax, company tax and tax imposed on gains from the alienation of property in Israel. According to the treaty, construction and installation projects exceeding 12 months in duration are considered to constitute a permanent establishment.
Article 10 of the treaty with Israel defines a 5% withholding tax rate for dividends in cases when the beneficial owner holds at least 25% of the dividend-paying company and a 15% tax rate in cases when this participation criterion is not met. The same article clearly defines the withholding tax applied to distributions made by real estate investment companies. Such distributions are subject to 15% withholding tax assuming the beneficial owner's participation of at least 10%. The clarifying remarks of the treaty stipulate that a real estate investment company presumes a company meeting the conditions outlined in section 64A2 of the Israeli Income Tax Ordinance.
Additionally, a standard 10% withholding tax rate is applicable on interest and a 5% rate is applicable on royalties.
As far as prevention of double taxation is concerned, the treaty stipulates that both countries will allow deduction from taxes in the amount of tax paid on it the other state.
Given the recent momentum in the bilateral relations between FYR Macedonia and Israel, including the signing of a bilateral investment protection agreement (IPA) in December 2015, it is expected that swift ratifications of the DTT will ensue during 2016.