The Israel-UAE Tax Treaty for Non-Resident Owners

A family in Dubai owns an apartment in north Tel Aviv and a minority stake in an Israeli technology company. When the Abraham Accords produced a tax treaty between Israel and the United Arab Emirates, they assumed the Israeli tax on both would fall away. It did not, and the reason is worth understanding before anyone signs a sale contract or waits for a dividend cheque. A double tax treaty allocates the right to tax between two countries. It does not, on its own, cancel a tax that the treaty leaves with the country where the asset sits.

That distinction runs through everything below. Our answer on what a Dubai resident with an Israeli apartment actually pays states the headline position in a sentence; this guide works through each category of income and shows a Gulf-based owner how to handle it from abroad.

What the Treaty Actually Covers

Israel and the United Arab Emirates signed on 31 May 2021. The treaty entered into force on 29 December 2021 and has applied since 1 January 2022. It follows the OECD model, and on the Israeli side it reaches income tax, company tax including tax on capital gains, and tax on gains under the Real Estate Taxation Law 5723-1963. That last item is the one owners misread. Seeing real estate gains named in the treaty, they conclude the treaty must relieve them. Covering a tax and removing it are different things.

Under the OECD pattern, income from immovable property and gains on its disposal are allocated to the state where the property is situated. An apartment in Tel Aviv therefore stays inside the Israeli net whatever passport or residence visa the owner holds. The treaty does its real work on the movable side of a portfolio, where dividends, interest and royalties flow across a border and two countries might otherwise both tax the same payment.

In Practice: The Israel-UAE double tax treaty was signed 31 May 2021, entered into force 29 December 2021 and applies from 1 January 2022, covering Israeli income tax, company tax including capital gains, and tax on gains under the Real Estate Taxation Law 5723-1963. Dividends are capped at 15%, falling to 5% for a corporate holder of at least 10% held for 365 days, interest runs from nil to 10%, and royalties are capped at 12%. Israeli property income and gains stay taxable in Israel: rental under the 10% track in Section 122 of the Income Tax Ordinance, betterment tax at 25%, filed with the Israel Tax Authority within 30 days of the sale agreement.

Israeli Property Stays Israeli

Rental income from the Tel Aviv apartment remains taxable in Israel. An individual who does not deduct expenses or depreciation can elect the 10% flat track under Section 122 of the Income Tax Ordinance, paid without a full return in most cases. A sale still attracts betterment tax, mas shevach, at 25% on the real gain after indexation. Purchase tax is untouched by the treaty as well, and a non-resident buyer pays the higher bands rather than the resident single-home rates.

None of this changes because the owner lives in the Gulf. What does change is the mechanics of collecting it from someone who is never in the country. On a sale, the buyer's lawyer must withhold on account of betterment tax unless the seller produces a withholding exemption certificate, and a non-resident seller has to arrange that in advance. The full procedure is set out in our answer on the ishur nikui withholding certificate when selling Israeli property. Handle it late and the buyer withholds a slice of the price and hands it to the Tax Authority, leaving the seller to reclaim it.

Where the Treaty Saves You Money

The savings sit on the financial side. Dividends from an Israeli company to a UAE resident are capped at 15%, dropping to 5% where the recipient is a company that has held at least 10% of the payer throughout the preceding 365 days, and to nil for qualifying governmental and pension bodies. Interest is limited to a band between nil and 10% depending on the recipient. Royalties are capped at 12% of the gross amount.

These rates matter only if they are claimed correctly. Israeli withholding runs at source, so the reduced treaty rate has to be presented to the withholding agent, usually the company or its bank, before the payment is made. A shareholder in Dubai who lets the standard domestic rate come off and then tries to reclaim the difference is in for a long correspondence with the Israel Tax Authority. The paperwork, a treaty residence certificate and the relevant withholding application, is straightforward to lodge from abroad, but it has to be in place first.

In Practice: A UAE-resident shareholder claiming the 5% dividend rate under the treaty must file the reduced-rate application with the Israeli withholding agent before payment, supported by a UAE tax residency certificate. On an Israeli-source dividend of NIS 400,000, the treaty rate of 5% is NIS 20,000 against the domestic 25% to 30% that would otherwise apply, a difference of up to NIS 100,000 on a single distribution. The Israel Tax Authority processes a withholding-rate ruling in roughly 6 to 10 weeks, so start before the dividend is declared, not after.

The UAE Side: No Credit to Claim

There is an asymmetry that Gulf residents notice quickly. A treaty relieves double taxation by giving a credit in the country of residence for tax paid in the country of source. The United Arab Emirates, though, levies no personal income tax, and its corporate tax introduced in June 2023 at 9% applies to businesses rather than to an individual's foreign rental income. So there is generally no UAE tax bill against which to set the Israeli tax, and no credit to claim. The Israeli tax is the whole cost.

What the treaty still gives a UAE owner is worth having even so. It fixes residence, which matters for anyone who moved to Dubai from Israel and has not cleanly severed Israeli tax residency. It provides a basis for exchange of information between the two authorities. And it opens the mutual agreement procedure, a government-to-government route for resolving cases where Israel and the UAE read the same arrangement differently. That procedure is described in general terms in our guide to the mutual agreement procedure for double-tax disputes.

Proving You Are a Treaty Resident

Two practical steps follow for an owner in the Gulf. First, confirm that you are in fact a treaty resident of the UAE. That normally means holding a UAE tax residency certificate issued by the Federal Tax Authority, not merely holding a residence visa. A visa proves you may live there; a certificate is what an Israeli assessor accepts as evidence of treaty residence. Second, if you left Israel to move to Dubai, make sure your Israeli tax residency was actually ended and documented. The treaty tie-breaker helps only once the factual position is settled, and until then the Israel Tax Authority may continue to treat your worldwide income as taxable in Israel.

Structure adds a further question. A UAE free zone company taxed at a zero rate is not automatically a treaty resident, and holding the Israeli asset through such a vehicle can lose the very benefit it was meant to secure. This is worth checking before, not after, the shares are issued.

Common Mistake: A Gulf-based owner treats a UAE residence visa as proof of treaty residence and lets the standard Israeli withholding rate come off a dividend, planning to reclaim the difference. Without a UAE tax residency certificate lodged in advance, the Israel Tax Authority is entitled to apply the domestic rate, and recovering the overpaid tax under the treaty can take 8 to 12 months of correspondence and, on a large distribution, tens of thousands of shekels tied up in the meantime.

Practical Checklist

• Order a UAE tax residency certificate from the Federal Tax Authority before claiming any reduced treaty rate on Israeli income.
• Keep the Tel Aviv rental on the 10% Section 122 track and file it on time; the treaty does not remove this tax.
• Arrange the betterment-tax withholding exemption before a sale, not after the buyer's lawyer has withheld.
• Lodge the reduced-rate withholding application with the Israeli company or its bank before a dividend is paid, allowing 6 to 10 weeks.
• If you moved from Israel to the Gulf, document the end of your Israeli tax residency so the tie-breaker can apply.
• Check whether any UAE free zone holding vehicle actually qualifies as a treaty resident before relying on the treaty rates.

Speak With an Israeli Attorney

The Israel-UAE treaty rewards owners who set the paperwork up in advance and penalises those who assume it works automatically. We confirm your treaty residence on the UAE side, apply the correct Israeli withholding to your rental income, dividends or sale, and resolve residence questions with the Israel Tax Authority before they harden into an assessment.

Contact us for a confidential initial consultation.