Tax & Finance

Italy-Israel Double Tax Treaty: A Complete Guide for Italian Investors, Olim, and Expats

By Adv. Eli Shimony September 2, 2026 14 min read
Quick Answer: The Italy-Israel Double Tax Agreement, signed on September 8, 1995, caps Israeli withholding tax on dividends paid to Italian residents at 10% when the recipient company holds at least 25% of the Israeli company's capital, and 15% in all other cases. Interest is capped at 10%, and royalties at 0% for literary, artistic, and scientific works or 10% for other royalties. Italy's domestic withholding rates on the same income are 26% on dividends and interest, and 30% on royalties. Treaty rates are not applied automatically; an Israeli reduced-withholding certificate from the Israel Tax Authority (ITA) must be in hand before any payment. Capital gains on Israeli real property are taxed by Israel under domestic law regardless of where the seller lives.

Italy and Israel have always had a quiet but real economic relationship: diamond trading, tech investment, and a roughly 30,000-strong Italian Jewish community with family, property, and business across both countries. An Italian company that invests in an Israeli startup, an Israeli exporter selling through an Italian distributor, an Italian who made aliyah and still receives dividends from a Milan holding company — all of them eventually run into the same problem: both countries want to tax the same income.

The Italy-Israel Double Taxation Convention sorts out who taxes what and at what rate. For an Italian investor receiving dividends from an Israeli portfolio company, the difference between Israel's domestic withholding (25–30%) and the treaty rate (10–15%) can reach tens of thousands of shekels on a single distribution. That saving is not automatic: without the right paperwork before the payment date, the full domestic rate applies and recovering the excess takes twelve to eighteen months.

1. Treaty Overview

The Convention between the Government of the Italian Republic and the Government of the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income was signed in Rome on September 8, 1995, and has been in force since that date. A separate Italy-Israel Convention on Social Insurance entered into force on December 1, 2015, and governs social security contributions independently of the income tax treaty.

The Convention covers all taxes imposed on income by each country. On the Italian side, this includes IRPEF (Imposta sul reddito delle persone fisiche, Italy's individual income tax, progressive from 23% to 43%), IRES (Imposta sul reddito delle società, Italy's corporate income tax at 24%), and local surcharges. On the Israeli side, the treaty covers income tax and capital gains tax under the Income Tax Ordinance [New Version], 5721-1961, administered by the Israel Tax Authority (Rashut HaMisim).

Israel signed and ratified the OECD Multilateral Instrument (MLI) with effect from January 1, 2019. Italy signed the MLI in 2017 but had not yet ratified as of this writing, so the MLI's automatic modifications (including the Principal Purpose Test anti-avoidance clause) currently apply to the treaty on Israel's side but not yet on Italy's. Any structure built primarily to access treaty rates should be tested against the MLI before it goes into place.

Key rates under the Italy-Israel DTA at a glance:

In Practice: An Italian holding company owns 30% of an Israeli agri-tech startup and receives a NIS 500,000 dividend. Without a treaty certificate, Israeli withholding at the domestic 30% rate amounts to NIS 150,000. With a valid ITA reduced-withholding certificate confirming the 10% treaty rate (qualifying corporate holding above 25% of capital), the withholding drops to NIS 50,000, a saving of NIS 100,000 on one distribution. The ITA certificate must be obtained from the ITA's International Tax Unit (Yechida le'Mas Bein Leumi) before the distribution date. Applications typically take four to eight weeks; a late application means full domestic withholding applies and recovery requires a refund claim (bakshat heshtachvut) that can take twelve months or more.

2. Dividend Withholding Rates

Article 10 of the Convention establishes two withholding tiers for dividends paid by an Israeli company to an Italian resident:

The 25% threshold is higher than the 10% threshold used in more recently negotiated Israeli treaties (such as the South Africa DTA, which uses 10%). Italian holding companies that restructured their Israeli holdings to reach the 10% level for other purposes may still fall short of 25% for the reduced Italian treaty rate. A corporate shareholder holding exactly 20% of an Israeli company pays the 15% treaty rate, not 10%, even though it is a qualifying corporate investor.

For Italian individual shareholders, the 15% treaty rate compares favorably to Israel's domestic withholding of 25% on ordinary dividends or 30% where the shareholder is deemed a "substantial holder" (over 10% of any means of control in the company under Section 88 of the Income Tax Ordinance). Italian individual recipients then include the dividend in their Italian IRPEF return and claim a foreign tax credit (credito d'imposta) for the Israeli withholding paid, under Article 165 of the Italian Consolidated Income Tax Act (TUIR). The practical result is that only the higher of the two countries' effective rates applies to the same dividend.

For Italian companies, the domestic treatment of foreign dividends is generous: under Article 89 of TUIR, 95% of dividends received by an Italian company from a foreign subsidiary are excluded from IRES taxable income, resulting in an effective Italian corporate tax rate of approximately 1.2% on the dividend. Combined with the 10% Israeli treaty withholding, the total tax burden on an Italian corporate dividend from Israel is low relative to most other treaty jurisdictions.

In Practice: An Italian individual holds 8% of an Israeli technology company and receives a NIS 200,000 dividend. She does not qualify for the 10% rate (shareholding below 25%). With a valid ITA certificate confirming the 15% treaty rate, the Israeli company withholds NIS 30,000. Without the certificate, Israeli domestic withholding at 25% amounts to NIS 50,000. In Italy, the dividend is reported on her Modello 730 (or UNICO return) and she claims the credito d'imposta estero for the NIS 30,000 withheld in Israel. The Italian IRPEF due on the same income is reduced by the Italian equivalent of the Israeli withholding, so the dividend is not taxed twice. She must keep the Israeli withholding certificate (teudat nikui) as supporting documentation for the Italian credit claim.

3. Interest and Royalties

Article 11 caps withholding on interest at 10%. This applies to cross-border loans, bonds, bank deposits, and intercompany financing arrangements. Israeli companies that borrow from Italian parent companies or banks benefit from the cap against Israel's domestic withholding on interest paid to non-residents, which can reach 25% or more depending on the instrument and the ITA's classification of the financing. Intercompany loans require transfer pricing documentation confirming the interest rate is arm's length under the ITA's Transfer Pricing Regulations (Income Tax Regulations [Determination of Market Conditions], 5766-2006); the treaty rate reduction does not insulate a below-market loan from transfer pricing adjustment.

Article 12 on royalties is more favorable than most Israeli treaties. The rate is:

The 0% rate for scientific works applies to software code classified as a literary or scientific work under Israeli copyright law (the Copyright Act, 5768-2007, treats software as a protected work). Whether a particular software license qualifies as a "royalty" at all, versus a service payment, is a recurring ITA audit point. A non-exclusive license that does not transfer the right to commercially exploit the software is often treated by the ITA as a service, taxed only where the provider has a permanent establishment in Israel. Where the classification is genuinely unclear, a short tax opinion before the first payment is cheaper than a retroactive withholding dispute.

In Practice: An Israeli medical device company licenses its patented scanning technology to an Italian hospital group for NIS 1.2 million per year. The technology is a patent (industrial intellectual property), so the 10% treaty rate applies rather than the 0% literary-works rate or the Israeli domestic withholding rate on royalties to non-residents (which can reach 23–40% depending on the ITA's classification). The Italian hospital group must provide the ITA with an Italian Tax Residency Certificate issued by the Agenzia delle Entrate (Italy's Revenue Agency) before the first payment. The ITA's International Tax Unit at the relevant assessing office then issues a reduced-withholding certificate under Section 170 of the Income Tax Ordinance. Processing takes four to eight weeks. The Italian hospital group deducts the NIS 120,000 Israeli withholding against its IRES liability through the credito d'imposta estero mechanism.

4. Capital Gains on Israeli Property

Article 13 of the Convention follows the standard OECD approach: gains from the disposal of immovable property (mas shevach) situated in Israel are taxable by Israel regardless of where the seller lives. An Italian national who sells Israeli real estate pays Israeli capital gains tax under the Land Taxation Law (Chok Misui Mekarkein), 5723-1963, regardless of where the transaction is managed or where the proceeds go.

The Convention also applies an immovable-property-rich-company rule: shares in a company whose value derives principally from real property located in Israel may be taxed by Israel even when the seller is an Italian resident. Italian families that hold Israeli apartments through an Italian or Israeli holding company for privacy or succession-planning reasons should take advice on whether the company structure is caught by this provision before any share sale.

For gains on ordinary Israeli company shares (not property-rich), taxing rights rest with Italy as the country of residence under Article 13. Italy taxes the gain through the capital gains provisions of IRPEF (Article 67 and following, TUIR) or, for Italian companies, through IRES. Italy grants a credito d'imposta for any Israeli tax paid on the same gain. Where Israel does not tax a particular share disposal (for example, where the Israeli company does not own real property and the seller is a non-resident), the full Italian tax liability remains and no Israeli credit is available.

In Practice: An Italian resident sells a Tel Aviv apartment purchased in 2017 for NIS 1.4 million and sold in 2026 for NIS 2.8 million. The gain of NIS 1.4 million is subject to Israeli mas shevach at the real estate taxation office (misrad mas shevach). The applicable rate for a foreign resident who did not claim the single-apartment exemption is 25% on the real gain after inflation adjustment under the Land Taxation Law 5723-1963. The ITA's real estate tax assessor (shama'i mas shevach) must issue a closing certificate before the land registry (tabu) transfers title. Italy also taxes the same gain in euros at the EUR/ILS exchange rate on the sale date; the Italian tax on the remaining profit (after the Israeli tax credit) is collected through the annual IRPEF return. The practical effect is that the higher of the two countries' effective rates applies to the total gain.

5. Italian Tax Residency and the AIRE Register

Italy taxes its residents on worldwide income. A person is considered an Italian tax resident for a given year if, for the greater part of that year (more than 183 days), they are: registered in the civil register of resident population of an Italian municipality; or domiciled in Italy under Article 43 of the Italian Civil Code; or have their habitual residence in Italy. All three tests are alternatives. Being registered in the Italian civil registry for more than 183 days creates a rebuttable presumption of Italian tax residence even if the person spent those days physically abroad.

Italians who relocate permanently to Israel must formally deregister from the Italian civil registry and register with the AIRE (Anagrafe degli Italiani Residenti all'Estero), the Registry of Italians Resident Abroad. Failing to register with AIRE does not automatically make a person an Italian tax resident, but it triggers a statutory presumption that the person remained Italian-resident throughout the period of the omission. The Agenzia delle Entrate routinely uses gaps in AIRE registration to assert that Italians who emigrated to Israel but did not formally register continued to owe Italian IRPEF on their worldwide income.

The risk of esterovestizione (sham foreign residency) is an additional Italian Revenue concern that affects business entities. An Italian company that manages an Israeli subsidiary from Italy, or an Italian individual who claims Israeli tax residence while retaining a primary home in Italy and managing investments from there, may face an Italian Revenue audit asserting that the true center of management and control remained in Italy throughout. The DTA's tie-breaker in Article 4 resolves dual residency disputes by examining permanent home, center of vital interests, habitual abode, and nationality, in sequence. Actually leaving Italy and registering that with AIRE is still the clearest evidence that you are no longer resident there for tax purposes.

In Practice: An Italian entrepreneur makes aliyah in March 2026 and registers with the Ministry of Interior (Misrad HaPanim) as a new immigrant. If she does not simultaneously deregister from her Italian comune and register with AIRE, the Agenzia delle Entrate may presume she remained an Italian tax resident for all of 2026 and assess IRPEF on her worldwide income, including Israeli salary and dividends. She should file the deregistration at her Italian municipality before departure (or within 12 months from it) and keep evidence of her new Israeli address, employment contract, and Israeli bank accounts. Under Section 14 of the Israeli Income Tax Ordinance, she receives a 10-year exemption on foreign-source income as a new immigrant — but that exemption is only valuable if Italy has been successfully departed as a tax residence, and both countries do not tax the same Italian-source income simultaneously.

6. Employment Income and the 183-Day Rule

Article 15 of the DTA governs salaries, wages, and similar remuneration. The default rule is that employment income earned for work physically performed in Israel is taxable by Israel. An Italian employee on temporary assignment in Israel qualifies for an exemption from Israeli income tax — paying only Italian tax — when all three conditions are met:

  1. The employee is present in Israel for no more than 183 days in any 12-month period beginning or ending in the Israeli tax year (January 1 to December 31);
  2. The salary is paid by, or on behalf of, an employer who is not an Israeli resident; and
  3. The salary cost is not borne by a permanent establishment that the Italian employer maintains in Israel.

When all three conditions are met, Italy retains the sole taxing right. When the 183-day threshold is crossed, Israeli tax applies from day one of the assignment, not just from day 184. Italian employees on extended Israeli assignments should engage an Israeli-licensed payroll provider and register with the ITA before the 183-day mark. Retroactive registration results in penalty assessments for late withholding (nikoui memas mekorot) under Section 196 of the Income Tax Ordinance, typically at 1% of the unpaid tax per month of delay.

Italian executives assigned to manage an Israeli subsidiary for more than 183 days commonly trigger both Israeli income tax registration and Israeli National Insurance (Bituach Leumi) obligations under the National Insurance Law [Consolidated Version], 5755-1995. The Italy-Israel Social Security Convention of 2015 may assign contribution liability exclusively to one country for the assignment period; advice specific to each secondment structure is needed before the assignment begins.

In Practice: An Italian software architect is seconded to an Israeli scale-up from February 1 to September 15, 2026 (226 days). She crosses the 183-day threshold in late July. Her Italian employer must register with the ITA as a foreign employer with Israeli payroll obligations through the ITA's Foreign Employer Registration Unit and commence withholding Israeli income tax and Bituach Leumi contributions from the date the 183-day mark was exceeded. Her Italian salary of approximately EUR 95,000 is translated to NIS at the Bank of Israel exchange rate on each payment date. She files an Israeli annual tax return for 2026 and receives an Italian credito d'imposta estero for the Israeli income tax paid, with no double taxation on the same remuneration. Italy's foreign employment income exemption (Article 51, paragraph 8-bis, TUIR) may reduce the Italian taxable base for days spent outside Italy, subject to the applicable caps and conditions.

7. How to Claim Treaty Benefits in Israel

Reduced withholding rates don't apply automatically. Israeli domestic law under Section 170 of the Income Tax Ordinance [New Version], 5721-1961 requires a formal reduced-withholding certificate (nikui memas mekorot) from the ITA before any payment can be made at a treaty rate. Pay first, get the certificate later, and you're stuck: recovering excess withholding through a refund claim typically takes twelve to eighteen months, and the ITA pays no interest on the wait.

Step-by-step process for Italian residents receiving Israeli-source income

  1. Obtain an Italian Tax Residency Certificate from the Agenzia delle Entrate. Italian residents can request a TRC from their local Agenzia delle Entrate office or through the Entratel/Fisconline portal. The certificate confirms Italian tax residency for the relevant year and identifies the applicable treaty. A new certificate is required for each calendar year.
  2. Prepare a treaty benefit application package. The package for the ITA includes the Italian TRC (translated into Hebrew if the ITA officer requests, though English is generally accepted), a declaration of beneficial ownership of the income, the nature and amount of the expected payment, corporate structure documentation (for companies), and the Israeli company's registration details.
  3. Submit to the ITA's International Tax Unit. The relevant assessing office depends on the Israeli payer's location. For large corporate matters, the Tel Aviv 5 Assessing Office handles most international tax certificate applications. Submit in person or by registered mail; the ITA does not accept digital applications for most certificate types.
  4. Allow four to eight weeks for processing. There is no statutory deadline for the ITA to issue a certificate. Backlogs around the March annual filing period and the Tishrei holiday period (September–October) can push processing to twelve weeks. If the payment date is close, contact the ITA directly to request expedited handling.
  5. Provide the certificate to the Israeli payer. The Israeli company withholds at the certified rate and issues a withholding statement (teudat nikui) to the Italian recipient. This statement is required documentation for the Italian credito d'imposta estero claim.
In Practice: An Italian venture capital fund holds 28% of an Israeli Series B company planning a NIS 3 million dividend distribution in December 2026. To apply the 10% treaty rate, the fund must submit its TRC and certificate application to the ITA by mid-October at the latest (eight weeks before the planned December distribution). If the ITA issues the certificate in mid-November, the Israeli company withholds NIS 300,000 (10%) instead of NIS 900,000 (30% domestic rate), a saving of NIS 600,000 on one distribution. The fund's Italian IRES liability on the same dividend is reduced to approximately 1.2% (under the 95% IRES participation exemption), and the NIS 300,000 Italian-equivalent withholding is creditable against that residual amount. The ITA withholding certificate must be attached to the fund's Italian tax return for the year.

Frequently Asked Questions

Once an Italian formally ceases Italian tax residence by deregistering from the Italian civil registry and registering with AIRE, they are no longer an Italian tax resident for treaty purposes. After aliyah, they use the treaty as an Israeli resident to access reduced Italian withholding rates on Italian-source income (Italian dividends, interest, or pension). Italians who make aliyah without formally completing the AIRE registration process may remain Italian tax residents in the eyes of the Agenzia delle Entrate and could face assessments on their worldwide income for the period of the omission. Completing both the Israeli Ministry of Interior registration and the Italian AIRE registration before or promptly after departure removes this risk.

Italy's domestic withholding rate on dividends paid to non-residents is 26%. Under Article 10 of the DTA, an Israeli resident receiving dividends from an Italian company can apply for a reduced Italian withholding rate of 10% (if the Israeli company holds at least 25% of the Italian company's capital) or 15% (all other cases). To access the lower rate, the Israeli resident must obtain an Israeli Tax Residency Certificate from the ITA and supply it to the Italian company before the dividend payment. The Italian company then withholds at the treaty rate and issues a withholding certificate. The Israeli resident includes the dividend in their Israeli income tax return and credits the Italian withholding against Israeli income tax due.

The 0% rate applies only to royalties in respect of literary, artistic, or scientific works, excluding cinematograph films. For patents, trademarks, industrial know-how, and most software licenses classified as industrial intellectual property (rather than as a scientific literary work), the rate is 10% rather than 0%. The classification question turns on the nature of the intellectual property, not the industry. An Italian publisher licensing Italian editorial content for use in Israeli educational software might qualify for the 0% rate; an Italian pharmaceutical company licensing a drug patent to an Israeli manufacturer almost certainly will not. A tax opinion from an Israeli attorney before the first royalty payment is the most efficient way to confirm which rate applies and what documentation the ITA requires.

Article 18 of the DTA gives the country of residence the primary right to tax pension and annuity income. An Italian resident who receives payments from an Israeli pension fund (*kupat gemel* or similar) or a government pension is taxed on those payments in Italy under IRPEF, not in Israel. Israel may retain the right to withhold at source in some cases, particularly for government pensions under Article 19. Where Israeli withholding is deducted on a pension payment to an Italian resident who should be taxed only in Italy, the Italian resident files a refund claim with the ITA. Italian residents who receive Israeli pension payments should confirm the applicable treaty article with an Israeli tax advisor before the first payment to avoid the refund delay.

The two agreements are entirely separate. The Social Security Convention of 2015 assigns National Insurance (Bituach Leumi) and Italian social security (INPS) contribution liability to one country for the duration of an assignment, preventing dual contributions. The income tax treaty covers income taxes only and does not affect social security obligations. For Italian employees on Israeli assignments of up to 24 months, the Social Security Convention allows the employee and employer to remain in the Italian social security system and avoid Israeli Bituach Leumi contributions, provided a Certificate of Coverage (A1 form) is obtained from INPS before the assignment begins. For assignments exceeding 24 months, Israeli Bituach Leumi contributions typically become mandatory. The income tax treaty's 183-day rule and the Social Security Convention's 24-month rule operate independently and can produce different results for the same assignment.

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Adv. Eli Shimony

Israeli attorney specializing in cross-border transactions, international tax planning, and estate matters. Advises foreign nationals, investors, and diaspora families on navigating Israeli law.

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