Switzerland-Israel Double Tax Treaty: A Complete Guide for Swiss Investors, Olim, and Expats

Israel and Switzerland have had a tax treaty in place since 1969. Swiss holding companies are routinely used to hold Israeli tech and biotech assets; Swiss institutional investors own Israeli government bonds; Israeli nationals with Swiss residency are more common than most people assume. The treaty is old enough that many people involved in Swiss-Israeli transactions take it for granted, and that is where the problems start.

Switzerland's Verrechnungssteuer is the most expensive one. It withholds 35% on Swiss dividends automatically, and most Israeli investors receive the net payment without ever claiming the 20% refund the treaty entitles them to. On the Israeli side, the reduced rate is not automatic either: without a formal reduced-rate certificate from the Israel Tax Authority, the Israeli company withholds at the domestic 25% and the Swiss shareholder spends the next 12 to 18 months recovering money they should never have lost. This guide covers the rates, the refund procedures, and the MLI changes that now require genuine substance in whichever country you are claiming treaty residence.

1. Treaty Overview

Israel and Switzerland signed the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital in 1962, with the treaty entering into force in 1969. A protocol and an exchange of notes have supplemented the original text over the years. Both states also signed the OECD's Multilateral Instrument (MLI) on June 7, 2017 — Israel ratified in September 2018, Switzerland in August 2019 — and the MLI has modified certain provisions, most notably the anti-abuse rules and the holding period for the reduced dividend rate.

The treaty covers the following Israeli taxes: income tax under the Income Tax Ordinance 5721-1961, capital gains tax within that ordinance, and land appreciation tax (*mas shevach*) on Israeli real property. On the Swiss side, it covers federal, cantonal, and communal income taxes — a critical distinction from many other treaties, since Switzerland's cantonal taxes can be substantial and some bilateral agreements only cover federal taxes.

Key withholding rates at a glance:

• Dividends (Israel to Switzerland): 5% where Swiss company holds ≥25% for a qualifying period; 15% otherwise
• Dividends (Switzerland to Israel): 35% Swiss domestic Verrechnungssteuer, reduced to 15% under the treaty (Israeli investors must claim a refund from the Swiss Federal Tax Administration)
• Interest: 10% ceiling on Israeli withholding; Switzerland's domestic withholding on bond interest (35%) is also reduced to 10% under the treaty
• Royalties: 10% ceiling on Israeli withholding; Switzerland generally does not levy withholding on outbound royalties in standard commercial arrangements
• Capital gains on Israeli land: taxed in Israel under Israeli law regardless of treaty; the treaty does not override mas shevach

2. Dividend Withholding Rates

Dividends are where most of the money gets left on the table. There are two distinct withholding systems at work: Israel's withholding on Israeli-source dividends under Section 170 of the Income Tax Ordinance, and Switzerland's Verrechnungssteuer on Swiss-source dividends under the Federal Act on Withholding Tax. They run independently, and both require active steps to claim the reduced treaty rate.

Israeli dividends paid to Swiss residents

Israel's domestic withholding rate on dividends paid to non-resident shareholders is 25% under Section 170 of the Income Tax Ordinance (30% in certain cases involving substantial participation). The treaty reduces this to:

• 5% where the Swiss recipient is a company that holds at least 25% of the Israeli company's share capital — with the MLI now requiring that holding to have been maintained for at least 365 consecutive days before the dividend payment date
• 15% in all other cases: dividends to Swiss individuals, Swiss entities holding less than 25%, companies holding 25% or more but not yet for 365 days, and dividends from Israeli companies whose assets consist principally of Israeli real property

These reduced rates are not self-executing. The Israeli company paying the dividend must withhold at the domestic rate of 25% unless it holds a valid nikui memas mekorot reduced-rate certificate issued by the Israel Tax Authority under Section 170. Without the certificate, 25% is withheld and recovery requires filing an Israeli annual tax return — a process that typically takes 12 to 18 months.

Swiss dividends paid to Israeli residents — the Verrechnungssteuer trap

Switzerland levies a flat 35% Verrechnungssteuer on dividends paid by Swiss companies and on interest on Swiss bonds. For most Israeli investors, this rate is dramatically higher than the Israeli domestic rate of 25% and far above the 15% treaty cap. The treaty entitles Israeli residents to the 15% rate — but only if they actively claim a refund from the Swiss Federal Tax Administration (FTA / ESTV).

The refund mechanism works differently depending on whether the Israeli recipient is an individual or a corporate entity. Israeli individuals file a Form DA-1 (for securities held through Swiss banks) or apply for a partial refund through the treaty partner's competent authority. Israeli companies holding Swiss shares directly use Form 85 filed with the Swiss Federal Tax Administration in Bern. Both procedures require proof of Israeli tax residency (typically an ITA-issued residency certificate) and documentation that the recipient is the beneficial owner of the dividends.

The Swiss FTA processes straightforward applications within three to six months. Complex cases — particularly those involving trust structures or companies with unclear beneficial ownership — can take considerably longer. If the refund is not claimed within three years of the end of the calendar year in which the dividend was paid, the right to refund lapses under Swiss law.

3. Interest and Royalties

The treaty sets a 10% ceiling on Israeli withholding tax on interest paid to Swiss residents. Israel's domestic withholding on interest paid to non-residents ranges from 15% to 25% depending on the nature of the debt instrument and the recipient's status. The 10% treaty rate requires, as with dividends, a valid reduced-rate certificate from the ITA.

On the Swiss side, Switzerland levies its 35% Verrechnungssteuer on interest paid on Swiss bonds and on certain Swiss bank deposits. The treaty caps this at 10% for Israeli residents — again requiring the same three-year refund application to the Swiss FTA. Interest on trade credits and standard commercial loans between businesses typically falls outside the Swiss withholding regime entirely, which means no Swiss withholding arises on ordinary inter-company loan interest.

On royalties — payments for licences, patents, software rights, and know-how — Israel withholds 15% to 25% at source on payments to non-residents. The treaty caps this at 10% for Swiss residents. Switzerland does not generally levy withholding tax on outbound royalty payments in ordinary commercial transactions (unlike on dividends and bond interest), meaning Swiss IP owners receiving Israeli royalties face Israeli withholding at the 10% treaty rate but no Swiss withholding in return. An Israeli startup licensing IP from a Swiss parent should apply to the ITA for a reduced-rate certificate authorising the 10% rate; without it, the Israeli company withholds at the domestic rate of up to 25%.

4. Capital Gains on Israeli Property

The treaty, following the standard OECD model, preserves Israel's right to tax capital gains on Israeli real property regardless of where the seller lives. Gains from selling Israeli land, apartment units, commercial buildings, and agricultural land registered in the Land Registry (*Tabu*) are subject to *mas shevach* (land appreciation tax) under the Land Appreciation Tax Law 5723-1963 at rates ranging from 0% to 25% depending on the acquisition date and the type of property. A Swiss individual or Swiss company selling Israeli real estate cannot use the treaty to avoid *mas shevach*.

The treaty also preserves Israel's right to tax gains from selling shares in companies whose assets consist principally of Israeli real property. Swiss holding structures used to own Israeli real estate through a company — a technique some planners use for high-value apartments — are not protected by the capital gains article when the underlying asset is essentially Israeli land. The ITA's position on real-property-rich share sales has hardened since the MLI took effect; the ITA now scrutinises these transactions, and sellers should obtain a tax ruling before any exit.

Gains from selling ordinary Israeli company shares — those not principally composed of Israeli real property — are generally taxable only in the country of the seller's residence under the treaty. A Swiss resident selling shares in an Israeli software company typically owes no Israeli capital gains tax on the exit, provided less than 50% of the Israeli company's value derives from Israeli real estate. Swiss capital gains tax treatment then applies (Switzerland taxes capital gains only in limited circumstances at the federal level, though certain cantonal rules may differ).

5. Residency and Tie-Breaker Rules

The treaty's residence article follows the standard OECD four-step tie-breaker for individuals caught between Swiss and Israeli residency claims:

1. Permanent home — where does the individual have a permanent home available to them? If only in one country, that country is the treaty residence.
2. Centre of vital interests — where are personal and economic ties closer? Bank accounts, family, employment, and habitual daily life all count.
3. Habitual abode — where does the individual spend more time?
4. Nationality — if still unresolved, the country of citizenship determines residency for treaty purposes. Israel and Switzerland both allow dual nationality, so this step may require a mutual competent authority agreement if the person holds both nationalities.

For companies, the treaty uses place of effective management: where the board actually meets and makes decisions, not just where the company is registered. An Israeli-managed company incorporated in Canton Zug is an Israeli tax resident for treaty purposes. After the MLI, the same question of genuine economic presence applies under the PPT — the company must be run from Switzerland, not just mail-forwarded there.

6. Swiss Olim and the 10-Year Exemption

Swiss nationals who make aliyah and become Israeli residents benefit from the 10-year new-immigrant tax exemption under Section 14 of the Income Tax Ordinance. During the exemption period, Israeli tax does not apply to foreign-sourced income: Swiss dividends, interest on Swiss accounts, and rental income from Swiss property remain entirely outside the Israeli tax net for a decade from the date of arrival.

During the 10-year period, a Swiss oleh does not need a treaty mechanism to protect Swiss-source income — the Section 14 exemption already blocks Israeli tax. Once the exemption expires, the treaty's ordinary rules apply: Swiss dividends paid to an Israeli-resident former Swiss national will be subject to the Swiss Verrechnungssteuer at 35%, recoverable through the treaty refund process to 15%, with the remaining 15% creditable against the Israeli tax liability on that income.

From January 1, 2026, new olim must file annual Israeli tax returns disclosing worldwide income and assets even if the income is fully exempt under Section 14. The reporting obligation applies to foreign bank accounts, investment portfolios, and beneficial interests in foreign entities — including Swiss accounts and shares in Swiss companies. Failure to file carries penalties under Section 216 of the Income Tax Ordinance, ranging from NIS 500 per month for a late return to NIS 9,570 for wilful non-reporting of a foreign account. The exemption itself remains intact; only the reporting obligation is new.

7. MLI Modifications and Substance Requirements

Both Israel and Switzerland signed the OECD Multilateral Convention (MLI) in 2017 and ratified it by 2019. Three changes from the MLI are now live in the Israel-Switzerland treaty, and each one bites:

Principal Purpose Test (PPT). Treaty benefits can be denied if obtaining those benefits was one of the principal purposes of an arrangement. A Swiss holding company with no real employees, no board meetings held in Switzerland, and no genuine business functions — created purely to capture the 5% dividend rate — is a PPT target. Both the Swiss Federal Tax Administration and the ITA have issued guidance requiring demonstrable substance in the treaty-residence country. "Demonstrable" means actual records: minutes of board meetings held in Zurich, Swiss-registered directors with signing authority, a Swiss bank account used for treasury functions.

365-day holding period. The 5% rate for qualifying corporate shareholders now requires continuous ownership of at least 25% for 365 days before the dividend payment date. A Swiss company that bought its Israeli stake six months ago does not qualify yet, even if it holds 80% of the Israeli company. Calendar the dividend accordingly.

Permanent establishment threshold. The MLI broadened the PE definition. A Swiss parent with Israeli employees — an R&D team under Swiss management based in Tel Aviv — may well constitute a permanent establishment of the Swiss company in Israel. Profits attributed to that PE are taxable in Israel at 23% corporate rate, with no treaty protection. The ITA has grown more aggressive on this since 2021; a service agreement that keeps Israeli employees clearly outside commercial contracting authority reduces the risk but does not eliminate it.

Of the three, the PPT has the most immediate financial consequences. If the ITA concludes that a Swiss structure lacks genuine substance, it can deny the 5% rate and assess the full domestic 25% — sometimes with retroactive effect. There is no shortcut around substance requirements.

8. ITA Certificate Process and the Verrechnungssteuer Refund

Treaty rates on payments from Israel to Switzerland are not automatic. The Israeli paying company withholds at the domestic rate (25% on dividends, 15–25% on interest and royalties) unless it holds a valid nikui memas mekorot reduced-rate certificate from the Israel Tax Authority under Section 170 of the Income Tax Ordinance. The process for Swiss shareholders:

1. Prepare the documentation. You need: a certificate of Swiss tax residency issued by the Swiss Federal Tax Administration (FTA/ESTV) or by the competent cantonal authority, apostilled and translated into Hebrew; proof of ownership percentage and holding period (extract from the Israeli company register at the Registrar of Companies, audited shareholding structure); the relevant dividend resolution or contract; and a beneficial ownership declaration confirming the Swiss entity is not a conduit for third-country residents.
2. Submit the application. An Israeli licensed attorney or CPA submits the application to the ITA International Tax Department, Withholding Tax Unit. For Israeli companies that file their returns at the Large Enterprises Assessing Office in Tel Aviv, applications typically go there; for smaller companies, to the relevant district assessing office.
3. Wait for the certificate. Routine applications take 30 to 45 business days. Applications involving PPT analysis, related-party structures, or companies whose assets are primarily Israeli real estate take longer — sometimes three to four months. Submit well before any planned payment.
4. Provide the certificate to the Israeli paying company. The Israeli company retains it and withholds at the certified rate. Certificates are typically valid for 12 months and must be renewed annually before any subsequent payment.

For Israeli investors receiving Swiss dividends and interest and seeking a refund of Verrechnungssteuer above the 15% treaty rate, the process flows in the opposite direction: Israeli individuals use the DA-1 form available through their Swiss custodian bank or directly from the Swiss FTA website; Israeli companies file Form 85 directly with the Swiss Federal Tax Administration in Bern. Attach the ITA-issued Israeli tax residency certificate, the dividend statement or Verrechnungssteuer certificate (*Bescheinigung*), and a completed beneficial ownership declaration. The three-year filing deadline — measured from the end of the calendar year of payment — is strict; missed deadlines extinguish the refund right.

Frequently Asked Questions