IsraelLawUAE-Israel Double Tax Treaty: A Complete Guide for UAE Investors and Israeli Expats in Dubai
Quick answer: The Convention between Israel and the UAE for the Avoidance of Double Taxation was signed on May 31, 2021 and entered into force on January 1, 2022. Under it, Israeli withholding on dividends drops to 5% for UAE companies holding at least 10% of the Israeli payer's capital (10% for all other recipients), to 10% on interest, and to 12% on royalties. UAE individuals owe no UAE personal income tax at all — so a UAE-resident Israeli expat receiving Israeli dividends or rental income pays only the reduced Israeli withholding and nothing in the UAE. UAE companies are now subject to a 9% corporate tax introduced in June 2023, meaning the treaty's dividend and interest relief also shelters UAE-side profit on inbound Israeli distributions. To claim reduced Israeli rates, the Israeli-side payer must obtain a written certificate from the Israel Tax Authority before each payment.
When the Abraham Accords normalised relations between Israel and the UAE in September 2020, tax was not the headline. But for the tens of thousands of Israelis who had moved to Dubai and Abu Dhabi, and for the UAE family offices and sovereign vehicles now looking at Israeli startups and real estate, the tax treaty that followed has mattered every year since.
The treaty is more generous than Israel's older conventions in one key respect: the dividend rate for qualifying UAE parent companies is just 5%, against 12.5% under the US treaty and 15% under several European ones. The UAE's own corporate tax changed materially in 2023, and the interaction between UAE corporate tax, the treaty's relief, and Israeli withholding creates both planning opportunities and traps that neither set of rules makes obvious on its own.
What follows covers the treaty rates, what they mean for UAE-based investors receiving Israeli income, what they mean for Israeli businesses operating in the UAE, and the steps needed to actually collect reduced withholding from the Israel Tax Authority.
Treaty overview and scope
The Convention between the Government of the State of Israel and the Government of the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income was signed in Jerusalem on May 31, 2021 and entered into force on January 1, 2022 after ratification by both states and publication in the Israeli Official Gazette (Reshumot).
On the Israeli side, the treaty covers income tax under the Income Tax Ordinance [New Version] 5721-1961, the land appreciation tax (mas shevach), and related Israeli income taxes. On the UAE side, it covers income tax and corporate tax as levied by the UAE federal government. The treaty does not cover Israeli purchase tax (mas rechisha), the betterment levy (hetel hashbacha), Israeli VAT, Israeli municipal tax (arnona), or UAE VAT — all of which apply in full with no bilateral relief.
The treaty follows the OECD Model Tax Convention structure closely, with a Limitation on Benefits provision to block treaty shopping, a permanent establishment article, and a mutual agreement procedure for resolving double-taxation disputes between the two tax authorities.
Both individuals and companies resident in one or both states are covered. Dual residents — living in Israel and the UAE at the same time, uncommon but legally possible — are assigned to one country through a tiebreaker test: permanent home first, then center of vital interests, then habitual abode, then nationality, and finally a negotiated agreement between the two authorities.
In Practice — Treaty Text: The official English-language treaty text is published on the Israel Tax Authority (ITA) website at the Conventions section of the ITA portal (Rashut HaMisim, rashmis.taxes.gov.il). The UAE Federal Tax Authority does not publish a consolidated treaty register; the UAE Ministry of Finance maintains an unofficial list. Before relying on any provision, use the official ITA text — secondary summaries sometimes contain errors on the specific rate thresholds.
Withholding rates under the UAE-Israel treaty
The treaty sets maximum rates for passive income flows. The Israeli payer withholds at the domestic rate of 25% unless it holds a valid Israel Tax Authority certificate specifying a reduced rate — obtaining that certificate in advance is mandatory (see Section 4 below).
Dividends
The treaty provides three dividend rates. Where the beneficial owner of the dividend is the government of the UAE or a state pension plan of the UAE, and that entity holds less than 5% of the paying company's capital, the rate is 0%. Where a UAE company holds at least 10% of the capital (not just voting shares — this is an important distinction from the US treaty) of the Israeli company paying the dividend, the treaty rate is 5%. In all other cases — UAE individuals, UAE companies below the 10% threshold, UAE funds — the rate is 10%.
Compared to Israel's domestic 25% withholding rate, the treaty reduces the standard portfolio investor's cost from 25% to 10% and the qualifying corporate shareholder's cost from 25% to 5%. This makes the UAE-Israel treaty one of the most favorable dividend treaties in Israel's network for corporate investors.
Interest
Interest paid from an Israeli source to a UAE resident is capped at 10% under the treaty. Where the beneficial owner of the interest is the UAE government or a UAE state pension fund, and that entity holds less than 50% of the capital of the Israeli borrower, the rate drops to 0%; if the government or pension fund holds 50% or more, the rate is 5%. Israel's domestic rate on interest paid to non-residents is 25% for most interest types (15% for certain inflation-linked or approved bonds), so the 10% treaty ceiling represents a meaningful reduction for private commercial lenders.
Royalties
The treaty caps royalties at 12% in all cases, regardless of the type of intellectual property. This applies to payments for patents, trademarks, designs, models, secret formulae, software, literary and artistic works, and film royalties — no distinction is drawn between copyright royalties and industrial royalties. At 12%, the UAE treaty royalty rate is somewhat higher than Israel's newer treaties with Singapore (5%) or Hong Kong (5%), but lower than the 17.5% general interest rate in the US treaty, and it applies uniformly across all royalty types without a category-by-category breakdown.
Rate Summary — UAE-Israel Treaty vs. Israeli Domestic Rates:
| Income Type | Israeli Domestic Rate | Treaty Rate | Condition |
|---|---|---|---|
| Dividends (UAE government / pension) | 25% | 0% | Holds <5% of capital |
| Dividends (UAE corporate, qualifying) | 25% | 5% | Holds ≥10% of capital |
| Dividends (all others incl. individuals) | 25% | 10% | All remaining cases |
| Interest (UAE government / pension) | 25% | 0% / 5% | 0% if <50% capital; 5% if ≥50% |
| Interest (all other UAE residents) | 25% | 10% | Standard commercial loans |
| Royalties (all types) | 25% | 12% | All royalty categories |
Capital gains on Israeli real estate and shares
On real property, the treaty gives Israel source-country taxing rights regardless of where the seller lives. The full land appreciation tax (mas shevach) under the Land Taxation Law (Appreciation and Acquisition) 5723-1963 applies when a UAE resident sells an Israeli apartment, commercial property, or land — no ceiling, no exemption. Israel taxes the gain at the same rate as an Israeli resident: 25% on the real gain for individuals, calculated using the linear method for property bought before January 1, 2014.
For shares in Israeli companies, the treaty uses a 365-day look-back. If more than 50% of an Israeli company's value came from Israeli real property at any point in the year before the sale, Israel can tax the gain. Outside that test, gains from selling Israeli company shares belong only to the UAE — which means 0% for individuals and most free-zone entities.
That share capital gains provision is valuable for UAE investors in Israeli startups. Where the Israeli company is an operating business, not a property vehicle, the exit gain flows to the UAE investor without Israeli withholding. UAE individuals owe no personal income tax on capital gains. UAE mainland companies pay 9% corporate tax. The math on a tech exit usually still works.
In Practice — Real Estate Sold by UAE Resident: A UAE resident who inherited or purchased an Israeli apartment in Tel Aviv and now sells it for NIS 3,000,000 (a gain of NIS 800,000 after inflation indexing) owes mas shevach to the Israel Tax Authority at 25%, producing an Israeli tax bill of approximately NIS 200,000. The treaty does not reduce this. The Israeli notary and the Tabu (Land Registry) require proof of payment — or an ITA payment deferral — before completing registration of the transfer. UAE resident sellers should engage an Israeli tax advisor at least 90 days before signing the sale contract, both to plan the linear calculation and to arrange any available exemption (first-apartment sellers who meet the residency criteria can claim a single exemption, though non-residents generally cannot).
Claiming reduced withholding: the ITA certificate process
Reduced withholding under the UAE-Israel treaty is not self-executing. Under Section 170 of the Income Tax Ordinance 5721-1961, every Israeli entity that pays dividends, interest, or royalties to a non-resident must withhold at the domestic rate of 25% unless it holds a written certificate from the Israel Tax Authority specifying a lower rate. Presenting a UAE residency certificate or a copy of the treaty text to the Israeli bank or company is not sufficient — the payer must hold the ITA certificate before the payment date.
The application process works as follows:
- Obtain a UAE tax residency certificate. The UAE Federal Tax Authority (FTA) issues Tax Residency Certificates (TRCs) to individuals who have been physically present in the UAE for at least 183 days in a 12-month period and to UAE companies incorporated and managed in the UAE. The TRC must be current (issued within the past 12 months) and must be an original or apostilled copy.
- Prepare the ITA application package. The Israeli payer or the UAE recipient's Israeli representative submits a written application to the ITA's Non-Residents Desk (Machlaket Toshavei Chutz La'aretz) in the relevant ITA district office. The package includes: the UAE TRC, evidence of the income relationship (dividend resolution, loan agreement, or license agreement), the ITA's own withholding application form, a copy of the beneficial ownership structure if the recipient is not the direct payee, and a power of attorney if a local representative files on behalf of the UAE party.
- Processing time. The ITA's target for complete applications is 30 to 60 business days. Applications with missing documents restart the clock from the date the last missing item is submitted. In practice, first-time applications from UAE entities — particularly from recently formed companies or free-zone entities — are scrutinised more closely, and 60 to 90 calendar days is a realistic planning assumption.
- Certificate validity. The ITA issues certificates for one calendar year as standard. Annual renewal applications must be submitted before the expiry date; if a certificate lapses, the payer reverts to 25% withholding until a new certificate is issued. There is no grace period.
In Practice — Certificate Timing for Dividend Distributions: An Israeli tech company with a UAE family office holding 15% of its shares plans a NIS 5,000,000 dividend distribution. At the domestic 25% rate, Israeli withholding is NIS 1,250,000. At the treaty 5% rate, it is NIS 250,000. The NIS 1,000,000 difference is only recoverable through the treaty certificate route — not through a post-payment refund claim without significant delay. The UAE family office's Israeli tax advisor should submit the certificate application to the ITA at least 90 calendar days before the board resolution declaring the dividend. If the Israeli company distributes before a certificate is in place, the full 25% is withheld, and the only recourse is to file an annual Israeli tax return and claim the overpayment as a refund — a process that typically takes 12 to 18 months and does not bear interest.
UAE corporate income tax and the treaty interaction
When the treaty came into force in January 2022, the UAE had no federal corporate tax at all. Federal Decree-Law No. 47 of 2022 changed that. Since June 1, 2023, most UAE entities pay 9% corporate income tax on profits above AED 375,000 (roughly USD 102,000). Free zone entities that satisfy the qualifying free zone person criteria and derive only qualifying income still pay 0% under Article 18 of the Corporate Tax Law.
That change matters for how the treaty actually works in practice.
A UAE mainland company receiving a NIS 5,000,000 dividend from Israel has 5% (NIS 250,000) withheld at source. It then includes the gross dividend in UAE taxable income and owes 9% corporate tax. The treaty credit — Israeli tax withheld reduces UAE tax owed on the same income — brings the UAE bill from 9% down to 4%. Total combined rate: 9%. Without the treaty, Israeli withholding at 25% would still be fully creditable against the 9% UAE bill, leaving total tax at 25%.
A free zone company that qualifies for 0% on its qualifying income faces a different calculation. Israeli withholding at 5% or 10% applies, but there is no UAE tax to credit it against. The Israeli withholding is a permanent cost. Whether to hold Israeli investments through a mainland entity (9% total, creditable) or a free zone entity (0% UAE, non-creditable Israeli cost) depends on the yield and exit structure expected from the investment.
In Practice — Free Zone vs. Mainland for Israeli Investments: A UAE investor comparing whether to hold an Israeli startup stake through a DIFC (Dubai International Financial Centre) company or a UAE mainland LLC should model the following: DIFC company — 0% UAE tax on qualifying income, Israeli withholding at 5% becomes a permanent cost, total effective rate on exit dividend is 5%. UAE mainland LLC — 9% corporate tax on profits, credit for Israeli 5% withholding reduces UAE tax to 4%, total effective rate is 9%. For distributions above the AED 375,000 threshold, the mainland LLC produces a higher total rate. However, if the Israeli startup exits via a share sale (not a dividend), and the shares are not in a real-property holding company, Israel imposes no withholding on the capital gain under the treaty. The mainland LLC pays 9% UAE corporate tax on the capital gain; the DIFC entity pays 0%. For equity investment with anticipated capital gains exit, the free zone structure is generally more efficient.
Israeli expats living in the UAE: what you actually owe
The UAE has no personal income tax. An Israeli citizen who genuinely relocates to Dubai and spends at least 183 days a year there pays 0% UAE tax on salary, business income, investment returns, and capital gains. Some sectors have UAE social insurance contributions for expats, but the amounts are modest compared to Israeli National Insurance.
The Israeli side is more complicated, and it turns entirely on whether the person has broken Israeli tax residency. Under Sections 1 and 2 of the Income Tax Ordinance, an Israeli tax resident is someone whose center of life is in Israel — tested by the ITA using physical presence (183 days triggers a presumption of residency), family, property, employment, and social ties. A UAE visa and a Dubai apartment do not break Israeli residency on their own.
Someone who has genuinely shifted their center of life to the UAE:
- Owes no Israeli income tax on UAE-source income (salary, UAE business profits, UAE rental income)
- Owes Israeli tax on Israeli-source income — Israeli rent, dividends from Israeli companies, gains from selling Israeli real estate — but the treaty caps dividend and interest withholding at 10%
- Owes no UAE income tax on anything
- May owe Israeli exit tax (mas yetziah) under Section 100A of the Income Tax Ordinance — a deemed disposal of non-Israeli assets at the moment of breaking residency that catches many Israelis who leave without planning it
Someone who has not broken Israeli residency owes Israeli income tax on worldwide income, including UAE salary and UAE business profits. The treaty's credit mechanism is useless here — UAE taxes paid are 0%, so there is nothing to credit. The treaty cannot help a person who is still Israeli-resident.
In Practice — Breaking Israeli Tax Residency: An Israeli software engineer earning a USD 300,000 annual salary from a UAE employer moves to Dubai in January 2026. To be treated as a non-Israeli-resident from January 2026, they must notify the ITA using Form 1301, demonstrate that their center of life has genuinely shifted to the UAE (cancel the Israeli apartment lease or rental income stream, move the immediate family, register children in UAE schools, join a UAE health fund), and not spend more than 183 days in Israel in the 2026 tax year. The ITA frequently challenges center-of-life claims from Israeli-born UAE residents and may issue a residency determination demanding that the individual file Israeli tax returns. Obtaining a UAE TRC from the FTA strengthens the case but is not conclusive — Israeli courts have held that a UAE TRC does not automatically override an ITA residency determination. Professional advice before relocation, not after, is the correct sequence.
Permanent establishment: Israeli businesses in the UAE
Article 5 of the treaty determines when an Israeli company's UAE activity crosses into taxable presence. The basic threshold is a fixed place of business: an office, branch, warehouse, or similar installation. An Israeli company that opens a sales office in the DIFC has a UAE PE from day one, and 9% UAE corporate tax applies to the profits attributable to it.
The personal PE rules catch more people. Where an Israeli company's employee or agent in the UAE habitually concludes contracts on the company's behalf — rather than just promoting products or collecting information — the treaty creates a UAE PE even without a physical office. An Israeli company that relocates its business development manager to Dubai to close Gulf deals risks a UAE PE and a 9% UAE corporate tax bill on that revenue. Israel taxes the same profits as a worldwide-income country, so there is no offsetting Israeli relief — just double tax if the structure is ignored.
In Practice — UAE PE Risk for Israeli Tech Companies: An Israeli SaaS company posts its regional sales director to Dubai on a one-year secondment agreement. The director signs contracts with UAE and Gulf clients from Dubai. Under Article 5 of the UAE-Israel treaty, the director's contract-closing authority in the UAE likely constitutes a dependent-agent PE. The Israeli company should register as a taxable person with the UAE Federal Tax Authority, obtain a Tax Registration Number, and file annual UAE corporate tax returns on the profits attributable to the UAE PE. Failing to register does not eliminate the tax exposure — it creates penalties and unpaid taxes that compound over time. A clearly structured commission arrangement where the director is an independent agent (not subject to the principal's detailed instruction) avoids the PE issue, but the substance must match the form.
Anti-avoidance provisions and LOB rules
The treaty includes a Principal Purpose Test (PPT) consistent with OECD BEPS Action 6. Treaty benefits are denied if one of the principal purposes of an arrangement was to obtain them — a broad standard that catches technically compliant structures built mainly to access the 5% dividend rate rather than for genuine commercial reasons.
The PPT is most relevant where a third-country entity establishes a UAE shell to collect Israeli dividends at 5% rather than 25%. A UAE entity making that claim needs real economic substance: actual employees, management decisions taken in the UAE, real operations, and a commercial reason for existing that would hold up if the tax saving disappeared tomorrow.
For real UAE-based businesses investing in Israel, the test should not be a problem. The risk concentrates in round-tripping: Israeli capital leaving Israel, passing briefly through a UAE entity, and returning to Israel at the preferential rate. The ITA has challenged that pattern for years, even before the treaty gave it a PPT to cite.
Frequently Asked Questions
Yes. A UAE individual who is a genuine UAE tax resident — not an Israeli tax resident holding a UAE visa — receives Israeli dividends at 10% withholding under the treaty instead of the domestic 25% rate. Since the UAE imposes no personal income tax on individuals, the 10% withheld by Israel is the total tax cost. To benefit, the individual must provide a UAE Federal Tax Authority Tax Residency Certificate to the Israeli company, which must then obtain an ITA withholding certificate before the dividend is paid. Without the certificate, the Israeli company must withhold at 25% and the individual's only recourse is an annual Israeli tax return refund claim.
Not automatically. Israel taxes residents on worldwide income and non-residents only on Israeli-source income. Breaking Israeli tax residency requires genuinely shifting your center of life — family, home, social connections, employment — to the UAE, not merely obtaining a UAE visa. An Israeli who moves to Dubai but keeps a family home in Israel, sends children to Israeli schools, or returns to Israel for more than 183 days in a tax year remains an Israeli tax resident for that year. The treaty does not override Israeli residency rules; it only determines what withholding rates apply once residency is established. Professional advice before relocating — not after — is essential to execute the break cleanly and to address the exit-tax issue under Section 100A of the Income Tax Ordinance.
The UAE-Israel treaty caps royalties at 12% regardless of the type of intellectual property. This applies uniformly to software license fees, patent royalties, trademark fees, know-how payments, and film royalties. Without a valid ITA withholding certificate, the Israeli company must withhold at the domestic 25% rate. To apply the 12% treaty rate, the Israeli payer must submit an application to the Israel Tax Authority's non-residents desk with a current UAE Tax Residency Certificate and evidence of the license arrangement, and must obtain the ITA certificate before making any payment. Israeli companies licensing UAE-origin technology are increasingly using this route as the UAE tech and IP sector grows.
Generally yes, but the analysis requires care. A UAE free zone company that qualifies as a UAE tax resident under the UAE Corporate Tax Law — incorporated in the UAE, managed and controlled from the UAE — is entitled to claim treaty benefits as a UAE resident. The free zone's special 0% qualifying income rate does not in itself deny treaty access, because the treaty tests residency, not effective tax rate. However, the treaty's Principal Purpose Test can deny benefits if the free zone structure exists solely to access reduced Israeli withholding without genuine UAE substance. A free zone company with real employees, a real office, and genuine management activity in the UAE will generally withstand scrutiny; a shell company incorporated in a UAE free zone with no employees or operations faces a meaningful risk of denial.
No. Israeli purchase tax (mas rechisha) is not covered by the treaty. A UAE individual buying a first Israeli residential property pays purchase tax at the non-resident rate, which currently ranges from 8% on the first NIS 6,055,070 of the purchase price to 10% above that threshold (2026 rates) — the same rates that apply to any foreign non-resident buyer. There is no treaty reduction. The treaty also does not reduce Israeli betterment tax (hetel hashbacha) payable by a seller, or Israeli VAT on commercial property transactions. Only withholding taxes on dividends, interest, and royalties fall within the treaty's scope.