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Bilateral Tax

Brazil and Israel: double taxation agreement explained

A practical guide for Israeli businesses, investors and advisers dealing with Brazil. What the treaty covers, what it does not, and what Brazilian taxes still apply.

Not yet familiar with the Brazilian tax system? We recommend reading our practical guide first, covering every major tax that may apply to cross border transactions with Brazil.

Read the Guide

Brazil and Israel have a double taxation agreement in force but it does not eliminate Brazilian withholding taxes.

The Brazil Israel Convention entered into force in 2006. It allocates taxing rights on cross border income and may reduce Brazilian withholding rates for qualifying Israeli recipients but does not eliminate Brazilian source taxation.

Israel operates a worldwide tax system for residents, with foreign tax credits available against Israeli tax on foreign source income. The interaction between Brazilian withholding, the treaty credit mechanism and Israeli rules on recognition of foreign income requires careful analysis, particularly for technology related payments.

CIDE, ISS and IOF are generally outside the treaty’s scope. The Brazilian Israeli commercial relationship is driven substantially by technology, agribusiness, defence related industries and bilateral investment, and the treaty is most commonly relied upon for cross border service fees, royalty flows and dividend repatriations in those sectors.

Although not expressly listed in the original treaty text, the CSLL has generally been treated as a covered tax for treaty purposes, following administrative and judicial developments in Brazil.

Treaty Analysis

What the Brazil Israel treaty covers

Dividends

From 1 January 2026, Brazil imposes a 10% IRRF on dividends paid to non residents. The treaty may reduce or cap this for qualifying Israeli recipients. Assess how the Brazilian withholding interacts with Israel’s participation exemption for qualifying dividends from foreign subsidiaries.

Interest

The treaty reduces Brazilian withholding on interest below the domestic 15% rate. Interest paid to related party Israeli lenders is also subject to Brazilian thin capitalisation rules operating independently of the treaty.

Royalties

Royalties attract IRRF plus CIDE (10%) under domestic law. The treaty may reduce the IRRF component. CIDE remains outside the treaty’s scope. Israeli licensors benefiting from Innovation Authority preferential regimes should confirm the credit position.

Technical services

Technical service fees may attract IRRF, CIDE, PIS/COFINS Import and ISS. Israeli technology and software companies are frequently affected by this multi layer stack and should model the full cost before contracting.

Capital gains

Brazil generally retains the right to tax gains from disposal of Brazilian company shares. Domestic progressive rates apply (15% to 22.5%) unless the treaty provides otherwise for the specific asset category.

Innovation Authority incentives and Brazilian credits

Where the effective Israeli rate on relevant income is lower than the Brazilian withholding tax, the credit may not be fully usable and excess Brazilian tax may become a permanent cost.

CSLL

Although not expressly listed in the treaty text, the CSLL is generally treated as a covered tax for treaty purposes. Include it when computing the effective Brazilian burden for the Israeli credit.

Beneficial ownership and anti abuse

Treaty benefits require the Israeli recipient to be the beneficial owner of the income and satisfy anti abuse provisions in both the treaty and Brazilian domestic law.

Practical Issues

What Israeli businesses need to know

CIDE is not covered by the treaty

CIDE at 10% applies to royalties, technology transfers and certain services regardless of the treaty, borne by the Brazilian payer.

ISS is municipal

ISS at 2% to 5% is set by each Brazilian municipality and is outside the treaty’s scope; verify per transaction and location.

IOF on wire transfers

IOF at 0.38% applies to remittances abroad and is not reduced by the treaty.

Technology payments carry the heaviest stack

Israeli technology and software companies are among the most active users of this treaty. Model the full tax stack before agreeing commercial terms.

The Brazilian payer withholds

The Brazilian company making the payment is responsible for correct withholding. Errors affect the Israeli recipient’s credit position.

Price with the full tax stack in mind

Brazilian taxes can add 25% to 40% or more to a cross border payment depending on income type.

Indicative Rates

Domestic vs treaty rates at a glance

IRRF on services (indicative)

Domestic IRRF rate (no treaty)15%

CIDE (treaty does not reduce)10%

PIS/COFINS Import9.25%

ISS2% to 5%

Indicative stack (domestic)29% to 39%+

Treaty may reduce the IRRF component. Israel may credit Brazilian tax paid against Israeli tax on the same income.

IRRF on royalties (indicative)

Domestic IRRF rate (no treaty)15%

CIDE (not covered by treaty)10%

IOF on wire transfer0.38%

Indicative stack (domestic)25%+

Where the Israeli recipient benefits from a preferential Innovation Authority rate, excess Brazilian withholding may not be fully creditable.

Deffenti Lawyers

Questions about the Brazil Israel treaty? We can help.

Our team advises on Brazilian tax and treaty issues for foreign businesses and investors.

This guide is a general overview only and does not constitute legal or tax advice. Tax laws in both countries change frequently. The specific tax treatment of any transaction depends on the facts, the structure adopted and the current state of the law in each jurisdiction. Obtain specific legal and tax advice before structuring any cross-border transaction.

Brazilian lawyers for foreign companies, investors and law firms.

São Paulo

Rua Quintana, 887/32
São Paulo SP 04569-011, Brazil
info@deffenti.com

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