Israel has signed a tax treaty with Estonia and has reached an accord on new tax relief clauses with Georgia to attract mutual investments and make business easier for Israeli companies abroad.

"This is an additional step in the implementation of the Finance Ministry's plan to remove tax hurdles that damage foreign trade, encourage mutual investments, and to make it easier for Israeli companies to do business abroad," said Ofir Levy, director of the International Taxation Department at the State Revenues Administration.

The new treaties are part of the Treasury's policy to promote new tax agreements with key countries that are members of the Organization of Economic Cooperation and Development. The agreements are based on the OECD model, which focuses taxation in the country of residence and reduces taxation in the country in which the economic activity is carried out, or from which passive income such as dividends, interest or royalties is paid.

The tax treaty with Estonia states that Israelis will be exempt from paying taxes to Estonia on capital gains realized there, and will instead pay tax only in Israel. The same will apply to Estonians, meaning that tax on capital gains from business in Israel will be paid in their home country, in an effort to avoid double taxation. The exception to the tax-relief rules are real estate deals.

The treaty comes as Estonia, like Israel, is expected to join the OECD at the beginning of 2010. Estonia is one of the last remaining countries in the European Union with which Israel has not signed a treaty until now. The new accord signed with Georgia seeks to improve the competitiveness of Israeli companies doing business in real estate and infrastructure in that country.

It was agreed that each country will take the necessary steps for the tax agreements to go into effect at the beginning of 2010.