the licensing of capital market institutions, finance companies and investment funds.

Article V

DIRECT TAXATION

1. Israel and the Palestinian Authority will each determine and regulate independently its own tax policy in matters of direct taxation, including income tax on individuals and corporations, property taxes, municipal taxes and fees.
   
   
2. Each tax administration will have the right to levy the direct taxes generated by economic activities within its area.
   
   
3. Each tax administration may impose additional taxes on residents within its area on ( individuals and corporations ) who conduct economic activities in the other side's area.
   
   
4. Israel will transfer to the Palestinian Authority a sum equal to:
   
   
1. 75% of the income taxes collected from Palestinians from the Gaza Strip and the Jericho Area employed in Israel.
   
   
2. The full amount of income taxes collected from Palestinians from the Gaza Strip and Jericho Area employed in the settlements.
   
   

5. The two sides will agree on a set of procedures that will address all issues concerning double taxation.
   
   

Article VI

INDIRECT TAXES ON LOCAL PRODUCTION

1. The Israel and the Palestinian tax administrations will levy and collect VAT and purchase taxes on local production, as well as any other indirect taxes, in their respective areas.
   
   
2. The purchase tax rates within the jurisdiction of each tax administration will be identical as regards locally produced and imported goods.
   
   
3. The present Israeli VAT rate is 17%. The Palestinian VAT rate will be 15% to 16%.
   
   
4. The Palestinian Authority will decide on the maximum annual turnover for businesses under its jurisdiction to be exempt from VAT, within an upper limit of 12,000 US $.
   
   
5. The VAT on purchases by businesses registered for VAT purposes will accrue to the tax administration with which the respective business is registered.
   
   

Businesses will register for VAT purposes with the tax administration of the side of their residence, or on the side of their ongoing operation.

There will be clearance of VAT revenues between the Israeli and Palestinian VAT administrations on the following conditions:

1. The VAT clearance will apply to VAT on transactions between businesses registered with the VAT administration of the side in which they reside.

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