Your Taxes: It's time for the maritime areas bill to become law

The maritime waters bill to sort out Israel’s exclusive economic zone (EEZ), which was submitted to the Knesset last December, seems to be stalled. The EEZ stretches 200 nautical miles from the Israeli coast on the Mediterranean Sea and contains Israel’s all-important gas fields.

Also notable is the Israeli sovereign-wealth fund, formally called the Israeli Citizens Fund, which held about $2 billion at the end of 2024, according to Bank of Israel data presented to the Knesset in July.

Does all that gas belong to Israel? Israeli territorial waters extend 12 nautical miles from the Israeli coast, and Israel’s gas fields extend well beyond that. There are two perspectives to consider: Israeli and international. Both are complex. The maritime waters bill is needed to ratify and clarify things.

Israeli perspective: Currently, Israel exercises full sovereignty in the Mediterranean strip extending up to 12 nautical miles from the coast, according to the Coastal Waters Law, 1956.

Beyond 12 miles, Israel claims sovereign rights under the Submarine Territories Law, 1953, to exploit natural resources “in the seabed and below the ground of areas under the sea next to Israeli shores, and those outside Israeli territorial waters as far as the depth of the water above them enables the exploitation of natural resources in those areas.”

So, Israeli law lays claim to the seabed beyond the 12 nautical miles, but what about the water column above the seabed where Israel has gas rigs – fixed and floating?

UNCLOS contains the concept of an EEZ extending up to 200 nautical miles from a coast, including the water column and any gas rigs above the seabed.

Israel had to object to UNCLOS when signing up due to comments by Iraq, Yemen, Kuwait, and Qatar that they did not recognize Israel, according to the UN website. Instead, Israel said it would apply the substance of UNCLOS if other countries reciprocate. Israel then declared its own EEZ in 2011 and struck maritime border deals with Cyprus and Lebanon.

Nevertheless, moves are afoot to reinforce the Israeli government’s claims regarding the gas fields and gas rigs. The maritime areas bill, which took years to prepare, proposes consolidating earlier Israeli law and actions. It sets forth how Israel proposes to exercise its sovereign rights and jurisdiction in the Israeli EEZ.

Among other things, it proposes that Israel’s tax and immigration laws would apply in the EEZ to income and assets just as they would on dry land. The same would apply to many other laws listed in the bill, including environmental monitoring rules.

Regarding Israel’s windfall levy – up to 62%, according to a formula – enacted in 2011 following reports of the Sheshinski Commission, it seems little is needed. Companies that obtained a license to exploit Israeli gas committed to paying the windfall levy as part of the package.

We know they are paying the levy, because part of it is transferred to the abovementioned sovereign-wealth fund worth about $2b.

The bill proposes that “nothing in the provisions of the law shall derogate from the rights and powers of the State of Israel under international law in the maritime areas.

The maritime areas bill hasn’t moved in the Knesset since the end of 2024, according to the Knesset website. When enacted, it should help further secure Israel’s crown jewels in the Mediterranean offshore gas fields.

As always, consult experienced legal and tax advisers in each country at an early stage in specific cases.