 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.The Israeli tax system and taxbenefits for foreign residentsRan Artzi, CPA ...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.The Israeli tax system
3 Artzi, Hiba& ElmekiesseTax SolutionsLtd.The Israeli tax system - General• As of 2003, income Tax in Israel is levied ba...
4 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Israeli resident - IndividualsAn individual is considered an Israeli resident i...
5 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Israeli resident - IndividualsThe Israeli law sets 2 legal presumptions - anind...
6 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Israeli resident - an EntityA person other than an individual is considered anI...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Income tax rates for Individuals
8 Artzi, Hiba& ElmekiesseTax SolutionsLtd.GeneralRegular income of individuals is taxed, Current to2007, at the following...
9 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Gradual decrease of ratesTax rates will gradually decline until 2010.marginal r...
10 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Rental income from Israel• Tax exemption for rental income from apartmentsin I...
11 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Overseas Rental incomeThe tax liability of an Israeli resident individual with...
12 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Passive Investment Income - flat rates• Dividend income - 20% or 25% for an in...
13 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Taxation of Employee Stock OptionsPlans - (ESOPs)• Generally, the income deriv...
14 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Personal Credit PointsIsraeli resident individual taxpayers are awardedpersona...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Income tax rates for Companies
16 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Corporate tax rates:• 2007 - 29%.• 2008 - 27%.• 2009 - 26%.• 2010 (and on) - 2...
17 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Accumulated ProfitsAt the sale of shares (including liquidation of acompany), ...
18 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Losses• Losses arising from a trade or business may be setoff, in the year in ...
19 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Setting-off foreign losses• Foreign losses are generally set off against forei...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Controlled Foreign Corporation (CFC)
21 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - GeneralThe CFC legislation – Article 75B of ITO - is designedto prevent ...
22 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - A Controlling Member The rules set in article 75b apply to an Israelire...
23 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - definitionsA “controlled foreign corporation” is a Foreign residentbody-...
24 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - Definitions“Passive Income” - an income being one of thefollowing, excep...
25 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - Definitions“Undistributed Profits”: Profits originating in passive inco...
26 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - prevention of double taxationUpon actual distribution of the cfc’s profi...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Foreign Vocation Company (FVC)
28 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Vocation CompanyA foreign body-of-persons that meets all thefollowing:...
29 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Vocation Company Most of its income or profits derive from “aspecial ...
30 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Rules for Foreign Tax Credit (FTC)• FTC is granted to Israeli residents only w...
31 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Rules for Foreign Tax Credit (FTC)• No credit is granted for income exempt fro...
32 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exit tax• An Israeli resident that ceases to be an Israeliresident is treated ...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Real estate taxation
34 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Land betterment taxThe Land betterment tax is levied on gain derivedfrom:• Sal...
35 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Land betterment tax• The sale of a residential apartment by individualsis exem...
36 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Acquisition tax• Real estate purchased in Israel is subject toacquisition tax ...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Value added tax (vat)
38 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Value added tax• Value added tax (Vat) is levied on the consumptionof goods an...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Social security
40 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Social security• Employers, employees and self-employed are liablefor social s...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Tax benefits for foreign residents
42 Artzi, Hiba& ElmekiesseTax SolutionsLtd.general overview• Israel encourages investments from both Israeliand foreign r...
43 Artzi, Hiba& ElmekiesseTax SolutionsLtd.general overview• Special emphasis is given to high-tech industriesand R&D act...
44 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Categories of exemptions & benefits•Exemption from tax on capital gains;•Exemp...
45 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for capital gains• Gain derived from the sale of securities traded i...
46 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for capital gains• Gain derived from the sale of shares in anIsraeli...
47 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Special exemption to boost investments -Art. 97(B3)Special exemption from CG i...
48 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Special exemption to boost investmentsConditions at the acquisition date:• Acq...
49 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Special exemption to boost investments• An acquisition statement was filed wit...
50 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for interest on a “Foreign-Currency-Deposit”• Interest paid to a for...
51 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for income / gain fromgovernment bonds or loans• Interest (including...
52 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Investment income in Israeli capitalmarket - foreign residents mutual fundExem...
53 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for investment income• Currency differentials on a loan granted by a...
54 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for interest income• Interest paid by an Israeli body-of-persons to ...
55 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Article 16A of ITOThe Minister of Finance is authorized to returnincome tax, f...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Investment incentives and trade advantages
57 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Law for Encouragement of capitalinvestments, 1959 (“the law”)• A special statu...
58 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Encouragement of capital investmentsIn recent years, the law has undergone com...
59 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Encouragement of capital investmentsThe scheme known as the “Ireland Scheme” -...
60 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Encouragement of capital investmentsA strategic investments scheme -• The ente...
61 Artzi, Hiba& ElmekiesseTax SolutionsLtd.The approval requirement• An enterprise seeking grants is required to submit a...
62 Artzi, Hiba& ElmekiesseTax SolutionsLtd.General requirements• Under the grants scheme, the enterprise isrequired to fu...
63 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax benefits period for grants schemeTax benefits for an approved enterprise a...
64 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Approved enterprise controlled by foreign residentsThe reduced tax rates are i...
65 Artzi, Hiba& ElmekiesseTax SolutionsLtd.“A foreign-invested company”In order to be consider as an “approved enterprise...
66 Artzi, Hiba& ElmekiesseTax SolutionsLtd.“A foreign-invested company”A company controlled by an Israeli resident,direct...
67 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax benefits for “exempt enterprise”(non-grants scheme)• The enterprise must b...
68 Artzi, Hiba& ElmekiesseTax SolutionsLtd.The minimal amount of investment• New investment - at least 300,000 nis (71,43...
69 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax exemption (deferral) until profitdistributionA company may choose an alter...
70 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax exemptions until profit distribution• Companies in which foreign participa...
71 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Accelerated depreciationApproved enterprises are eligible for accelerateddepre...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Participation exemption
73 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation Exemption• A recent legislation (in force as of 1.1.2006)provide...
74 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation Exemption - benefits forforeign investors• Foreign shareholders ...
75 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation ExemptionIsraeliresidentForeignresidentIsraeli holding company
76 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation exemptionDefinitions: “Israeli holding company”• Registers in Is...
77 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation exemption“Subsidiary” for participation exemption:• Resident of ...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Taxation of Trusts
79 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Resident - Settlor trustThe “Foreign Resident Settlor Trust” classifie...
80 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Resident Settlor trust• The transfer of assets by the settlor to the t...
81 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Resident Beneficiary Trust“Foreign resident Beneficiary trust” -• At l...
 Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Tax treaties
83 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Treaties for prevention of double taxation• Israel has entered into tax treati...
84 Artzi, Hiba& ElmekiesseTax SolutionsLtd.
Upcoming SlideShare
Loading in...5
×

Israel tax system15 5 2007

245

Published on

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
245
On Slideshare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Israel tax system15 5 2007

  1. 1.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.The Israeli tax system and taxbenefits for foreign residentsRan Artzi, CPA (Isr).May, 2007
  2. 2.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.The Israeli tax system
  3. 3. 3 Artzi, Hiba& ElmekiesseTax SolutionsLtd.The Israeli tax system - General• As of 2003, income Tax in Israel is levied based ona personal method. Accordingly, Israeli residentsare liable to tax in respect of their incomeworldwide.• Foreign residents are also liable to tax in Israelwith respect to income generated or derived therein(according to source rules) and subject toconventions for prevention of double taxationbetween Israel and the relevant countries.
  4. 4. 4 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Israeli resident - IndividualsAn individual is considered an Israeli resident if his“center of life” is located therein; in this regard, thefollowing considerations are observed :• location of his permanent home (individual &family members).• Location of his economic and social connections.• Location of his permanent or usual employment/business activity.• Location of his active and substantive economicinterests.
  5. 5. 5 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Israeli resident - IndividualsThe Israeli law sets 2 legal presumptions - anindividuals “center of life” is located in Israel in thefollowing cases: During the tax year he was present in Israel for183 days or more, or - During the tax year he was present in Israel for 30days or more, and his total presence in Israel duringthat year and 2 previous years amounts to 425 daysor more.
  6. 6. 6 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Israeli resident - an EntityA person other than an individual is considered anIsraeli resident if either one of the following is met:• It was incorporated in Israel.• the “control and management” over its businessis exercised within Israel.
  7. 7.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Income tax rates for Individuals
  8. 8. 8 Artzi, Hiba& ElmekiesseTax SolutionsLtd.GeneralRegular income of individuals is taxed, Current to2007, at the following rates (applied to annual grossincome):0 - 133,680 nis - 30%. (31,760$)133,681 - 192,000 nis - 35%. (31,761$ - 45,616$)192,001 - 413,400 nis - 36%. (45,617$ - 98,218$)above 413,401 nis - 48%. (98,219$)
  9. 9. 9 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Gradual decrease of ratesTax rates will gradually decline until 2010.marginal rate will be set to 44%.To this end, overall tax rate is inclusive of socialsecurity and health tax payments.
  10. 10. 10 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Rental income from Israel• Tax exemption for rental income from apartmentsin Israel up to 4,200 nis (1,000 $) per month.• The income tax liability on apartments rental fees iscalculated on the basis of one of the followingalternatives:• Rental income is calculated after deduction ofexpenses and taxed as business income(progressive) tax rates - over 30% rate.• Tax is payable at the rate of 10% of gross rentalincome (without deducting expenses).
  11. 11. 11 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Overseas Rental incomeThe tax liability of an Israeli resident individual withrespect to rental income from real property locatedoutside of Israel, is determined on the basis of one ofthe following:• progressive tax rates applied to net rental income(deduction of permissible expenses). FTC is allowed.• flat rate of 15% on rental fees after deduction ofonly depreciation expenses. other expenses incurredin generating the rental income are not deductible.FTC is denied.
  12. 12. 12 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Passive Investment Income - flat rates• Dividend income - 20% or 25% for an individualwho is a “substantial shareholder” (10% or more).15% - dividend distributed out of the profits of an“approved enterprise” under law of encouragement.• Capital gains - 20% or 25% for an individual who isa “substantial shareholder”.However, capital gain from assets acquired prior to1.1.2003 are allocated - on a linear basis -* part of gain attributed to the period prior to31.12.02 - general tax rates.* part attributed thereafter - 20%/25%.• Interest income - 20% (15% - unlinked assets),except for a “substantial shareholder”.
  13. 13. 13 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Taxation of Employee Stock OptionsPlans - (ESOPs)• Generally, the income derived from ESOPs maybe taxed as ordinary income.• Subject to certain conditions, there is a possibilityto grant ESOPs, the gain from which will be taxedas capital gain to the employee. The employer isdenied the wages expense.• The tax is levied only when the option or theproceeds deriving from it are actually transferredto the employee.
  14. 14. 14 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Personal Credit PointsIsraeli resident individual taxpayers are awardedpersonal tax credit points that are offset against theincome tax payable. For 2007, each credit pointequals 2,136 nis (509 $) per year.A taxpayer’s entitlement to credit points generallydepends on personal and family circumstances.For example:• A male Israeli resident is awarded 2.25 points.• A female Israeli resident is awarded 2.75 points
  15. 15.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Income tax rates for Companies
  16. 16. 16 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Corporate tax rates:• 2007 - 29%.• 2008 - 27%.• 2009 - 26%.• 2010 (and on) - 25%.• Lower rates may apply under law forencouragement of capital investments.• Capital gains: 25%. Assets acquired prior to1.1.2003 - linear allocation - general tax rate/25%.
  17. 17. 17 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Accumulated ProfitsAt the sale of shares (including liquidation of acompany), a tax benefit is granted on gains liable totax on the corporate level.• The part of the gain in the amount of the saidprofits accrued up to 31.12.2002 is liable to tax at10% rate.• Profits accrued after 31.12.2002 is liable to tax at20% or 25% rate for individuals, and 0% forcompanies.
  18. 18. 18 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Losses• Losses arising from a trade or business may be setoff, in the year in which they arise, against incomefrom any source.• the balance of such losses, if any, will be carriedforward, without time limitation, to offset incomefrom a trade or business, as well as businesscapital gains and land appreciation, but notincome from other sources.• Tax losses cannot be carried backwards.
  19. 19. 19 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Setting-off foreign losses• Foreign losses are generally set off against foreignincome.• Passive losses from may set off passive income, andbusiness or vocation losses may set off likewiseincome;• Exception: excess loss from foreign business ofwhich control and management are exercised fromIsrael, may be set off against income accrued orderived in Israel that year.• Capital loss from sale of an asset abroad: shall be setoff first against foreign capital gain.• Precondition for off setting losses - had it beenincome it was subject to tax in Israel.
  20. 20.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Controlled Foreign Corporation (CFC)
  21. 21. 21 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - GeneralThe CFC legislation – Article 75B of ITO - is designedto prevent the deferment or avoidance of taxesthrough the use of foreign corporations, with respectto passive income.According to the legislation, an Israeli resident whohas control over a controlled-foreign-corporation, issubject to tax on his pro-rata portion of thatcorporation’s “undistributed profits” as though theywere actually distributed to him as dividends at theend of tax year - Deemed dividend.
  22. 22. 22 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - A Controlling Member The rules set in article 75b apply to an Israeliresident who is “a controlling member”. A controlling member is a person that holds,directly or indirectly, by himself or jointly, at least10% of any “means of control” of the corporation ateither one of the relevant dates.
  23. 23. 23 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - definitionsA “controlled foreign corporation” is a Foreign residentbody-of-persons that meets the following: Its shares or other interests are not traded on a stockexchange.Most of its income or profits during the tax year are passive.In this regard, a specific rule is set for a corporation held by abusiness company.The tax applied to its passive income overseas does notexceed 20%.More than 50% of any of the corporate’s “means of control”are held, directly or indirectly, by Israeli residents. In thisregard, other alternatives are set by the law.
  24. 24. 24 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - Definitions“Passive Income” - an income being one of thefollowing, except if it is of a business nature: Interest or linkage differences. Dividends. Royalties. Rental income. Consideration for the sale of an asset which wasnot used as part as the corporation’s business.
  25. 25. 25 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - Definitions“Undistributed Profits”: Profits originating in passive income of thecompany, except for profits originating fromdividends received from another foreign corporationwhose income was taxed at a rate that exceeds 20%,that were not paid to shareholders during the tax yearThe profits are calculated according to domestic taxlaws of the foreign company’s state of residence,except if it is not a “treaty country“, in which casethe profits will be calculated according to accountingprinciples accepted in Israel.
  26. 26. 26 Artzi, Hiba& ElmekiesseTax SolutionsLtd.CFC - prevention of double taxationUpon actual distribution of the cfc’s profits to itsshareholders, or upon the sale of its shares, taxpreviously paid by a shareholder for suchundistributed profits will be credited against taxdue in connection with the distribution or sale,as the case may be.
  27. 27.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Foreign Vocation Company (FVC)
  28. 28. 28 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Vocation CompanyA foreign body-of-persons that meets all thefollowing: If it is a company, not more than 5 individualscontrol the company. 75% or more of any “means of control” are held,directly or indirectly, by Israeli resident individuals. Most of the controlling members or theirrelatives, carry on “a special vocation” on behalf ofthe corporation.
  29. 29. 29 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Vocation Company Most of its income or profits derive from “aspecial vocation”. Income generated by FVC from activitiespreformed by a controlling members (through hisrelative or a company under his control) shall betaxed in Israel as income generated in Israel. The FVC is considered an Israeli resident fordomestic tax purposes.
  30. 30. 30 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Rules for Foreign Tax Credit (FTC)• FTC is granted to Israeli residents only withrespect to their income generated outside Israel(according to Israeli source rules).• Foreign taxes may offset Israeli tax levied on thesame income, while separating different types ofincome - the “basket method”. In this regard, allincome of the same type generated in all countriesexcept Israel are grouped into one basket (e.g.dividend basket; business income basket etc.).• Cross-credit within a basket is permitted.
  31. 31. 31 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Rules for Foreign Tax Credit (FTC)• No credit is granted for income exempt from taxin Israel.• excess foreign tax may be carried forward up to 5years (within a basket) and will be index-adjusted.
  32. 32. 32 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exit tax• An Israeli resident that ceases to be an Israeliresident is treated as if he sold all of his assets onthe day before he ceased to be an Israeli resident.• Payment of tax may be postponed until the day onwhich the asset is disposed of.• In case the disposition price is lower than the valueof the asset on the day in which the taxpayer ceasesto be an Israeli resident, the lower value applies.• The exit tax is not imposed in to assets whichremain subject to Israeli tax.
  33. 33.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Real estate taxation
  34. 34. 34 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Land betterment taxThe Land betterment tax is levied on gain derivedfrom:• Sale and any kind of transfer of real estate locatedin Israel;• Disposition of shares or other interests in a “RealEstate Company” (a body-of-persons whose entireassets comprise of interests in real estate located inIsrael, except for accessory assets).• Tax rate for land betterment accrued after 7.11.2001is 20% for individuals and 25% for companies. Forland betterment accrued before that day - marginalrates for individuals and companies rate forcompanies.
  35. 35. 35 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Land betterment tax• The sale of a residential apartment by individualsis exempt from land betterment tax if certainconditions are fulfilled.• Exemption from land betterment tax is granted forcertain types of transactions (e.g. a gift betweenindividual family members).
  36. 36. 36 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Acquisition tax• Real estate purchased in Israel is subject toacquisition tax payable by the buyer. Generally, 5%tax rate is imposed on the value of real estate.• For a residential apartment, the acquisition tax iscalculated based on purchase price as follows (ifcertain conditions have been fulfilled):• Up to 476,215 nis (113,385 $) - 0.5%.• From 476,215 nis (113,385 $) until 739,120 nis(175,980 $) - 3.5%.• Above 739,120 nis (175,980 $) - 5%.
  37. 37.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Value added tax (vat)
  38. 38. 38 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Value added tax• Value added tax (Vat) is levied on the consumptionof goods and services in Israel. Vat is indirect tax,levied goods delivered and services rendered inIsrael.• The current vat rate in Israel is 15.5% for all taxabletransaction.Transactions subject to 0% Vat rate (examples):• Exported goods.• Sale of intangible assets to non residents.• Services rendered outside Israel to non resident.
  39. 39.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Social security
  40. 40. 40 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Social security• Employers, employees and self-employed are liablefor social security payments. The employee’s shareincludes compulsory health insurance.• The social security rates are based on gross monthlyincome, as follows (current to 2007):• Employee’s share: 3.5% for 3,580-4,522 nis(852-1,076 $) gross income, and 12% for 4,522-35,760 nis (1,076-8,514 $) gross income.• Employer’s share: 4.14% for 3,580-4,522 nis(852-1,076 $) gross income, and 5.68% for4,522-35,760 nis (1,076-8,514 $) gross income.
  41. 41.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Tax benefits for foreign residents
  42. 42. 42 Artzi, Hiba& ElmekiesseTax SolutionsLtd.general overview• Israel encourages investments from both Israeliand foreign residents, by offering a wide range ofincentives and benefits through a number of lawsand regulations.• In order to promote weak economic regions withinIsrael, certain benefits are granted in a differentialmanner - greater benefits in “priority regions” (A,B) than in the center of the country. However,enterprises throughout the country may be eligiblefor benefits if they comply with the relevantcriteria.
  43. 43. 43 Artzi, Hiba& ElmekiesseTax SolutionsLtd.general overview• Special emphasis is given to high-tech industriesand R&D activities.• Specific tax benefits are designated for foreignresidents designed mainly to promote investmentin Israeli capital market (including banks).• Increased tax benefits for companies with greater“foreign participation” under the Law forEncouragement of Capital Investment.• special anti abuse section to prevent “Israelis”from abusing such benefits - art. 68A.
  44. 44. 44 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Categories of exemptions & benefits•Exemption from tax on capital gains;•Exemption from tax on investment income;•Law for Encouragement of CapitalInvestment from 1959;•Participation Exemption;•Taxation of Trusts;•Sec 16A of Income Tax Ordinance.
  45. 45. 45 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for capital gains• Gain derived from the sale of securities traded inIsraeli stock exchange, provided the gain was notderived within a permanent establishment of theseller located in Israel.• Gain derived from the sale of Israeli residentcompany’s securities traded in a foreign stockexchange, provided the gain was not derived withina permanent establishment of the seller located inIsrael, the security was purchased after registrationfor trade and other conditions.
  46. 46. 46 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for capital gains• Gain derived from the sale of shares in anIsraeli resident company who - at the timeof issuance of such shares - was approvedas an “R & D Company”.
  47. 47. 47 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Special exemption to boost investments -Art. 97(B3)Special exemption from CG in relation to investmentsin Israeli resident companies (or foreign companieswhose main assets are interests in Israeli assets)between 1.7.05 and 31.12.08.The exemption is excluded for:• Gain derived within a PE of the seller in Israel.• Gain derived from the sale of any security of acompany which - at the acquisition date of thatsecurity and two years preceding its sale - the majorvalue of its assets comprised of interests in real estatelocated in Israel or in an Israeli real estate company.
  48. 48. 48 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Special exemption to boost investmentsConditions at the acquisition date:• Acquisition between 1.7.05 - 31.12.08.• Acquisition for “Fair Value” consideration.• The purchaser was a resident of a country withwhich Israel had a convention for the avoidance ofdouble taxation (treaty country), as follows:• An individual purchaser - was a resident of a treatycountry for at least 10 years prior to acquisition;• A foreign entity purchaser - at least 75% of“controlling interests” over such entity were held,directly or indirectly, by individuals who wereresidents of a treaty country for at least 10 yearsprior to acquisition.
  49. 49. 49 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Special exemption to boost investments• An acquisition statement was filed with Israeli taxauthority within 30 days of acquisition.Conditions at the selling date:• The seller is a resident of a treaty country;• The seller reported the sale to the tax authorities ofcountry of which he is a resident.• The seller filed a request to be exempt from tax toIsraeli tax authorities.The exemption is not conditioned upon the date ofselling.
  50. 50. 50 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for interest on a “Foreign-Currency-Deposit”• Interest paid to a foreign resident for a non-NISdeposit in an Israeli bank is exempt, provided allthe following conditions are met:• The deposit is not within a PE located in Israel andthe income does not derive from business activity.• No Israeli residents share interests in the deposit.• “a foreign resident statement” was filed.• The deposit has not secured a loan granted by thebank to an Israeli resident, who is a relative of theowner (a family member or controlled corporate).
  51. 51. 51 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for income / gain fromgovernment bonds or loans• Interest (including discount) or index-linkagedifferentials paid on a government bond or loantraded in Israeli stock exchange;• Capital gain derived from the sale of suchgovernment bond or loan not traded on stockexchange (in Israel or overseas);Exempted provided that:• The tax payer was a foreign resident at the date ofthe bond/loan’s acquisition and/or at the date of itssale.• The income/gain from the bond/loan are not withinhis PE located in Israel.
  52. 52. 52 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Investment income in Israeli capitalmarket - foreign residents mutual fundExemption from tax for a foreign resident mutualfund:• CG from sale of securities listed for trade in Israelistock exchange, if acquired following listing or fromthe sale of foreign securities.• Interest & currency differentials for foreign-currency deposit in Israel.• Dividend, interest & currency differentials derivedfrom foreign securities.
  53. 53. 53 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for investment income• Currency differentials on a loan granted by aforeign resident, provided that it was not grantedthrough his PE in Israel.• currency differentials on a company’s foreigncurrency bank deposit originating from a foreignresidents payment for such company’s shares,provided the company is mainly controlled byforeign residents.
  54. 54. 54 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Exemption for interest income• Interest paid by an Israeli body-of-persons to aforeign resident in relation to a foreign currencyloan granted by him provided it is used for apurpose included in the Law for Encouragementof Capital Investment.• The exemption from tax (wholly or partly)requires the approval of the Minister ofFinance.
  55. 55. 55 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Article 16A of ITOThe Minister of Finance is authorized to returnincome tax, fully or partly, to a foreign resident if thetax payable in Israel is not granted to his as a creditagainst the tax due in his state of residence.
  56. 56.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Investment incentives and trade advantages
  57. 57. 57 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Law for Encouragement of capitalinvestments, 1959 (“the law”)• A special status of an “approved enterprise” or“program” may be awarded to investments(domestic and foreign) and activities (mainlyindustrial) in Israel.• This status awards income tax benefits (currentbusiness income & dividend distributed) and/orgovernment grants.• The law applies to industrial enterprises (includinghigh-tech and bio-tech), hotels and other touristventures, industrial and residential buildings. It mayalso apply to industrial development centers locatedin Israel.
  58. 58. 58 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Encouragement of capital investmentsIn recent years, the law has undergone comprehensiveamendments. Presently, 3 “routes” of tax benefits areavailable to enterprises located in preferred region A:• A scheme allowing tax exemptions during theconcession period.• The company tax is, wholly or partially, deferreduntil distribution of untaxed profits, at which time itwill be paid by the company.• Lower withholding tax rate in respect of dividendsdistributed - 15%, or lower according to a tax treaty.
  59. 59. 59 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Encouragement of capital investmentsThe scheme known as the “Ireland Scheme” -• The profits are taxed at the rate of 11.5%.• No additional company tax is required when profitsare distributed.• Withholding tax rate in respect of the dividendsdistributed from such profits - 15% for Israeliresidents shareholders and 4% for foreign residents.
  60. 60. 60 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Encouragement of capital investmentsA strategic investments scheme -• The enterprise is granted a full tax exemptionduring the concession period and is not required topay additional tax upon distribution of profits asdividends.• No tax withholding from dividends.• A minimum threshold of investment amount -between 147$ - 220$US million (depending onlocation).
  61. 61. 61 Artzi, Hiba& ElmekiesseTax SolutionsLtd.The approval requirement• An enterprise seeking grants is required to submit aplan to the Investments Center.• An enterprise wishing to benefit from taxconcessions is no longer required to file a formalrequest. Provided it complies with the conditionsstipulated by the law, it is eligible for such taxbenefits and may claim them under the income taxreturns it files.
  62. 62. 62 Artzi, Hiba& ElmekiesseTax SolutionsLtd.General requirements• Under the grants scheme, the enterprise isrequired to fund 30% of the scope of approvedinvestments in equity.• No such requirement exists for the tax benefitsschemes.• For investors defined as “foreign residents”, thestate provides increased tax benefits which theyare able to enjoy for longer periods.
  63. 63. 63 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax benefits period for grants schemeTax benefits for an approved enterprise are grantedfor a period of 7 consecutive years and may beextended, under certain conditions, up to 10 years forforeign invested companies.
  64. 64. 64 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Approved enterprise controlled by foreign residentsThe reduced tax rates are in accordance with thepercentage of foreign participation, as follows:(1) 15% of the balance for approved enterprise, 25% otherwise.Taxes may differ for residents of countries that have tax treaties withIsrael.An approved enterprise - % offoreign participationNot anapprovedenterprise 90-10074-8949-740-49100100100100100Taxable income1015202529Corporate tax9085807571Balance13.512.751211.2517.75Tax on distributeddividends23.527.753236.2546.75Total tax burden
  65. 65. 65 Artzi, Hiba& ElmekiesseTax SolutionsLtd.“A foreign-invested company”In order to be consider as an “approved enterprisecontrolled by foreign residents”, certain conditionshave to be fulfilled:• the foreign residents must invest at least 5 millionNIS (1.2 million $) in the company’s capital stock,including shareholder loans, such investmentproviding a right to its capital stock, profits, votingpower and managers nomination.• Foreign resident who purchased a company whosepaid-up capital stock exceeds 5 million NIS.
  66. 66. 66 Artzi, Hiba& ElmekiesseTax SolutionsLtd.“A foreign-invested company”A company controlled by an Israeli resident,directly or indirectly, or a company that Israeliresidents are eligible to 25% of its profits, will notbe considered as an enterprise controlled byforeign residents.
  67. 67. 67 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax benefits for “exempt enterprise”(non-grants scheme)• The enterprise must be an industrial plant or hotel.• The Enterprise is competitive and contributes to thegross domestic product. (An enterprise will beconsidered to have fulfilled this condition, forexample, if it is engaged in bio technology ornanotechnology and has obtained the approval of thehead of industrial R&D administration, or if it exportsat least 25% of his yearly income).• Minimum investment in capital assets/equipment,as described below.
  68. 68. 68 Artzi, Hiba& ElmekiesseTax SolutionsLtd.The minimal amount of investment• New investment - at least 300,000 nis (71,430 $).• Expansion of an existing enterprise - a percentage ofthe value of productive assets, as follows: Up to 140 million nis (3.33 million $) - 12%. Above 140 million nis (3.33 million $) and up to500 million nis (119 million $) - 7%. Above 500 million nis (119 million $) - 5%.Provided that the total amount of investment will notbe less than 300,000 nis.
  69. 69. 69 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax exemption (deferral) until profitdistributionA company may choose an alternative benefit schemeallowing it tax exemptions instead of grants. Only limitedliability companies are entitled to choose this scheme.This periods for tax benefits are as follows (years):(1) On the undistributed portion only.(2) The reduced tax rates are identical to the rates details above.National priority regionCBAReducedtaxes(2)Taxexemption(1)Reducedtaxes(2)Taxexemption(1)Reducedtaxes(2)Taxexemption(1)5216-10Domesticcompany8246-10Over 25% foreigncontrol
  70. 70. 70 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Tax exemptions until profit distribution• Companies in which foreign participation exceeds74%,(and with approved program not less 20 million$) are entitled to a longer benefit period (15 years),subject to the approval of the investment centerboard.•The tax exemption is actually a tax deferment. Theexempted tax becomes due when the enterprisedistributes tax exempted profits.
  71. 71. 71 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Accelerated depreciationApproved enterprises are eligible for accelerateddepreciation on the tangible assets, reaching 400%of standard depreciation rates on buildings (notexceeding 20% per annum and exclusive of land),and 200% on equipment. The tax authorities mayallow increased rates of up to 250%, if there isevidence of a high depreciation rate of equipment.This benefit is available for a 5 tears period fromdate of operation rather than from purchase date ofasset.
  72. 72.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Participation exemption
  73. 73. 73 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation Exemption• A recent legislation (in force as of 1.1.2006)provides for a participation exemption regime forIsraeli holding companies, under specific conditions.• An Israeli holding company is exempted from taxon the following:(1) dividends received from foreign subsidiaries;(2) capital gains tax upon sale of such subsidiaries;(3) interest on bank deposits in Israel and on income(interest, dividends, and capital gains) fromsecurities traded in Israeli stock exchange.
  74. 74. 74 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation Exemption - benefits forforeign investors• Foreign shareholders benefit from a reducedwithholding rate on dividends distributed by theIsraeli holding company - 5%.• Foreign shareholders may apply for taxexemption on capital gain upon the sale of theIsraeli holding company’s share under Art. 97(B3)- special exemption.
  75. 75. 75 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation ExemptionIsraeliresidentForeignresidentIsraeli holding company
  76. 76. 76 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation exemptionDefinitions: “Israeli holding company”• Registers in Israel, Managed and control fromIsrael.• The company is privately owned and not taxtransparent.• The company is not a financial institution.• Its total investment in foreign subsidiaries,throughout at least 300 days of the tax year,amounts to at least 50 million NIS(11.9 million $).• 75% or more of its assets constitute the subsidiaries.• The company formally requests to be recognized asa holding company.
  77. 77. 77 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Participation exemption“Subsidiary” for participation exemption:• Resident of a treaty country.• Resident in non treaty country - provided that thecorporate tax rate on business income in that countryis 15% or more (at time the shares are purchased).• The Israeli holding company holds at least 10% ofprofit rights in the subsidiary for 12 consecutivemonths.• At least 75% of the subsidiary’s income fromsources outside Israel business income.• Israeli assets or Israeli income of the subsidiary maynot comprise more than 20% of the subsidiary’s totalassets/income, respectively.
  78. 78.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Taxation of Trusts
  79. 79. 79 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Resident - Settlor trustThe “Foreign Resident Settlor Trust” classified assuch under recent legislation (in force as of 1.1.2006),may be used as an instrument for international taxplanning.A trust is considered a “Foreign resident settlor trust”if -• at the time of its establishment, and during therelevant tax year, all its settlors are foreign residents(irrespective of the beneficiaries’ tax residency); Or-• during the relevant tax year, all its settlors andbeneficiaries are foreign residents.• irrevocable or not.
  80. 80. 80 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Resident Settlor trust• The transfer of assets by the settlor to the trustee isnot taxable;• The trustee’s income is taxable as if it were theforeign residents income.• Income generated outside Israel is not taxable nordoes it need to be reported in Israel.• Transfer of assets from the trustee to thebeneficiaries is regarded as being transferred tothem by the settlor directly.
  81. 81. 81 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Foreign Resident Beneficiary Trust“Foreign resident Beneficiary trust” -• At least one of its settlors, at the time it wasestablished, was an Israeli residents;• The trust is irrevocable;• All the beneficiary during the relevant tax year areidentified foreign residents.
  82. 82.  Artzi, Hiba & Elmekiesse - Tax Solutions Ltd.Tax treaties
  83. 83. 83 Artzi, Hiba& ElmekiesseTax SolutionsLtd.Treaties for prevention of double taxation• Israel has entered into tax treaties with 42countries, most of them are based on the OECDmodel convention.• In addition, two treaties have been ratified andwill enter into force as of January 1, 2008.
  84. 84. 84 Artzi, Hiba& ElmekiesseTax SolutionsLtd.
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×