Israeli Taxation of Computer Software

The Tax Authority Position

Dr. Avi Nov, Adv.

April 2008

The Israeli Tax Authority published its position regarding the classification of transactions involving computer programs in a special Circular (hereinafter: the Circular). In general, the Circular differentiates between:

· income from a transaction that is classified as a transfer of a copyright right in the computer program, in which some or all of the copyright rights were transferred, or

· a transfer of a copy of the computer program (a “copyrighted article”), which is defined as any transaction in a computer program whose contents are copyrighted .

According to the Circular, a transaction in a computer program that is classified as a transfer of a copyright right that satisfies the conditions set forth in of the Circular will be classified as a sale of the copyright right.

In the case of transactions in copyrighted articles, a transaction in a computer program that is classified as a transfer of a copyrighted article that satisfies the conditions set forth in the Circular will be classified as a sale of the copyrighted article.

The Circular lists indicators for determining whether the transaction should be classified as a sale:

· The purchaser purchases the computer program for personal use or marketing of the product;

· Use of the computer program is for an unlimited period or is limited to the life of the product;

· Payment is not influenced by the length of the usage period of the computer program, or by the amount of its use;

· The purchaser does not commit to returning or destroying the computer program and the computer program does not become unusable at the end of a certain period;

· The computer program can be utilized by the client without being customized; and

The Circular provides that all other proceeds from transactions that involve the transfer of rights in a copyrighted article are classified by the Circular as royalties. It should be noted that the Israeli Tax Authority does not state its position in the Circular on the status of a computer program – whether it should be classified as tangible or intangible property.


Dr. Avi Nov Law Offices, Israeli & international tax law 

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*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion  

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