Dr. Avi Nov, Adv.
A Foreign Professional Company must fulfill all of the following conditions:
· The company has 5 or less shareholders
· 75% of the controlling interest of the company must be held directly or indirectly by Israeli individuals whose occupation is a “special profession”, such as an architect, practical engineer, technician, tax consultant, economist, engineer, bookkeeper, translator, lawyer, patent attorney, public accountant, evaluator, doctor, agent, lecturer, teacher, journalist, photographer etc (the list has been published in a special order).
· Most of the shareholders or their relatives work for the company directly or through a company, in an occupation listed in the “special profession” regulation, and hold directly or indirectly controlling interest of at least 50%.
· Most of the company’s profits arise from services provided by occupation listed in the “special profession” order.
(b) Right to appoint a director;
(c) Voting right;
(d) Right to a portion of the assets of the body of persons after the repayment of all its debt upon liquidation;
(e) Right to instruct the holder of any of the rights in subsections (a) through (d) as to how to exercise that right;
Consequently, a Foreign Professional Company will pay Israeli corporate tax of 25% (in 2010) and withhold tax at a rate of 25% from dividends, subject to any tax treaty. The combined resulting Israeli tax burden may therefore be about 44% (plus national insurance on the dividend where applicable).
In order to avoid being deemed a Foreign Professional Company, the company should avoid conducting a listed “special profession”. Alternatively, the company may be held by at least 6 shareholders. Another way to avoid being deemed a Foreign Professional Company, the company may be held by at least 26% non-Israeli residents, or new immigrants and senior returning residents.
Caveats and Limitations
This article is not a tax opinion and may not be relied upon by any person as such. Please note also that there is no certainty that the view raised above will be accepted by the Israeli tax authorities, and that if challenged by the the Israeli tax authorities it would not be sustained by the Israeli courts.
Dr. Avi Nov, Adv., is an expert in Israeli & international tax law.