Israel's 2011 Investment Incentives
industrial companies|Encouragement of Capital Investments
Dr. Avi Nov, Adv.
Israel's Law for the Encouragement of Capital Investments Law was amended on 1 January 2011 (Amendment 68). The purposes of the Law for the Encouragement of Capital Investments were updated to focus on achieving growth in the business sector, improving the Israeli industry’s competitiveness in international markets and creating employment and development.
Tax incentives for industrial companies
The new Encouragement of Capital Investments Law provides reduced company tax rates for “preferred income” derived by a “preferred enterprise” of a “preferred company” as follows:
Development Area A: 10 percent tax in 2011-2012; 7% tax in 2013-2014; 6% tax in 2015 onward. In other parts of Israel: 15% tax in 2011-2012; 12.5% tax in 2013-2014; 12% tax in 2015 onward.
In the case of a “Special Preferred Enterprise,” (see below) the company tax rates from 2011 are as follows: Development Area A, 5%; elsewhere in Israel, 8%.
The above rates are significantly lower than the regular rate of Israeli company tax (24% in 2011).
1. It is possible to benefit from both - grants and tax incentives, simultaneously.
2. There is no requirement to make a minimum investment in fixed assets.
3. No approval from the authorities is required, except for a grant package or “special preferred enterprise” status.
4. Dividends will be taxed at 15%, subject to the provisions of any applicable tax treaty.
5. There is no termination period for receiving the new tax incentives.
Main conditions for Israel's new tax incentives
Tax incentives will apply to income from a "Preferred Enterprise", as defined below, that is accrued or derived in Israel ("Preferred
Income") such as from the sale of products produced in the enterprise, or from a grant of a right to use know-how or software developed in the enterprise.
A "Preferred enterprise" is an industrial enterprise whose main activity in the tax year is industrial activity hat is competitive and contributes to Israel’s GDP.
This requirement means that no more than 75% of total income is from sales on any one market in the year concerned, and at least 25% of total income is from sales to a market with at least 12 million residents.
A "Preferred company" means a company incorporated in Israel, or a partnership registered under the Partnerships Ordinance, whose partners are all companies incorporated in Israel, which meet various conditions, such as: it owns a “Preferred Enterprise”; its business is controlled and managed in Israel; it is not fiscally transparent; it keeps proper accounting records as prescribed in the Israeli tax law; it and its office holders were not convicted of a tax offense in the preceding 10 tax years.
A "Special preferred enterprise" will receive favorite tax rates (as stated above) for a limited period of 10 tax years commencing in the year chosen by the taxpayer, if it meets various conditions:
1) Total annual income in Israel of at least 1.5 billion NIS
2) The combined balance sheet of the company is at least 20 billion NIS.
3) The business plan of the company will include one of the following:
a) Investment in productive equipment of at least 800 million NIS in the center of thecountry or 400 million NIS in the Priority Area over a 3 year period.
b) Investment in R&D of at least 150 million NIS in the center of the country or100 million NIS in the Priority Area
c) Employing at least 500 employees in the center of the country or 250 employees in the Priority Area
Dr. Avi Nov, Adv., is an expert in Israeli & international tax law