Israeli tax incentives to angel investors
 

Deduction|Research and development 

Dr. Avi Nov, Adv.

May 2012 

Israel tax law offers significant tax incentives to angel investors in Israeli start-up companies. Israeli tax law provides that foreign or Israeli resident individuals may deduct from their total taxable income, a qualifying investment of up to NIS 5 million in shares of target companies.
 
The Conditions
In order to receive the tax incentives, the following conditions must be met:
  • The investment must be made in the tax years 2011-2015.
  • The deduction must be over a benefit period of three tax years commencing with the tax year in which the investment is made.
  • Tax avoidance or improper tax reduction must not be one of the main aims for the investment.
Israeli tax law provides that a qualifying investment is an investment by an individual (foreign or Israeli) in a tax year in consideration for shares allocated to him in that year.
 
A target company is defined as a company incorporated in Israel whose business is controlled and managed in Israel, which meets a number of conditions with regard to the qualifying investment: 
  • No securities may be listed on any stock exchange in the benefit period.
  • At least 75 percent of the amount invested by the individual, in consideration for the shares allocated, is used for research and development ependiture approved by the Chief Scientist’s Office by the end of the benefit period.
  • Until the preceding condition is met, in each year of the benefit period and in the tax year that condition is met, such research and development must represent at least 70% of the expenses of the company.
  • At least 75% of the research and development expenditure of the company in the benefit period is incurred in Israel.
  • In the year in which the qualifying investment is paid and the following year, revenues of the company should not exceed 50% of research and development expenditure.
  • Throughout the benefit period, research and development expenditure is spent on promoting or development of an enterprise owned by the company.
 

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