Your Taxes: Privileged-enterprise tax breaks for renewable-energy projects

Here is a quick recap of the Privileged Enterprise tax regime.

By LEON HARRIS
August 12, 2009 09:52
2 minute read.
taxes 1 88

taxes good 88. (photo credit: )

 
X

Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analyses from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief

UPGRADE YOUR JPOST EXPERIENCE FOR 5$ PER MONTH Show me later Don't show it again

Israel has always had a penchant for renewable energy. For example, building regulations require solar water heaters to be installed in new projects. The Economic Efficiency Law enacted on July 14 extends tax breaks for "privileged enterprises" to renewable-energy businesses. Privileged Enterprise tax breaks Here is a quick recap of the Privileged Enterprise tax regime. • They are in the industrial, technology or tourism sectors. • Undistributed profits are exempt for two to 15 years, depending on the location and foreign ownership. This suits investors hoping to enjoy capital gains from an exit rather than dividends. • Low company tax rates of 10 percent to 25% apply to distributed and subsequent profits. • Dividends are taxed at a rate of 4% or 15%, depending on the package selected. • Consequently, combined Israeli taxes on distributed profits of a Privileged Enterprise may range from 0% to 36.25%. • An Approved Enterprise in a development area will enjoy the same low taxes but no exemption. Instead it may receive fixed-asset grants of 20%-32%. How does a company qualify for the preferential tax regime? This is possible if certain conditions are met, without needing to obtain approval. The main conditions include: • The company has an "industrial enterprise" or a tourism enterprise. If industrial, the main activity in the tax year is productive; this may include software products and industrial research and development for a foreign resident approved by the Chief Scientist's Office. • A "minimum qualifying investment" must be made in fixed assets in industry (or a tourism enterprise) in Israel (only NIS 300,000 over three years for new startups). For existing companies, the new investment must also exceed 5%-12% of the tax-depreciated value of fixed assets other than buildings at the end of the preceding tax year. • Privileged Enterprises and Approved Enterprises must be competitive and contribute to gross domestic product (GDP). In practice, this translates into a 25% export requirement in all industries except biotechnology and nanotechnology. Renewable-energy projects This amendment refers to an enterprise that is primarily active in research and development in renewable energy (derived from solar radiation, wind, biomass or other sources but not fossil fuel) or the production of plants in this field. This does not include the sale of electricity based on renewable energy. The activity must be based on new knowhow that the Industry, Trade and Labor Ministry's chief scientist has confirmed as being suitable for research and development. This can be done not only at the R&D stage but also at the productive stage. Such a renewable-energy enterprise is considered to be a competitive enterprise that contributes to GDP without regard to exports (such as biotech and nano-tech enterprises), making it eligible for privileged-enterprise tax breaks. In addition, a subcontractor that sells components used in a renewable-energy enterprise will be considered a privileged enterprise if • 25% or more of overall revenues in the tax year are from sales to an enterprise primarily active in renewable energy or sales relating to the construction of a plant based on renewable energy; • 15% or more of overall revenues in the tax year are to a renewable-energy enterprise in Israel, plus 10% of overall revenues are direct exports to customers in a market with a population of at least 12 million. These new provisions will add fiscal motivation to ecological necessity. As always, consult experienced tax advisers in each country at an early stage in specific cases. leonharr@gmail.com Leon Harris is an international tax specialist.

Related Content

The Teva Pharmaceutical Industries
April 30, 2015
Teva doubles down on Mylan, despite rejection

By GLOBES, NIV ELIS