(photo credit: courtesy)
Proposed Israeli tax changes
have recently been formulated which may perhaps be legislated as part of this
year’s budget bill in the so-called Economic Arrangements Bill. Here’s a brief
glimpse of a few points the Knesset may accept, reject, or modify.
as recently discussed in this column, there is a proposal to upgrade Israeli tax
incentives. In particular, it is proposed that a low rate of company tax would
apply to the income of industrial export companies (over 25 percent of revenues
from exports). In 2011-2012, the rate would come down to be 10% in Development
Area A and to 15% elsewhere in Israel on revenues from business activity in
Israel. Starting in 2013, the proposed rates of company tax would decrease to 8%
in Development Area A and 12% elsewhere in Israel. Certain “special industrial
enterprises” may be granted a further reduced company tax rate of 5% in
Development Area A and 8% elsewhere in Israel.
Second, it is proposed to
let individual investors, who have allotted shares of Israeli R&D intensive
companies, deduct their investment from taxable income. This would apply to
investments made in the years 2011-2015 totaling no more than NIS 5 million,
provided improper tax avoidance is not the main motive. The target company must
not be publicly traded, must apply most of the money to R&D in Israel on its
own intellectual property, and must not have substantial income relative to
expenses (a start up). The amount deducted would reduce the future cost for
capital gains tax purposes.
Third, a different proposal may enable
certain qualifying companies that acquire at least 80% of an unrelated
qualifying hi-tech company in the years 2011-2015 to deduct the amount invested
over the following five tax years, but not the amount of the target company’s
shareholders’ capital. In this way, only the value of knowhow and goodwill would
effectively be deductible. Various detailed conditions are also proposed. The
amount deducted would reduce the future cost for capital gains tax
Fourth, a proposal for Olim. It is proposed that people invited
by an academic institution or a hospital and who become new Israeli residents by
the end of 2015 would be exempt from Israeli tax on royalty income from
technology supply transactions for five years, subject to a number of
The proposed exemption would also be available to returning
Israeli residents who resume residence in Israel in the years 2011-2015 after
residing abroad at least six consecutive years.
Fifth, it is proposed
that the national insurance (social security) income limit of, currently NIS
79,750, would be slightly reduced to NIS 63,800 approximately in 2011 and NIS
55,825 approximately in 2012. It is also proposed that the upper rate of
employers’ national insurance would rise from 5.43% to 5.9% commencing April
Sixth, bad news for foreign journalists and foreign sportspersons –
it is proposed to repeal the 25% tax rate they currently enjoy. But they will
still get to enjoy certain expense and living deductions.
series of measures are proposed to stop real estate purchasing groups (“Kvutsot
Rehisha”) exploiting certain loopholes, commencing January 1, 2011. It is
proposed that one-time sales by private real estate owners to purchasing groups
with a paid organizer will become liable to value-added-tax, currently 16%. In
addition it is proposed that purchasing groups which organize themselves to
purchase residential homes will become liable to 5% acquisition tax on the
entire price they pay, including construction services.
real estate tax measures are proposed. In particular, it is proposed that
purchasers will have to withhold 15% tax of cash consideration.
will no longer be possible in land deals to postpone the 5% acquisition tax so
long as the purchaser pays less than 50% of the consideration and doesn’t obtain
possession or receive an irrevocable power of attorney.
It is proposed to
impose acquisition tax once 30% of the consideration is paid instead of
All the measures mentioned above are proposals. It remains to be
seen what will be legislated. As always, consult experienced tax advisors
in each country at an early stage in specific cases.
Harris is an international tax specialist at Harris Consulting & Tax Ltd.