With hostile action continuing, nothing can compensate for loss of life. The population and business community are, nevertheless, showing a high level of steadfastness. This article briefly reviews the official arrangements now in place for compensating families and businesses for financial losses and other assistance available. On the business side, the Minister of Finance, with the approval of the Knesset Finance Committee, issued on July 31, regulations known formally as Property Tax and Compensation Fund (Payment of Compensation) (War and Collateral Damage) (Ad Hoc Instructions), 2006 - hereafter: "the Regulations." The regulations aim to fix the amount and method of compensating the loss of labor and profits caused by the special situation declared in northern Israel. The Regulations apply to businesses (individuals and companies) in industry, trade and services. The compensation is available for such losses incurred in a long prescribed list of places in the "Area of Restriction" (azor hagbalah) from July 12 to July 31. This applies to both employers with operations in the Area of Restriction and employers based elsewhere who have employees who reside there. As an exception, damage caused in the "Bible settlements" (yishuvei hasafer) will continue to be covered by earlier regulations unless affected persons instead claim compensation under these newer Regulations. In general, employers must pay employees their full salary, including social benefits, for days they did not work due to the security situation prevailing in their place of work or their place of residence. This applies to all components of the employees' full gross salary, except the following: one-time payments, annual payments, reported over-time hours, standby, expense reimbursements and tax gross-up for these items. How does a business calculate its claim for compensation for loss of labor and profits? The compensation is based on the assumption that lost business output is worth 180% of the salary costs. This is an arbitrary assumption agreed in the interests of expediency by representatives of the Israeli government, the industrialists and the labor federation (New Histadrut). This loss of output is to be shared out as follows: 27.5% of labor costs will be born by the employer firm; 20% by employees out of their vacation allowance; and 132.5% of labor costs will be reimbursed by the government. This is to help cover lost labor time, overhead costs and profits. So a key question is how are labor costs calculated? First, it is necessary to calculate the "Daily Average Employee Salary" (DAES). DAES is defined as total salary payments to employees of the affected party in the quarter April-June 2006, divided by the number of work days in that quarter. For this purpose, the maximum salary taken into account for each person is 2.5 times the national average salary in June 2006, namely NIS 18,850 and the minimum taken into account is the minimum national salary, currently NIS 3,585 per month. The compensation claimable by a business for loss of labor and profits is the DAES multiplied by the number of days of employee absence due to the security situation multiplied by 132.5%. Days of employee absence for these purposes are days in which an employee is absent from his work due to the security situation, but not days due to sickness, accident, vacation, reserve duty, Sabbath, festivals and Fridays unless the employee normally works on those days. If employees are employed on a monthly basis, they are assumed to work 22 days per month; if they also work weekends and festivals, those days may be also be taken into account, but no more than 30 days per month. Loss of business compensation should be claimed on Form 7113/Aleph and its annexes and submitted to Income & Property Tax offices (see contact details below). Claims submitted by August 6 are scheduled to be paid by August 25. Claims submitted after August 6 apparently will be dealt with within approximately 20 days. The compensation payments will be taxable and tax will be withheld on account at a rate of 20% unless the recipient holds confirmation from his tax office allowing a reduced rate or exemption from withholding tax. If you think the situation will reduce your expected income this year, consider requesting a reduction in your monthly tax installments (mikdamot) from your tax office. In the case of employees hired from a labor contractor firm, the above compensation will be split between the business where they work in practice (32.5%) and the labor contractor firm (100%). The DAES will be calculated by reference to the labor contractor's billings, before VAT, for the months of April-June. In the case of kibbutzim, the DAES of the kibbutz members will be assumed to be NIS 340 per day. Numerous additional rules apply to the self employed, including the following: If a self employed person has employees, the compensation will be calculated as above plus an amount for the proprietor himself - double the DAES multiplied by the number of days of absence of the employee who was absent the most days multiplied by 132.5%. If a self employed person has no employees (spouses are not regarded as employees) in June 2006, the compensation will be up to 132.5% of "daily taxable income" (based on 2005) multiplied by the number of days' stoppage applicable to their area per Annex 5 to Form 7113/aleph.; but not more than NIS 860 per day and not less than NIS 143 per day. In the case of hotels, a large part of their annual revenues may be affected. Therefore, they may claim higher compensation of 68% of the decrease in their revenues in July compared with the same period in 2005. In addition, to allow time for tourism to recover, further compensation will be available for hotels (two more months) and inns (three weeks). Special rules are also prescribed in the case of agriculture (based on lost harvest days) and for not-for-profit institutions. In addition to loss of labor and profits, compensation is available under existing legislation for property damage and personal injury caused by hostile action. Government compensation is available for the value of affected business equipment and the cost of affected inventory if appropriate evidence of ownership (invoices, financial statements, etc.) is attached to the claim form and presented to the government assessor. Lost cash is not reimbursed. The application form is submitted to the Tax Authority. The business's withholding tax confirmation must be attached. No item may be moved from the business until this is cleared with the assessor. Compensation is also available for hostile damage to household contents (other than cash and checks) of every Israeli resident. The value covered will be the value of repair or like kind replacement - if there is none, then replacement with a new item. The arrangement takes the form of government insurance but no premium is needed for coverage up to certain limits. In the case of a married couple, the insured values are currently as follows: furniture: NIS 29,046 plus NIS 5,872 per child (up to 18); clothing: NIS 8,249 plus NIS 1,237 per child; electrical and electronic items: NIS 39,957 plus NIS 670 per child; other household items: NIS 17,468 plus NIS 1,601 per child. Israeli residents may apply to their local Property Tax Office and insure an additional amount up to NIS 727,854 for a premium of 0.3%. Owners of automobiles affected by hostile action should apply to the Property Tax officials in the area for an estimate of the cost of repair at a garage of the affected person's choosing. The estimate must be confirmed in advance by an assessor. With regard to personal injury caused by hostile action, affected persons may claim from the National Insurance Institute medical recovery treatment, convalescence and financial assistance. In the event of death, the National Insurance Institute will pay amounts similar to those paid to families of fallen soldiers. In general, Israeli life insurance policies cover death due to hostile action but the older pension funds will not pay pensions in such cases if National Insurance assistance is payable. In the event of disability due to hostile action, insurance policies and older pension funds will generally not make a payout. Newer pension policies may make disability payments, but these will reduce future pension payments. Nevertheless, you should check all the above aspects with your insurance agent, pension fund or qualified financial advisor. For details of property compensation, you can phone the Property Tax and Compensation Fund at the following numbers: Haifa (04) 863-0402 or (04) 863-0403 or (04) 863-0366; Tiberias: (04) 671-4023 or (04) 671-4024; Nahariya: (04) 900-1823; Safed: (04) 692-9790. The property compensation Form 7113 and its annexes may be downloaded from the first items presently listed at: http://www.mof.gov.il/taxes/, For social security assistance from the National Insurance Institute, you can phone: 1-800-252-588, or (08) 936-9696 or (08) 650-9999, or visit the Web site at: http://www.btl.gov.il/NR/EXERES/59828DD7-3C72-4C8E-BFDE-2A4330AC995E.HTM. Leon.email@example.com The writer is an International Tax Partner at Ernst & Young Israel.