What are Israel's new COVID-19 accelerated depreciation rules? - opinion

The aim of the accelerated depreciation regulations is to encourage investment in the Israeli economy.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)

The Israel Tax Authority published guidance on September 9 regarding the accelerated depreciation.

Israeli tax regulations allow accelerated depreciation on new equipment, to help address the economic consequences of the coronavirus crisis [“Income Tax Regulations (Accelerated Depreciation in the Period of Dealing With Coronavirus)(Ad Hoc), 2020”]

Accelerated depreciation supplements: (a) coronavirus grants paid to businesses and major shareholders and (b) isolation pay reimbursed to employers who kept paying salaries to employees quarantined because of coronavirus.

Following are highlights.

Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)

According to the ITA Circular, the aim of the accelerated depreciation regulations is to encourage investment in the Israeli economy. The regulations double the depreciation rate otherwise allowed on equipment under any law, but not beyond the original price of the equipment.

The regular depreciation rates appear on lengthy lists in the tax regulations. The accelerated depreciation regulations apply to equipment purchased in the period from September 1, 2020, to June 30, 2021, and used in Israel.

Typically the annual depreciation rates before doubling up are:

6% for furniture;

10% for mechanical equipment

15% for electronic equipment

33% for a personal computer

25% for other computers

Many exceptions are prescribed.

For example, it seems that after doubling up under the above regulations, a new laptop purchased and put into service on January 1, 2021, may be written off at the rate of 66% in 2021 and 34% in 2022. In the case of other computers, such as a new server, the double depreciation would amount to 50% in the first year, and 50% in the second year, where the applicable conditions are met.

Depreciation begins on the date the equipment is first put into service, but the commencement of the accelerated depreciation regulations are subject to deadlines:

Put into service within three months after purchase or June 30, 2021 – whichever is later;

For equipment that cannot be put into service within three months after purchase, or equipment in an industrial plant – within nine months after purchase or June 30, 2021, whichever is later.

The regulations do not apply to purchases from a related party, purchases without consideration, inventory purchased for resale (ITO Sec. 85), acquisitions within a tax deferred reorganization (ITO Secs 103-105), nor to certain gas field operators.

If equipment is used outside Israel, double depreciation may not be claimed for the time abroad.

Equipment does not include motor vehicles as defined in the traffic laws, except for a “work vehicle” which is not a truck. A work vehicle is defined in the Traffic Ordinance (New Version) 1961 as “a vehicle on which equipment is permanently installed, or the structure of which is made to carry out work and isn’t intended for transporting a load or passengers” – for example a vehicle with a crane on it.

In view of the above, the ITA Circular says that the double depreciation will not apply to vehicles that are not work vehicles: private cars, load moving vehicles such as trucks, passenger transport vehicles such as buses, taxis, driving instruction vehicles etc.

Leasehold improvements

Equipment for the purposes of the accelerated depreciation regulations generally does not cover improvements to leasehold property by the landlord or the tenant. 

Nevertheless, a taxpayer is entitled to claim double depreciation for equipment installed in the property, such as an air conditioner, provided the equipment can be separated out and the rest of the conditions are met.


In countries such as the US and UK, accelerated depreciation regulations apparently helped kick start investment, so let’s hope the same happens in Israel. It should be noted that depreciation doesn’t mean that more than 100% of the cost of equipment can be written off, it means the cost can be written off as an expense quicker, over less years. This is a timing difference, not an overall difference in the amount of depreciation.

One grey area relates to intangible assets i.e. intellectual property. The regulations expressly exclude intangible assets from the definition of “equipment” qualifying for accelerated depreciation.

This presumably means that computer hardware qualifies for accelerated depreciation, but not software. It is unclear what will happen regarding computers that have software hardwired into the hardware memory – will the cost of the computer still qualify for double depreciation?

It may be assumed that purchase invoices might spell out the hardware more clearly than the software component

As always, consult experienced tax advisers in each country at an early stage in specific cases.

[email protected]

The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd