Lior Pick, Advocate, CPA

We would like to update (the existing situation) with new information subsequent to the draft Economy Arrangement Bill that successfully passed second and third readings in Knesset and is expected to be finally discussed by the end of July. The Bill includes, among others, the revolutionary statements related to Supplement 64a to the Regulations on family business.

The draft Bill statements stipulate that started from 2014, it will not be allowed for a profit company to become family business and therefore the company will not be entitled to special tax rates at the level of taxable income for a sole shareholder. As known, these tax rates are sometimes lower as compared to company taxes if one takes into account taxes on dividends. For example, it is true sometimes when a company sells capital assets (or reputation when it going out of business).

At the same time, in spite of the said above on abolition of permits for transformation of commercial companies into family business which to be started in 2014, the Bill includes transitional provisions according to which a profit companies can become family business in early 2014 through filing relevant requests within the period from 1.08.2013 to 31.11.2013 and upon condition the company will pay all the debts for taxes on the company’s income accrued by 31.12.2013 (probably, the option will be stipulated to pay these taxes in up to four years). In addition, when selling the company’s assets, the tax (which, as said, is imposed on a shareholder) will be calculated using two rates, when the tax related to part of time before 31.12.2013 will be calculated in accordance with maximum marginal tax rate for individual.

Since the said change is important and significant, it is recommended for those who think it is relevant for them and for all who plans to submit request to be considered as a family business since 2014, to check the issue and act as soon as possible including by filing appropriate cases immediately, even before 01.08.2013.

This is a general document and does not constitute counseling, and it may not be used as said in any case without receiving specific legal counseling and/or an opinion according to particular circumstances. In any case, we believe it is advisable to examine the legal repercussions ahead of time, prior to taking any action.