The goal of section 67, valid as of 1.1.2006, is to enable the establishment of international control and management centers in Israel by foreign residents.

The structure is as follows:

Section 67 C of the Ordinance states that the “Israeli holdings company” must meet the following conditions (to obtain benefits in accordance with the section):

a. The company has incorporated in Israel.

b. Control over its business and the management thereof is exercised in Israel only.

c. The holdings company will not be:

a. A public company

b. A financial institute

c. A family company (S Corporation)

d. Or a company that incorporated as a part of an M&A process

d. At least 300 days in every tax year, starting on the year after its incorporation, at least 75% of its investments (including via loans) will be in held companies (that meet the terms below).

e. The investment amount in held companies shall not decrease below ILS 50 million (about EUR 10 million).

f. The holdings company will not have income from a “business” as defined in section 2(1) of the Ordinance), unless this is income produced in Israel for services it provided to the held companies.

A “held company” must meet several cumulative terms, as follows:

a. The held company is a foreign company, resident of a treaty state in which the held company reports of its income or the held company is a foreign company that is based in a state in which the tax rate that applies to income from business activity at the time of buying its shares is 15% or more.

b. At least 75% of the income of a company held in the tax year (produced or yielded outside of Israel) is income from a business (as defined in section 2(1) of the Ordinance).

When calculating the held company’s income, income from affiliated foreign companies the held company has at least 10% of the rights to the profits thereof.

c. The assets and holdings of the held company, in Israel, shall not exceed 20% of its total assets and income in the tax year. Assets in Israel – including a right in a foreign association of individuals that owns mostly rights, directly or indirectly, in assets located in Israel.

An Israeli holdings company that meets the qualifying terms will be entitled to the following benefits:

a. Exemption from capital gains tax when selling the shares of a held company, in which the holdings company has at least 10% for at least 12 consecutive months.

b. Exemption from tax on dividends from a held company; provided only that the holdings company had at least 10% of the rights in the held company for at least 12 consecutive months, in which the holdings company had the substantial holding in the held company.

c. Exemption from tax on income and profits from dividend, interest and capital gains from negotiable securities in the Israeli stock exchange.

d. Exemption from tax on interest and linkage differences from a financial institute.

Benefits when distributing the holdings company’s profits as dividends to its shareholders:

a. A shareholder that is a foreign individual / company – the tax rate that shall apply to dividends from an Israeli holdings company to a foreign shareholder (individual / company) will be 5% (unless the tax treaty determines a lower rate such as: Sweden).

b. An Israeli resident individual shareholder – the tax rate that shall apply to a dividend for an Israeli resident individual will be 25% or 30%, if he is a “substantial shareholder” (holding 10% or more).

c. A shareholder that is an Israeli-based company – an Israeli based company will be taxable according to the source of income from which the dividend was distributed. In most cases, the companies tax at a rate of 25% (for the 2012 tax year) shall apply, or the companies tax rate and indirect credit (in accordance with the provisions of section 126 of the Ordinance).

Let it be stated that the tax obligation of Israelis (individuals / companies) shall apply whether the holdings company’s profits have been distributed or not. Meaning, profits not yet distributed will be considered an “imputed dividend”.

Capital Gains from Selling the Holdings Company’s Shares

a. Foreign resident individual / company – an obligation or an exemption shall apply in Israel upon selling the shares in accordance with the provisions of the relevant tax treaty or Israel’s domestic law (not including tax exemption in accordance with the provisions of section 97(b)(3) of the Ordinance).

b. A recent immigrant or a returning resident – will be charged during the benefits period (currently 10 years) with a 5% tax rate.

c. An Israeli individual – will be charged with a tax at a rate of 25% or 30% if he/she is a substantial shareholder.

d. An Israeli based company – will be charged with companies tax, at a 25% rate (for 2012).