In the frame of the Regularization law concerning the years 2011-2012 an essential change was carried out concerning The Incentive Capital Investment Law, 1959 – Hatashiat. (hereinafter – “The Amendment” or “The Act”), starting from January 1, 2011 (hereinafter – “The sett date”) In the frame of this amendment all tracks of taxes that existed to the sett date were cancelled. A uniform and decreased duty rate was determined for industrial corporations, according specific determined export conditions. In addition it was determined that in develop area “A” it will be possible to profit from decreased taxes and grants.
Tracks of Tax Benefits
All existing tracks of tax benefits by law to the sett date have been annulated. (The Ireland Track, The Alternative Track and The A-strategic Track) Tracks of decreased and uniform tax were sett, particular for corporations which own industrial enterprises that execute according determined export conditions. This will apply to all profits made of export activities. (independent plan) (hereinafter – preferred corporations and preferred enterprises, Concerning the matter).
The duty rate for the years 2011-2012 was sett at 10% for development area “A” and a 15% rate for the remaining areas. Concerning the years 2013-2014 the rate will be 7% for the development area “A” and 12.5% for the remaining areas. Starting from 2015 and henceforth, the rate of duty will be 6% in the development area “A” and 12% for the remaining areas. Without doubt these rates are one of the lowest around the world.
Please notice that these benefits are without limitation, and they will apply as long as the act is valid.
- In the frame of the amendment the condition of minimal obtaining investment was canceled.
- Henceforth, the export terms for preferred enterprises will be checked according the total amount of sales of the preferred enterprise. Therefore the enterprise will be demanded to have a minimum of 25% of their total sales to be export. (concerning the direct export only).
- The director of the Israeli Tax Authority is authorized to decide tax rules concerning income for decentralized industrial enterprises, including enterprises operating outside of Israel.
- It was determined that “preferred income” is income of operations in Israel only.
- A preferred corporation will be obliged to reduction accelerated rates according to section 42 of the Act, concerning assets of production in use by the preferred enterprise. In other words; machines and equipment – are 200% from the sett reduction regulations. Concerning buildings – 400% from the sett reduction regulations.
- The Act’s definition section concerning industrial enterprises, excludes the following; mines, enterprises for the production of minerals and enterprises for the search or production of oil. In addition, from the definition “preferred income” were excluded the following; income of mines, income by enterprises by the production of minerals and income by enterprises by the search or production of oil. As a rule, 100% state owned corporations won’t be entitled to benefit according The Act.
- The Act applies also to all registrated cooperation (partnership) concerning cooperation that was associated in Israel.
- In addition, the exemption applies to the division of dividend under members of Israeli corporations with source preferred profits.
- The tax rate applying to dividend for an individual will be 15% solely, without distinguish whether the receiver is an Israeli resident or a foreign resident.
- Industrial buildings for rent – can only receive grants by the board, without rights of beneficial taxes.
- A track of tax rate benefits concerning “a specific preferred enterprise” (“giant enterprises”) the rates of tax will be 5% for developing area “A” and 8% for the remaining areas, for a period that wont pass 10 years, in addition to the conditions according The Act.
The track of the grants
- The condition to prevent double benefit has been annulated, in other words, industrial enterprises whom are entitled to benefits because of export activities, at the same time are entitled to receive the track of grants and in addition the track of beneficiary tax rates.
- In case the corporation won’t be able to apply to the sett export conditions in relation to the general sales of the enterprise, it will be entitled to receive grants only in case that 25% of the export will be of the addition of the sales. (like the previous act).
- The entitlement for an “investment grant” is limited to industrial enterprises only situated in the developing area “A” solely.
- The director of the investment center is entitled to approve requests that were submitted in the year of the current budget, in the frame of the budget that was approved by the Budget Act for the same budget year or the budget year before.
- The Center of Investment and the Israeli Tax Authority have binding determination concerning the fact whether a corporation is or isn’t a “industrial enterprise”. These determinations will not be valid in case that 5 years have past since the day of receiving the approval, in case the rules concerning the approval have been changed, or when it comes clear that the information given to the authorities in order to receive tax benefits were not substantive, false, wrong, misleading or deceptive.
- A tourist enterprise that chooses the alternative track of tax won’t be entitled to receive the investment grant.
- 100% state owned corporations, cooperative associations of whom all of the members have membership which is state owned, will not be entitled to receive any kind of grants. A cooperative association or cooperation by members of which the membership is state owned will be entitled partly according to the part of membership or cooperation whom aren’t member owned by the state.
The law has been updated in order to incentivize capital investment and initiative the economy. Obviously preference is given to new development and activity in the developing area:
- Development of production capacity concerning the state economy.
- Improvement of the business sector in order to cope with the international market competition.
- The creation of new and durable labor positions.
- Benefit of tax concerning buildings for rent, are accordance with part 7 (1) of The Act. Concerning this subject not any change was made.