FORM 20-F - Check Point

three years after the year in which the Approved Enterprise was activated (the “Cooling Period”). In November
2008, the law was amended to shorten the Cooling Period to two years. Following the amendment, the Year of
Election for our first Privileged Enterprise is 2006.
If a company distributes dividends from tax-exempt income, the company will be taxed on the otherwise
exempt income at the same reduced corporate tax rate that would have applied to that income. Distribution of
dividends derived from income that was taxed at reduced rates, but not tax-exempt, does not result in additional tax
consequences to the company. Shareholders who receive dividends derived from Approved Enterprise or Privileged
Enterprise income are generally taxed at a rate of 15%, which is withheld and paid by the company paying the
dividend, if the dividend is distributed during the benefits period or within the following 12 years (the limitation
does not apply to a Foreign Investors Company, which is a company that more than 25% of its shares owned by
non-Israeli residents).
The amendment to the Investment Law treats the repurchase of shares out of Privileged Enterprise tax
exempt income as deemed-dividend. Through December 31, 2009, we repurchased 73,589,872 ordinary shares in a
total amount of $1,568,589,743. Our retained earnings attributed to taxable income are higher than the total shares
repurchased and, therefore, should not trigger a deemed-dividend event. See Annual Report (“Purchases of Equity
Securities by the Issuer and Affiliated Purchasers”) and Note 12e to Consolidated Financial Statements for further
information regarding our repurchase program.
As a result of the 2005 amendment, tax-exempt income attributed to Privileged Enterprise will subject us to
taxes also upon complete liquidation. As of December 31, 2009, we generated tax-exempt income in the amount of
$533.9 million from our Privileged Enterprise.
Our board of directors has determined that we will not distribute any amounts of our tax-exempt income as
dividend. We intend to reinvest our tax-exempt income. Accordingly, no deferred income taxes have been provided
on income attributable to our Approved Enterprise and Privileged Enterprise programs as the undistributed taxexempt
income is essentially permanent in duration.
Law for the Encouragement of Industry (Taxes), 1969
We believe that we currently qualify as an Industrial Company within the meaning of the Law for the
Encouragement of Industry (Taxes), 1969 (the “Industrial Encouragement Law”). The Industrial Encouragement
Law defines an “Industrial Company” as a company that is resident in Israel and that derives at least 90% of its
income in any tax year, other than income from defense loans, capital gains, interest and dividends, from an
enterprise whose major activity in a given tax year is industrial production.
Under the industrial Encouragement Law we are entitled to amortization of the cost of purchased knowhow
and patents over an eight year period for tax purposes and an accelerated depreciation rate on equipment.
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval
from any governmental authority. We cannot assure you that we qualify or will continue to qualify as an Industrial
Company or that the benefits described above will be available in the future.
Foreign Exchange Regulations
Under the Foreign Exchange Regulations, an Israeli company calculates its tax liability in US dollars
according to certain orders. The tax liability, as calculated in US dollars is translated into NIS according to the
exchange rate as of December 31 st of each year.
Dividends, if any, paid to the holders of our ordinary shares, and any amounts payable upon our
dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our ordinary shares to an
Israeli resident, may be paid in non-Israeli currency. If these amounts are paid in Israeli currency, they may be
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