preface

BDO Israel
DOING BUSINESS IN ISRAEL
8.2.2.3. Foreign Professional Company
A foreign company engaging employees from the liberal
professions, most of whose income is derived from a “special
profession” (as prescribed in the regulation) and at least 75% of
whose control is directly or indirectly exercised by Israeli
residents, is deemed to be a foreign professional company,
subject to fulfilling further conditions. In this framework, such a
company is deemed to be managed and controlled from Israel.
Income from a “special profession”, up to the part of the Israeli
resident's shareholders, will be subject to Israeli corporate tax.
Also, credit will be granted in respect of the foreign tax paid.
In this regard, the rights of new immigrants and veteran
returning residents will not be taken into consideration for a
period of 10 years from the date of assuming residence.
8.2.2.4. Taxation of Entities Controlled by Israeli Residents (CFC)
With respect to passive income earned by Israeli residents, the
tax legislation determines that a foreign company would be
deemed to be a “foreign controlled company” subject to the
following provisions:
(a) The company's shares, or rights thereto, are not listed for
trade on the stock exchange; however, if said shares or rights
were partly listed, less than 30% thereof were offered to the
public.
(b) Most of the company’s income or earnings during the tax
year are derived from passive income. For this purpose,
passive income shall constitute income from sources
including interest or linkage differentials, dividends,
royalties, rental fees, and proceeds from the sale of an asset
not used by the company for its business.
(c) The tax rate on passive income in foreign countries does not
exceed 20%. For this purpose, the tax rate is defined as the
amount of tax actually charged in respect of passive income
during the tax year, divided by the total amount earned as
passive income in that year.
107