preface

BDO Israel
DOING BUSINESS IN ISRAEL
7.3.2.1. Individuals
An amount paid out by an individual or his relative for investing
in a “special purpose company”, in consideration of which
company shares of up to NIS 5 m. were allotted to him, will be
deductible against the individual’s overall income in three equal
annual installments, as from the fiscal year in which the capital
had been invested. Amongst others, the requirement is that the
capital invested ought to have been paid between 1.1.2011 and
31.12.2015, and that most of it is applied by the special purpose
company to cover R&D expenses incurred in Israel. The
individual is required to hold shares of a special purpose
company throughout the reduction period. The Chief Scientists’
approval is required for the scope of R&D expenses. The law
stipulates further conditions for allowing the said deduction.
7.3.2.2. Companies
A “preferred company” or “beneficiary company” as defined in
the Law for the Encouragement of Capital Investments, will be
entitled to deduct the cost of shares acquired during the period
between 1.1.2011 and 31.12.2015 in an “entitling company” not
related to it, to the extent of 20% per annum from the year after
such acquisition. It should be noted that the entitling company’s
equity capital will be deducted from the acquisition cost.
The law specifies a number of conditions for applying the
deduction, inter alia that the investment involve the acquisition
of at least 80% of the means of control (other than by way of
allotment) in the entitling company; that in the year of
acquisition and in each of the bonus years, the acquiring
company and entitling company be a beneficiary or preferred
company; a minimum number of academic employees is
required in the field of engineering, computers, natural or exact
sciences and a minimum amount of R&D expenses must be
incurred during the acquisition year and in each of the
acquisition years both by the acquiring as well as the entitling
company. For purposes of the deduction, approval must be
obtained from the tax authorities that the purpose of the
investment is neither the avoidance of tax nor reduction of the
tax liability. The law stipulates further conditions for the tax
reduction.
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