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86 INVESTMENT INCENTIVES AND TRADE ADVANTAGES distribution) tax at shareholders level due to receipt of dividends15% to shareholder resident in Israel and 4% to shareholder resident abroad. 7.5. INCENTIVES FOR BUILDING RENTAL HOUSING Building residential rental apartments is an essential social and economic goal, and it is for good reason that assessees who build and rent out apartments are eligible for diverse benefits and incentives offered through the tax system. Beyond the exemptions and benefits granted to individual property owners who rent out apartments, there are two parallel laws to encourage large-scale construction of rental housing. The first and oldest law code is contained in Chapter Seven-1 of the Law for the Encouragement of Capital Investments. The second and relatively new law is the Law for the Encouragement of Rental Housing, enacted in 2007. In effect, after enacting the latter, two parallel systems of law were created to encourage the building of rental apartments, and an assessee may Operator to apply one of them. Pursuant to Chapter Seven-1, tax incentives are granted in regard to a building complying with the terms of the "Rental Building" designation, or the "New Rental Building" designation, which is usually one whole or several buildings located in one complex, and approved as such by the Investment Center Administration. It should be noted that there are entitlement conditions for actual tax benefits, including inter alia: the size of a minimum rented area, minimum rental periods, compliance with monthly rent limits, restrictions on the sale of part of a building for a specific period, etc. The Law for the Encouragement of Rental Housing - 2007 is designed to increase the inventory of apartments available for rent. The Law grants benefits only to companies, by way of enabling accelerated depreciation and giving them a full exemption from Appreciation Tax. Unlike Chapter Seven-1, this concerns a track requiring no prior government approval. It is noteworthy that this Law, too, sets entitlement conditions for obtaining actual tax benefits, including inter alia: minimum number of apartments in a building, minimum rental fee, minimum rental period, restrictions on the sale of a building etc. Below is a review of the scope of tax benefits available between these two legislative systems. (The review will address, with respect to Chapter Seven-1, the provisions applying to a "New Rental Building" only). BDO Israel
BDO Israel DOING BUSINESS IN ISRAEL Rental Income - Reduced tax on income derived from the lease of a "new rental building" - at the rate of 11% for companies and 20% for individuals. Companies are liable to a lower effective tax rate of 10% on foreign investments, where the foreign investment exceeds 90%. Dividend - 15% tax is chargeable on dividends distributed from the earnings of an approved enterprise which is a rental apartment building. Total "direct to house" tax under Chapter Seven-1 is 24.35%. Income from the Sale of a Building (Appreciation Tax) - This is liable to tax at the rates mentioned above. We must emphasize that these tax rates apply to betterment accumulated for the entire period and not merely from the effective date (November 7, 2001). It is also noteworthy that Section 72A of the Property Taxation Law denies such exemption for residential apartments, relevant only to individuals, in the sale of apartments in a rental building eligible for benefits under the Law. Purchase Tax - There is a reduced purchase tax of 0.5%, where the Investments Center demands the transfer of title to a property which is a building or plot constituting a business inventory or fixed asset for a company held by the same owners, for purposes of a "rental building", with certain restrictions. Accelerated Depreciation - at the rate of 20%. V.A.T. Benefit on the Sale of a Building - Section 31(a) of the V.A.T. Law stipulates a tax exemption on the sale of such part of a building used for rent and having enjoyed the said tax benefits. The Section stipulates that if that part approved as a rental building had been rented for five years at least, the sale thereof would be exempt from V.A.T. V.A.T. on Apartment Rental - The exemption specified in Section 31(1) of the V.A.T. Law shall apply in regard to rental housing for a period not exceeding 25 years. 7.5.1. Law for the Encouragement of Rental Housing Rental Income - at the corporate tax rate which is currently 25%. To this must be added the anticipated reduction in corporate tax to a level of 18% in 2016. Dividend - Tax rate as stipulated in Section 125b of the Ordinance or 126(b) of the Ordinance. Total "direct to house" tax rate for a substantial shareholder in 2010 is 43.75%. 87
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PREFACE This publication has been p
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7. INVESTMENT INCENTIVES AND TRADE
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8 THE ISRAELI ECONOMY IN 2010 The I
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1.2.4. Fiscal Developments 10 THE I
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12 THE ISRAELI ECONOMY IN 2010 1.2.
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14 THE ISRAELI ECONOMY IN 2010 Comp
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16 ISRAEL - GENERAL OVERVIEW Israel
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2.4. ISRAEL’S CURRENCY 18 ISRAEL
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Legal holidays in 2010 and 2011 are
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22 OVERVIEW OF ISRAEL’S HIGH-TECH
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OVERVIEW OF ISRAEL’S HIGH-TECH IN
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32 BUSINESS STRUCTURE The Companies
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34 BUSINESS STRUCTURE with respect
Page 38 and 39: 36 BUSINESS STRUCTURE recommendatio
Page 40 and 41: 38 BUSINESS STRUCTURE TASE regulati
Page 42 and 43: 40 BUSINESS STRUCTURE ♦ Non-profi
Page 44 and 45: 4.2.2. Prerequisites 42 BUSINESS ST
Page 46 and 47: 44 BUSINESS STRUCTURE As mentioned
Page 48 and 49: 46 BUSINESS STRUCTURE 4.3. INSURANC
Page 50 and 51: 5.1.2. Distribution of Employees 48
Page 52 and 53: 50 BUSINESS ENVIRONMENT As of Janua
Page 54 and 55: 5.2. ANTITRUST LAW 52 BUSINESS ENVI
Page 56 and 57: 5.3. INTERNATIONAL TRADE 54 BUSINES
Page 58 and 59: 5.4. TRADE AGREEMENTS 56 BUSINESS E
Page 60 and 61: 5.5. PROPRIETARY RIGHTS 58 BUSINESS
Page 62 and 63: 60 ACCOUNTING AND AUDITING PERSPECT
Page 76 and 77: 74 INVESTMENT INCENTIVES AND TRADE
Page 108 and 109: 106 TAXATION Under the recent tax r
Page 110 and 111: 108 TAXATION (d) More than 50% of o
Page 112 and 113: 110 TAXATION 8.2.2.6. Dividends Rec
Page 114 and 115: 112 TAXATION (3) Location of fixed
Page 116 and 117: 114 8.2.3.4. Rental Income from Out
Page 118 and 119: 116 TAXATION "Accommodating Year”
Page 120 and 121: 118 TAXATION "Privileged Securities
Page 122 and 123: 120 TAXATION 8.2.4.3. Tax exemption
Page 124 and 125: 8.3.4. Sale of Stocks 122 TAXATION
Page 126 and 127: 124 TAXATION 8.3.7.3. Setting-off C
Page 128 and 129: 126 TAXATION ♦ According to the r
Page 130 and 131: 8.5. TAXATION OF TRUSTS 128 TAXATIO
Page 132 and 133: 8.6.1. Definitions: 130 ♦ Israeli
Page 134 and 135: 132 5) Certain services rendered to
Page 136 and 137: 8.8.6. Real Estate Companies 134 TA
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8.10. TAX TREATIES 136 TAXATION As
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138 Dividends % Interest % TAXATION
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140 FOREIGN EXCHANGE CONTROL AND PR
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10.3. ISRAEL LAND ADMINISTRATION OF
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11.2. KEY FIGURES FOR DECEMBER 31,
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Example A NIS Example B NIS APPENDI
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APPENDIX 2 Industrial enterprises m
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Ministry of Justice 29 Tsalch Adin
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Israel - US Binational Industrial R
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BRAZIL Embassy of Israel S.E.S Av.
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ECUADOR Embassy of Israel Av. La Co
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IVORY COAST (COTE D’IVOIRE) Embas
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PANAMA Embassy of Israel Edificio P
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THAILAND Embassy of Israel Ocean To
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REPUBLIC OF THE FIJI ISLANDS Embass
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