Benefits for Foreign Investors in Israel A competitive benefit package has received initial government approval and is expected to be approved by Israel's Parliament in the near future. Table no. 1 Grant pathA. Grants, determined according to the “National Priority Zone” in which the enterprise is located. B. Tax benefits, as specified in Appendix A. In addition, “Approved Enterprises” in Priority Zone A enjoy full tax exemption for the first two years. C. Accelerated depreciation - see Appendix 1 | | Priority Zone A (*) 2001 (**) | Priority Zone B 2001 | Industrial projects (Up to 140 Million Shekel) | 24% | 10% | Industrial projects (Above 140 Million Shekel) | 20% | 10% | | Investments in hotels; other accommodations | 24% | 10% | | Other tourist enterprises | 15% | |
*As of 1997, Industrial Enterprises on the Grant Path located in Priority Zone "A", are entitled to tax exemptions for the first two years and reduced tax rates for the remaining period of benefits (i.e. two years exemption plus five years of reduced tax rates). 1.The Government recently decided to increase the benefits for those investing in industry located along the northern border. An additional 6% can now be received on top of the standard grant (i.e. a total of 30%). 2. Approved enterprises in the Negev region may be eligible for an additional 8% grant (i.e. a total of 32%) for investments up to 140 Million Shekel. Investments over 140 Million Shekel may be eligible for an additional 10% (i.e. a total of 30%), in accordance with the regulations of the IIC. 3. Investment programs approved during 2002 and whose applications were submitted after 20th September 2001, will receive 30% of due payment on investments carried out in 2002. The balance of the grant will be paid during the fiscal year 2003. Table No 2 Company Tax Exemption (Alternative Program)A. Accelerated depreciation - see Appendix B B. A company that waives its project’s right to a grant will receive complete exemption from company tax on its undistributed income. If dividends are distributed, the company will pay the tax it would have paid had this Alternate Program not been chosen. The period of exemption is determined according to the National Priority Zone in which the approved project is located. | Priority Zone A | Priority Zone B | Central Israel | 10 years of complete tax exemption | 6 years of complete tax exemption, and tax benefits: 1 year for local investor , 4 years for foreign investor | 2 years of complete tax exemption, and tax benefits: 5 years of for local investor , 8 years for foreign investor |
C. A company distributing a dividend will be taxed on the dividend Tax Benefits for an Approved EnterpriseThe tax benefits for an “Approved Enterprise,” are granted over a period of 7 consecutive years, starting with the first year that the company earned taxable income, providing that 14 years have not passed since the approval was granted and that 12 years have not passed since the enterprise began operating. If at least 25% of an enterprise’s owners are foreign investors, the enterprise is eligible for a 10 year period of tax benefits. Appendix 1 : Tax Rates Table| | Company owned by local investor | Company owned by foreign investors, foreign investors´ rate of rights | Company that is not an approved enterprise | Taxable income | 100% | 100% | 100% | 100% | 100% | Company tax | 25% | 10% | 15% | 20% | 35% | Company tax | 25% | 10% | 15% | 20% | 35% | Balance | 75% | 90% | 85% | 80% | 64% | Income tax | 0% | 0% | 0% | 0% | 0% | Total tax on undistributed income | 25% | 10% | 15% | 20% | 35% | Divided tax: 15% of balance (for “Approved Enterprises”) | 11.25% | 13.5% | 12.75% | 12% | | | Total tax on distributed income | 36.25% | 23.5% | 27.75% | 32% | 52% | | (*) in distribution to an personal or a company abroad; in distribution to an Israeli company 0% |
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