Meir Linzen, Guy Katz
Under the Israeli tax regime, Israeli residents are subject to tax in Israel on their worldwide income, while foreign residents are subject to tax in Israel only on their Israeli-sourced income. Meir Linzen and Guy Katz of Herzog Fox & Neeman explore the issues at stake.
An individual is considered an Israeli resident if their "centre of life" is in Israel. The "centre of life" test examines the connections that the taxpayer has to Israel as well as the taxpayer's subjective intention. A company is regarded as an Israeli resident if it was incorporated in Israel or managed and controlled from Israel.
Individuals are not invariably required to file a tax return in Israel. Individuals who receive income which exceeds the amounts described in the tax regulations are required to submit an annual return. Other circumstances can subject an individual to further filing requirements. For example, holding 10% or more in a corporation, holding foreign bank accounts which exceed a certain balance, or holding foreign securities. Generally, individuals are required to file tax returns by April 30 each year, although extensions are possible on a case specific basis.
In general, a corporation in Israel is subject to corporate tax on its taxable income, whereas partnerships are treated as "pass-through" entities, and the partners are taxed on the partnership's income at the applicable rates. Israeli companies are subject to tax on all of their worldwide income, while dividends between Israeli companies are generally exempt. As a basic rule, corporations are required to file returns by May 31. Extensions are possible in specific circumstances.
Tax rates and main exemptions at a glance (as of September 2017):
The biennial budget and the new legislation which is attached to it under the Economic Plan Law for 2017 and 2018 (the Budget Law) was approved by the Knesset (Israel's parliament) in December 2016.
The Budget Law includes few revolutionary reforms, the main of them are –
The Budget Law reduced the corporate tax rate, commencing in 2017, to 24% and from 2018 to 23%.
The Budget Law also changed the tax brackets applicable to individuals. Among others, the highest marginal rate has been reduced to 47%. However, the wealth tax was increased from 2% to 3% and will be imposed on any income which exceeds NIS640,000.
The taxable income of a close-held corporation (a company which is controlled by up to five people), which results from the activity of its individual substantial shareholder (whether directly or indirectly, including through a relative), will be considered as the individual's personal earned income, where the company's income results from:
a) the individual's activity as a functionary (i.e. officeholder) in another corporation (unless the individual is also a substantial shareholder of the other corporation); or
b) an employer-employee relationship of the individual with another person (unless the individual is also a substantial shareholder or a partner of the other person);
For this purpose, where 70% or more of the company's total revenues derive from the activity of the individual for one person for a period of at least 30 months during a period of four years, the individual's activity will be regarded as constituting employer-employee relationship.
According to the new legislation, a withdrawal of more than NIS 100,000 from a company, including by way of a loan or by way of providing security for a loan, and the constant use of company's assets, by a substantial individual shareholder, shall be regarded as an income of such an individual shareholder.
Where the company has "accumulated profits" as defined under the Israeli Companies Law, this income of the individual shareholder shall be deemed to be a dividend income. Where the company does not have "accumulated profits" and an employer-employee relationship exists between the individual and the company, this income shall be deemed to be an employment income of the individual shareholder. Otherwise, the income shall be regarded as income from business or occupation.
As part of the Budget Law, the Law for the Encouragement of Capital Investments, 1959 (the Encouragement Law) has been amended. One of the main amendments was the addition of new track for benefits under the Encouragement Law for hi-tech companies which develop intellectual property in Israel, in accordance with the OECD guidelines in the BEPS report.
The new track for benefits defines "preferred technological enterprise" status which can be obtained either by a preliminary approval from the Israel Innovation Authority, based on certain criteria that will be determined, or by means of a "green track" for an enterprise that meets certain conditions under the law, which indicate, among other things, substantial R&D activity. In addition, the enterprise has to meet an export condition, under which at least 25% of its sales derives from export.
According to the amendment, a new preferential tax benefit was introduced, under which a Preferred Technological Enterprise will be subject to 12% corporate tax on its preferred technological income (income of the enterprise derived from intellectual property) or 7.5% where the enterprise is located in Development Area A. In addition, a tax rate of 20% will apply to dividends distributed from such income, or only 4% where the receiving shareholder is a foreign resident company (subject to any lower tax rates available under a tax convention).
Where the preferred technological enterprise has an annual income of more than NIS 10 billion, it will be regarded as "special preferred technological enterprise" which is subject to only 6% corporate tax on its preferred technological income and on capital gains from the sale of certain intellectual property rights to an affiliated company.
As part of the Budget Law, the Knesset passed a law meaning that, as of January 1 2017, an additional annual tax should have been imposed on owners of residential properties who own three properties or more. This new tax should apply for each residential property beginning with the third property. The imposed tax is 1% of the value of the cheapest properties (i.e. will not include the value of the two expensive properties), and will not exceed NIS 1,500 per month per property.
However, on August 6 2017, the High Court of Justice ruled that a procedural flaw had fallen in the process of approving this part of the Budget Law and that accordingly this part of the law is not in force. Currently, this new taxation does not apply, however, the Minister of Finance announced that he will submit the bill for implementing this taxation for a new approval by the Knesset.
On August 6 2017, long-awaited legislation was finally published. This legislation relaxes many restrictive limitations previously imposed by the Israeli tax-free reorganisation law (the Reform). The Reform expands the availability of corporate Israeli tax-free reorganisations, such as mergers, divisions, stock-for-stock exchanges, and other forms of intra-group asset transfers.
The Reform opens various possibilities for simplification of multinational structures involving a number of Israeli subsidiaries that were previously impossible. It also expands the availability of new corporate acquisition transaction structures, where the consideration is paid, in full or in part, in shares of the acquiring company.
A major motivation of this Reform was to support the Israeli hi-tech industry by removing regulatory impediments on investments in these companies and limitations on business restructurings.
The main amendments as reflected in the Reform are:
The Israeli government has made no secret of its desire to cut corporate taxes. It sees this as an important tool to stimulate its economy and attract foreign investment, in particular from the tech industry.
On December 22 2016, the Israeli parliament gave its consent to the Israeli Budgetary Law for 2017 and 2018. The legislation reduces corporate tax rate in Israel from 25% to 24% in 2017. In 2018, the corporate tax rate will be further reduced to 23%. Israel's current government appears intent on travelling down this path of lowering taxes.
In April 2017, the Israeli Finance Minister Moshe Kahlon announced the government's intention to implement the Net Family Plan (NFP). The NFP is a programme that includes measures like providing subsidies for after-school activities. It also includes the provision of tax credits for families and tax cuts on children's clothes, shoes and mobile phones.
In the past year, the biggest transaction in Israel has been the Intel Corp's acquisition of Mobileye N.V.. Intel Corp is an American MNE that specialises in manufacturing computer technology and Mobileye N.V. is an Israeli tech company that develops self-driving car technology. The value of the transaction is around $15.3 billion. The technology industry in Israel is an important one and the Mobileye deal is symbolic of the value that the country brings to this industry.
The Mobileye deal is also important in the context of its impact on Israel's tax policy. The Israeli Tax Authorities have given their blessing to the deal. The Israeli government will be looking to receive a substantial windfall from the deal: about $1.1 billion in tax revenues.
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|Corporate Income Tax||24%||A|
|Capital Gains Tax||24%||A|
|Net Operating Losses (years)|
|Interest||0%||24%||A B C D E|
|Royalties from, for example, patents, know-how||24%||A B D|
|Branch Remittance Tax||0%||N/A|
Alter Attorneys at Law was established in 1990. The firm exclusively handles tax law matters. Its services include income tax, international taxation, tax planning, indirect taxation and tax litigation. Six partners lead the firm. They are Anat Tene, Amichai Perry, Nir Hornstein, Udi Shostak, Helena Ben Baruch and Shlomi Regev. Tene is the firm's manager.
The tax practice at Barnea & Co advises its clients on international tax matters. This includes M&A, joint ventures and restructuring. The practice works closely with the firm's commercial practice in order to ensure that clients are given appropriate advice. Other tax services provided by the practice include real estate taxation and employee tax benefits. Harel Perlmutter is a partner who specialises in handling tax matters. He engages with the tax authorities in meetings and negotiations. He represents clients in tax litigation matters and advises them during voluntary disclosure proceedings. Perlmutter also helps clients with interpretation and implementation of tax treaties.
Eyal Rubin is the head of the tax practice at BDO Israel. The firm consists of accountants, lawyers, economists and former senior tax authority officials. BDO Israel offers advice on corporate taxation, international taxation, real estate taxation and indirect taxation.
Rubin has more than 20 years of tax experience. His areas of expertise include handling domestic transactions and assisting his clients with the Israeli tax authorities. Eli Alice is the head of the international taxation team. He has more than 17 years of experience in this area. Tareq Dibbini leads the real estate team and his clients include real estate companies and financial institutions. Ayelet Yitzhaki is a partner and specialises in indirect taxation. She advises Israeli and international clients from a range of sectors.
Alona Meiron is the head of the tax practice at Deloitte. The practice comprises nine partners and 109 other fee earners. Since May 2016, the tax professionals that have joined the firm are: Gilad Sharir, Alan Cohen, Guy Blau, Tomer Nesher, Hila Goldich, Ella Cohen, Yael Buchnik and Nesli Levy.
The firm deals with corporate tax, international tax, M&A, international transaction services and indirect tax. Some practice members have previously had leading positions with the tax authorities. The practice is part of the international network of Deloitte member firms which comprises 37,000 professionals across the globe.
The tax practice at Eitan, Mehulal & Sadot provides tax advice in relation to all aspects of direct taxation, import taxation and indirect taxation. Its clients come from different business sectors including energy, automobiles, communications and real estate. The partners in the practice are Yaron Mehulal, Noa Lev Goldstein, Alice Abramovich and Ehud Kronfeld.
Mehulal has more than 25 years of tax experience and he offers advice on tax planning for MNEs and cross-border transactions. Goldstein has more than 15 years of tax experience. She has previously worked with the ITA. She advises clients on corporate taxation, M&A, international taxation and tax planning and structuring. Abramovich's expertise includes international trade law and import and export law. Kronfeld advises companies in Israel and abroad on indirect taxation matters.
Elieser Kaplan Law Offices is a tax law firm that was founded in 1991. The firm's lawyers advise clients on tax planning, international tax and tax controversy. Elieser Kaplan is the founder of the firm and its senior partner. Kaplan's experience includes tax planning, corporate acquisitions, dispositions, joint ventures and reorganisations. His clients include wealthy families and businesses in financial services, industrial and high-tech sectors. Hana Adler Somekh is an associate and she joined the practice in 2000. She is a member of the Israeli Bar.
The tax practice at EY comprises 22 partners and approximately 240 employees. The firm offers services in business taxation, indirect taxation, international taxation and real estate taxation. The firm also has a US desk which enables it to help clients with transactions in the US. This includes due diligence and transaction planning. EY has a global mobility practice, which assists clients with tax issues arising from the movement of personnel in and out of Israel.
The tax department at Fahn Kanne & Co – Grant Thornton comprises certified public accountants, attorneys, legal experts and tax experts. The tax services that the practice provides include corporate taxation, indirect taxation and international taxation. The practice also represents its clients in matters before the tax authorities and consistently liaises with the tax authorities. The firm is part of Grant Thornton's global network, which has more than 3,000 professional tax employees. Yigal Rofe is a partner and the director of the tax practice. He advises private and public companies regarding tax issues including VAT and tax planning. His clients operate in different sectors including high-tech, start-ups, banking and insurance.
Anat Shavit is the head of the tax practice at Fischer Behar Chen Well Orion & Co. The practice comprises two partners and four other fee earners. Idan Lange joined the practice in January 2017. The firm covers the complete range of tax matters concerning commercial activities in Israel. These matters include including income taxation, VAT, real estate taxation, tax disputes, tax assessments and audits.
The practice assists clients with structuring real estate and M&A transactions. It also negotiates tax arrangements with the ITA. Its clients are MNEs, start-up companies and government bodies.
Shavit has more than 20 years of experience as a tax attorney. She previously served as co-chair of the Tax Committee of the Central District of the Israeli Bar Association.
Tal Atsmon is the head of the tax practice at Goldfarb Seligman & Co. The practice provides tax advice to clients on complex M&A transactions, tax planning and capital markets taxation. Goldfarb Seligman & Co also helps clients with VAT, real estate taxation and tax litigation.
Atsmon gives tax advice on domestic and international transactions which includes international tax planning, M&A and corporate investments. He also assists clients with tax issues concerning employee compensation. Atsmon's clients are MNEs and Israeli banks. Yaron Sever is the deputy head of the tax practice. His tax expertise includes advising clients on Israeli and international transactions. These transactions include joint ventures and corporate restructuring. Shirit Nackar is a partner with the firm and she advises clients on import and export law and on indirect taxes. Nackar also represents clients in litigation proceedings. Michal Solomonovich is another partner who specialises in tax litigation. She offers clients advice on civil tax matters including income tax, real estate tax and VAT.
Daniel Paserman is the head of the tax practice at Gornitzky & Co. Pinhas Rubin is the practice chairman of the firm. Gornitzky & Co comprises seven partners and 12 other fee earners. Since June 2016, Adi Raban, Dalia Karzbrun, Ofer Levy and Assaf Hasson have joined the practice.
The practice assists clients with domestic and international tax planning, especially on multi-jurisdictional matters. Gornitzky & Co provides the full range of tax law advice to clients, including domestic and global corporate tax, taxation of high-net-worth individuals and trusts, indirect tax, real estate tax, tax controversy and tax litigation including white collar offenses. The practice is experienced in handling negotiations with the Israel Tax Authority (ITA) on behalf of its clients. The firm's lawyers have appeared before all judicial bodies including the Supreme Court of Israel.
Gornitzky & Co is representing an Israeli telecommunications company in a corporate tax matter involving ITA. The tax assessor has asserted a non-permitted deduction of expenses had occurred. This matter concerns the scrutiny of the financial equivalence aspect in a capital reduction and is pertinent as it has never been considered before an Israeli court.
Meir Linzen is the head of the tax practice at Herzog Fox & Neeman. The practice comprises 15 partners and 23 other fee earners. Since May 2016, Iris Weinberger, Hagit Oren and Gal Sasson have joined the firm.
The tax practice has 10 specialised teams. One of them is the corporate tax team, which has worked on M&A in Israel. It provides tax structuring advice for the full range of inbound and outbound cross-border transactions. Another team within the practice is the indirect taxes (VAT) and international trade, customs and purchase taxes team. Weinberger joined this team, having previously worked as the head of the legal department of the Israeli VAT and Customs Authority. Other teams include private equity and investment fund formation, outbound international tax planning, and tax litigation and disputes.
In 2016, the practice advised a consortium of banks serving as underwriters for the issuance of corporate bonds by Teva Pharmaceutical Industries. This included three different offerings in the US, the EU and Switzerland. Tax issues concerning inter-company financing arose from this matter. This was due to the bond issuers being special purpose vehicles based outside of Israel's jurisdiction.
The tax practice at KPMG provides a range of tax services for its clients. These tax services include international taxation, indirect taxation, dispute resolution and M&A. Dina Pasca-Raz is the head of the international taxation team. Pasca-Raz's experience includes providing tax advice to international clients operating in Israel and to Israeli MNEs operating outside the country.
John Fisher is a tax partner who works in the international tax department. Fisher has more than 30 years of experience advising MNEs in tax matters including M&A and international holding structures. Asaf Leshem is another tax partner who is a member of the international tax team. He advises MNEs on inbound and outbound acquisitions, international tax planning and structuring. He assists clients in the real estate, energy and industrial sectors. Ilan Ezra is the leader of the tax compliance department and offers tax advice to MNEs. Ezra advises clients on the US's Generally Accepted Accounting Principles (US-GAAP). His experience includes planning of tax structures and tax advisory.
Eldar Ben-Ruby is the head of the tax practice at Meitar Loquirnik Geva Leshem Tal. The practice offers clients a range of tax services for their operations in Israel and abroad. The firm advises clients on M&A, private equity and hedge funds, cross-border commercial transactions, capital markets, real estate and dispute resolution. The practice's partners include Ben-Ruby, Meir Akunis, Shaul Grossman and Keren Shitrit.
Ben-Ruby has worked on corporate transactions, tax planning and structuring for inbound and outbound transactions. He represents clients in the areas of venture capital, private equity, real estate and hedge funds. Akunis handles tax matters concerning civil and criminal issues. He offers tax advice to clients on M&A, corporate restructurings and fund formation. Akunis also represents clients in litigation cases before tribunals and the courts. Grossman specialises in international taxation. His clients include MNEs and high-net-worth individuals. Shitrit assists clients with international and domestic transactions. These transactions include corporate restructurings and inter-company agreements.
The tax practice at Pearl Cohen Zedek Latzer Baratz (Pearl Cohen) provides advice on a range of tax matters. These tax matters include tax planning, M&A, VAT and dispute resolution. Yom-Tov Abadi is the leader of the Israel tax group at Pearl Cohen. He advises clients on tax issues including tax planning and corporate organisation, restructuring transactions and real estate taxes. Abadi has previously worked for the ITA and one of the Big 4 firms. Henriette Fuchs is the head of the firm's international tax group. She has more than 20 years of tax experience assisting MNEs operating in Israel and Israeli companies engaged in international activities. Another tax professional that works in the international tax group is Idan Velger, who is a senior associate. He helps clients with indirect tax matters and represents them in tax audits and litigation.
Dan Bein is the head of the tax practice at Professor Bein & Co. Bein is a former tax judge and he is responsible for a number of tax law precedents. He is also a licensed mediator and arbitrator. The practice assists clients in preparing opinions, negotiating with the tax authorities, getting settlement agreements and pre-rulings and litigating tax matters. It represents clients in criminal tax cases. Liora Bein-Alon is a senior partner with the practice and she advises private and public companies in tax matters.
Doron Sadan is the head of the tax group at PwC. The practice is part of PwC's global network which comprises 30,000 tax professionals in more 158 countries. This enables the practice toprovide tax advice from a local and an international perspective. The practice's services include corporate taxation, international taxation, M&A and indirect taxation.
Vered Kirshner is a tax partner with the firm and advises domestic and foreign MNEs operating in the country. This includes clients in the high-tech sector. Kirshner also advises US clients regarding their investments in Israel. Yair Zorea is a tax partner who has more than 14 years of tax experience in advising Israeli, US and European MNEs. Zorea's experience includes handling US inbound and Israeli outbound transactions, tax planning and tax compliance. Another tax partner with PwC is Avishay Bardugo. He has more than 15 years of experience in taxation. He provides tax advice to Israeli corporations in a variety of sectors. Ariel Schaffer is a tax partner who has more than 10 years of experience in corporate taxation. Schaffer advises MNEs from a range of sectors including high-tech and pharmaceuticals.
Leor Nouman is the head of the tax practice at S. Horowitz & Co. The practice comprises three partners and six other fee earners. The tax services provided by the practice include corporate taxation, VAT, tax disputes and investigations. The practice has years of experience assisting clients with finding tax-efficient structures and developing effective tax strategies. This helps clients prevent or mitigate against tax liabilities in Israel. The firm is also experienced in negotiating and resolving tax investigations. The practice has advised more than 100 families in tax dispute matters.
Nouman advises clients on a range of tax issues including tax planning, estates and trusts, employee incentive schemes, real estate taxation and tax disputes. His clients include MNEs, financial institutions, real estate and property developers. Nouman, Ophir Kaplan and Muhammad Jijole are providing tax advice to a client in a matter valued at $100 million. It concerns the purchase of the shares of an Israeli company traded on the Frankfurt stock exchange.
Shekel & Co was established in 1992 by Moshe Shekel. Shekel is the head of the tax practice at Shekel & Co. The practice comprises eight partners and 18 other fee earners. Shekel & Co provides its clients with a range of tax services. These services include income taxation, indirect taxation, corporate taxation, capital gains tax, real estate taxes and international taxation. The firm is also experienced in tax litigation and representing clients in tax disputes in court. The clients of Shekel & Co come from a variety of sectors, including energy, automobiles, real estate, high-tech, investment companies and banks, and insurance companies.
The firm is advising Mobileye N.V. on its acquisition by Intel Corporation. Valued at $15 billion, this among the biggest announced M&A deals ever in Israel. The practice also acquired tax pre-rulings on behalf of the parties. The practice is advising another client on a new oil taxation law.
Ziv Sharon is a tax lawyer who founded Ziv Sharon & Co, which is a boutique tax law firm. The firm's specialises in international taxation, income tax, VAT, real estate tax, tax planning and tax litigation. Its clients include public and private companies, local authorities and banks. Sharon has experience handling all areas of civil taxation. He also lectures on tax matters. Sharon is the co-chairman of the Israel Bar Association's tax committee. The firm's other tax lawyers include Orit Koch, Yoad Frenkel, and Guy Bar-On. Koch advises clients on real estate tax issues and she also gives lectures on this. Frenkel leads the international taxation and voluntary disclosure department at the firm. He previously worked for the ITA. Bar-On assists clients with income tax, transaction support and tax planning. He also handles tax matters for oil and gas companies and frequently represents clients before the tax authorities.
|Tier 1 - Israel|
|Gornitzky & Co|
|Herzog Fox & Neeman|
|Shekel & Co|
|Tier 2 - Israel|
|Goldfarb Seligman & Co|
|Meitar Loquirnik Geva Leshem Tal|
|S. Horowitz & Co|
|Tier 3 - Israel|
|Alter Attorneys at Law|
|Eitan, Mehulal & Sadot|
|Fahn Kanne & Co – Grant Thornton|
|Fischer Behar Chen Well Orion & Co|
|Pearl Cohen Zedek Latzer Baratz|
|Professor Bein & Co|
|Ziv Sharon & Co|
|Tier 4 - Israel|
|Barnea & Co|