SIGNIFICANT DEVELOPMENTS
As of January 1,2000, sales tax at rates of up to 2.5% will be generally applicable to the sale of most real estate rights.
TAXES ON CORPORATE INCOME
Company tax of 36% is levied on corporations. Approved enterprises (see below) are subject to reduced rates of tax according to the level of foreign ownership.
There are no local taxes on corporate income.
CORPORATE RESIDENCE
The following are considered to be resident in lsrael.
1.A company registered in lsrael whose main activity is in lsrael. Branches of foreign corporations (which must be registered in lsrael) will be considered resident only at their request.
2.A company controlled and managed in lsrael.
There are no published guidelines from the tax authorities that describe the type of activities of a preparatory or auxiliary nature that generally would qualify as being those of a representative office and that would consequently be exempt from lsraeli taxation. Such exemption may be available under an applicable tax treaty.
OTHER TAXES
Value-added tax/The rate of VAT is 17%. Exports of goods and certain services and various other transactions are zero rated, and certain transactions are exempt. Banks and other financial institutions pay VAT-equivalent taxes at the rate of 17%, based on their total payroll and on profits. Not-for-profit organizations pay VAT (wage tax) at the rate of 8.5% of their total payroll.
Land appreciation tax/Capital gains on real estate are assessed to land appreciation tax. The law relates to any real estate in lsrael, including houses, buildings and anything permanently fixed to land; real estate rights; and leases for 25 years or more. Tax calculations closely follow the calculation of company tax on capital gains (see below).
Acquisition tax/The purchaser of real estate is subject to acquistion tax at rates of 0.5% to 4.5%. he maximum rate will be increased to 5% as of January 1,2000.
Sales tax/Under new legislation, which will come into effect on January 1,2000, sales tax at the rate of 2.5% will be generally applicable to the sale of most real estate rights, while a reduced rate of 0.8% will be available for certain types of apartments, which are classified as inventory. Coertain exemptions will be available.
Real estate tax (property tax)/This tax, which will be abolished on December 31,1999, is levied annually at the rate of 2.5% on vacant land for urban building or 1.2% if it is trading stock.
BRANCH INCOME
Tax rates on branch profits are the same as on corporate profits. No tax is withheld on transfers of profits to the foreign home office unless the branch is an approved enterprise (see below). A branch is liable to tax at the standard rate on lsrael-source income and capital gains. Income from foreign operations, the control and management of which are exercised in lsrael, is also liable to tax. Resident branches are, in addition, liable to capital gains tax on their worldwide capital gains.
A branch is considered resident in lsrael if it so elects or if control and management are exercised in lsrael.
INCOME DETERMINATION
Inventory valuation/Inventories are valued at lower of cost or market value (net realizable value). Conformity is required between book and tax reporting of inventory.
A FIFO or weighted-average basis of valuation is acceptable; LIFO is not.
Capital gains/Company tax on capital gains is imposed on the disposal of fixed and intangible assets where the disposal price is in excess of the depreciated cost.
For the purposes of assessing tax, the capital gain is generally calculated in local currency, and there are provisions for segregating the taxable gain into its real and inflationary components. The inflationary amount is the sum of two components:(1) net cost indexation difference and (2) share of retained profits (in the event of a disposal of shares).
The net cost indexation difference is equal to the original cost of the asset less depreciation( where applicable), multiplied by the percentage increase in the lsraeli consumer price index from the date of acquistion of the asset to the date of its sale. This inflationary amount component is exempt to the extent it accrued after January 1,1994 and is generally subject to tax at the rate of 10% if it accrued before then.
A nonresident that invests in taxable assets with foreign currency may elect to calculate the inflationary amount in that foreign currency. Under this option, in the event of sale of shares in an lsraeli company, the inflationary amount attributable to exchange differences on the investment is exempt from lsraeli tax.
In the case of a disposal of shares, the share of retained profits is the amount of gain equal to the proportional part of the retained profits of the company that the seller of the shares would have rights to by virtue of those shares. P
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