TAX INCENTIVES
Inward investment/"Approved enterprise" status, which provides for cash and tax benefits, may be granted to enterprises that increase the productive capacity of the economy, improve the balance of payments or provide new employment opportumities, The status is granted mainly to manufacturing and tourism enterprises. Approved enterprises with significant foreign investment are entitled to increased benefits (see "Capital investment" below).
Free export-processing zones are to be set up in national priority zones, providing tax holidays of 20 years on undistributed profits (with a possible extension of a further 20 years) and 15% tax on distributed profits and capital gains. Exemptions from indirect taxes will also apply. Eligible entities are private entities whose main activity is producing or providing services for export and that do not engage in retail sales in the free zone or elsewhere in lsrael. Services provided by financial institutions other than office administration or associated services are excluded.
A general condition of approval is that a minimum of 30% of the investment in fixed assets must be equity-financed.
Capital investment/Approved enterprises are entitled to cash grants of up 24% of the amount of the investment for purchases of fixed assets in specified areas of the country.
Reduced tax rates/
General Companies enjoy reduced tax rates on income derived from an approved enterprise. The reduced tax rates are generally applicable for a 7-year benefit period (or a 10-year period in the case of a foreign investors company; see below), commencing with the year in which the approved enterprise first generates taxable income. Generally this period of benefits cannot extend beyond 12 years from the year the enterprise commenced its operations or beyond 14 years from the year in which the approval of its status as an approved enterprise was granted, whichever is earlier. These limitations may be extended in special cases.
Locally owned companies Income derived by a company from an approved enterprise during the seven-year period of benefits is generally subject to company tax at a rate of 25%; lower rates may be applicable to a "foreign investors'company," as discussed below. An approved enterprise located in Area A is entitled to a tax holiday from company tax for its first two years (for enterprises approved after 1996).
A reduced withholding tax rate of 15% applies to dividends paid by an lsraeli company from profits of an approved enterprise earned during the benefits period noted above if distributed either during the benefits period or during the 12 following years.
Consequently, the effective overall rate of lsraeli tax on profits earned by an approved enterprise during the period of benefits will be 25% if retained by the company or 36.25% if distributed to a shareholdre. Foreign shareholders resident in certain tax-treaty countries may sometimes, depending on the treaty provisions, enjoy a lower withholding tax rate on dividends.
Special rules govern the allocation of taxable income of "mixed
enterprises." These are essentially entities that derive only part of their income from an approved enterprise or that operate under a number of approvals relating to separate investment projects. The company tax payable in respect of income from each part of a mixed enterprise is separately computed, and a composite withholding tax rate is applicable to dividends distributed by a mixed enterprise.
Foreign investors' companies Israeli incorporated company: An lsraeli incorporated company that qualifies as a foreign investors' company (FIC) is entitled to enhanced tax benefits on approved enterprise income. In general, an FIC is a company more than 25% of whose share capital (in terms of rights to shares, profits, voting, and the appointment of directors) and combined share capital and investor loan capital is owned by foreign residents. An FIC benefits from reduced company tax on the profits of an approved enterprise for a period of 10 years (instead of 7 years), commencing with the first year in which taxable income is generated. The total period of benefits continues to be restricted, so that it cannot extend beyond 12 years from the year in which operations commence or 14 years from the year in which the approval was granted, whichever is earlier. In addition, an FIC enjoys reduced company tax rates applicable to its approved enterprise income, as shown below.
PERCENTAGE OF FOREIGN OWNERSHIP
&n
[1] [2] [3] [4] 下一页
