The Finance Ministry has declared a draft proposals as part of the proposed Economic Arrangements Law 2017–2018 on 31st July 2016 that includes an expansion of tax benefits for hi-tech companies, at the same time further aligning Israel’s tax benefits to the recommendations of Action 5 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. Additionally, this law also incorporates a reduction of corporate taxes for research and development (R&D) based companies in Israel. The Different rates applicable for different companies, which are given follow:
- A 12% rate is applicable for a company qualifying as a “preferred technological business” if the company invests at least 7% of its total expenses in R&D, or at least 20% of the workforce is employed in development, or a venture capital investment was previously made in the company or the company reached average annual growth of 25% in sales or in the number of employees for a period of 3 years.
- A 6% rate applies for a company qualifying as a “special preferred technological business” with combined revenues of over NIS 10 billion;
The highest profits are granted to companies with more than NIS 10 billion in annual global sales. On the other hand, the shareholders of such eligible companies will potentially enjoy a 4% withholding tax rate on outbound dividends reducing from the current 30%, 25% or 20%, depending on the category of dividends. The proposals may be submitted to the parliament for approval in August 2016.
