Incredimail 2011 Annual Report Download - page 72

General Corporate Tax Structure in Israel
On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Tax Burden Law")
which, among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate. The Law also increases the corporate tax rate to 25%
in 2012. Following the amendment, corporate tax rates and capital gains rates are: 2011- 24%, 2012- and thereafter-
25%. The Tax Burden Law was published on 7
December 2011 and will enter into force on 1 January 2012, the effective tax rate payable by a company that derives income from an approved and beneficiary
enterprises (as discussed below) may be considerably less.
Foreign Exchange Regulations
Under the Foreign Exchange Regulations the Israeli company is calculating its tax liability in U.S. Dollars according to certain orders. The tax liability, as
calculated in U.S. Dollars is translated into NIS according to the exchange rate as of December 31st of each year.
Law for the Encouragement of Capital Investments, 1959
The Law for Encouragement of Capital Investments, 1959 (the "Investment Law") provides that capital investments in a production facility (or other eligible
assets) may, upon approval by the Investment Center of the Israel Ministry of Industry and Trade (the "Investment Center"), be designated as an Approved Enterprise.
Each certificate of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the investment and by the
physical characteristics of the facility or the asset. The tax benefits from any certificate of approval relate only to taxable income derived from growth in
manufacturing revenues attributable to the specific Approved Enterprise. If a company has more than one approval or only a portion of its capital investments are
approved, its effective tax rate is the result of a weighted combination of the applicable rates. The tax benefits under the law are not available for income derived from
products manufactured outside of Israel.
Until 2011 (see below “
Preferred Enterprise") Currently we had two Approved Enterprise Programs under the Investment Law, which entitle us to certain tax
benefits, and Beneficiary Enterprise Programs that began in 2008 and in 2010. The Approved Enterprise Programs granted to us are defined in the Investment Law as
Alternative Benefits Programs, which allow for a two years exemption for undistributed income and reduced company tax rate of between 10% and 25% for the
following five to eight years, depending on the extent of foreign (non-
Israeli) investment in us during the relevant year. The tax rate will be 20% if the foreign
investment level is more than 49% but less than 74%, 15% if the foreign investment level is more than 74% but less than 90%, and 10% if the foreign investment level
is 90% or more. The lowest level of foreign investment during a particular year will be used to determine the relevant tax rate for that year. The period in which we
receive these tax benefits may not extend beyond 14 years from the year in which approval was granted and 12 years from the year in which operations or production
by the enterprise began.
A company that has elected to participate in the alternative benefits program and that subsequently pays a dividend out of the income derived from the
Approved Enterprise or Beneficiary Enterprise during the tax exemption period will be subject to corporate tax in respect of the amount distributed at the rate that
would have been applicable had the company not elected the alternative benefits program (generally 10% to 25%, depending on the foreign (non-
Israeli) investment in
it). In 2009, the Company changed its dividend policy, committing to distribute 50% of its net income. The Company applied the required taxes to such dividends as
required by the law. Since the beginning of 2011, the Company changed its dividend policy, under which it does not intend to distribute dividends in 2011 and beyond.
The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an
approved investment program.
The benefits available to an Approved Enterprise are conditioned upon terms stipulated in the Investment Law and the regulations thereunder and the criteria
set forth in the applicable certificate of approval. If we do not fulfill these conditions in whole or in part, the benefits can be canceled and we may be required to refund
the amount of the benefits, with the addition of the Israeli consumer price index linkage differences and interest. We believe that our Approved Enterprises currently
operate in compliance with all applicable conditions and criteria, but there can be no assurance that they will continue to do so.
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