Incredimail 2011 Annual Report Download - page 74

As a result of the amendment, tax-
exempt income generated under the provisions of the Investments Law, as amended, will subject us to taxes upon
distribution or liquidation.
Tax benefits under the 2011 Amendment
The Knesset enacted a reform to the Investment Law, effective January 2011. According to the reform a flat rate tax would apply to companies eligible for the
“Preferred Enterprise”
status. In order to be eligible for Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the
country’
s economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise). Certain activities such as mining, are excluded from
the scope of a Preferred Enterprise, as are government-owned businesses.
Israeli companies which currently benefit from an Approved or Beneficiary Enterprise status and meet the criteria for qualification as a Preferred Enterprise
can elect to apply the new Preferred Enterprise benefits by waiving their benefits under the Approved and Beneficiary Enterprise status.
Benefits granted to a Preferred Enterprise include reduced and gradually decreasing tax rates. In peripheral regions (Development Area A) the reduced tax
rate will be 10% in 2011 and 2012, 7% in 2013 and 2014 and 6% starting from 2015. In other regions the tax rate will be 15% in 2011 and 2012, 12.5% in 2013 and
2014 and 12% starting from 2015. Preferred Enterprises in peripheral regions will be eligible for Investment Center grants, as well as the applicable reduced tax rates.
A distribution from a Preferred Enterprise out of the “Preferred Income” would be subject to 15% withholding tax for Israeli-resident individuals and non-
Israeli residents (subject to applicable treaty rates). A distribution from a Preferred Enterprise out of the “Preferred Income”
would be exempt from withholding tax for
an Israeli-resident company. A company electing to waive its Beneficiary Enterprise or Approved Enterprise status through June 30, 2015 may distribute “
Approved
Income” or “Beneficiary Income” subject to 15% withholding tax for Israeli resident individuals and non-
Israeli residents (subject to applicable treaty rates) and
exempt from withholding tax for an Israeli-
resident company. Nonetheless, a distribution from income exempt under Beneficiary Enterprise and Approved Enterprise
programs will subject the exempt income to tax at the reduced corporate income tax rates pertaining to the Beneficiary Enterprise and Approved Enterprise programs
upon distribution, or complete liquidation in the case of a Beneficiary Enterprise’s exempt income.
Since 2011 the Company has changed its dividend policy, under
which it does not intend to distribute dividends in 2011 and beyond.
Commencing 2011 the company elected to apply the new preferred Enterprise benefits.
Law for the Encouragement of Industry (Taxes), 1969
We believe that we currently qualify as an "Industrial Company" within the meaning of the Law for the Encouragement of Industry (Taxes), 1969, or the
Industry Encouragement Law. The Industry Encouragement Law defines "Industrial Company" as a company resident in Israel, of which 90% or more of its income in
any tax year, other than of income from defense loans, capital gains, interest and dividends, is derived from an "Industrial Enterprise" owned by it. An "Industrial
Enterprise" is defined as an enterprise whose major activity in a given tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We cannot
assure that we qualify or will continue to qualify as an "Industrial Company" or that the benefits described above will be available in the future.
• amortization of the cost of purchased know-how and patents, which are used for the development or advancement of the company, over an eight-
year
period;
•
accelerated depreciation rates on equipment and buildings;
•
under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and
•
expenses related to a public offering are deductible in equal amounts over three years.
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