Incredimail 2014 Annual Report Download - page 79

The discussion below should not be construed as legal or professional tax advice and does not cover all possible tax considerations.
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and
disposition of our ordinary shares, including, in particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure in Israel
Taxable income of Israeli companies is generally subject to corporate tax at the rate of 26.5%. However, the effective tax rate payable
by a company that derives income from a Preferred Enterprise (as further discussed below) may be considerably lower.
Foreign Currency Regulations
We are permitted to measure our Israeli taxable income in U.S. dollars pursuant to regulations published by the Israeli Minister of
Finance, which provide the conditions for doing so. We believe that we meet and will continue to meet, the necessary conditions and as such, we
measure our results for tax purposes based on the U.S. dollar/ILS 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 tax benefits for income of Israeli companies
meeting certain requirements and criteria. The Investment Law has undergone certain amendments and reforms in recent years.
The Israeli parliament enacted a reform to the Investment Law, effective January 2011. According to the reform, a flat rate tax applies
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).
We elected "Preferred Enterprise" status commencing in 2011.
Benefits granted to a Preferred Enterprise include reduced tax rates. In peripheral regions (Development Area A) the reduced tax rate
was 7% in 2013, 9% in 2014, and will be 9% in 2015. In other regions the tax rate was 12.5% in 2013, 16% in 2014, and will be 9% in 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), or 20% for dividends which are distributed on or after January 1, 2014
and from preferred income that was produced or accrued after such date.
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, which relate to tax incentive programs afforded
under previous versions of the Investment Law, 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.
Pursuant to a recent amendment to the Investments Law which became effective on November 12, 2012 (“Amendment 69”),
a company
that elects by November 11, 2013 to pay a corporate tax rate as set forth in that amendment (rather than the regular corporate tax rate applicable
to Approved Enterprise income) with respect to undistributed exempt income accumulated by the company up until December 31, 2011, will be
entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such dividend. A
company that has so elected must make certain qualified investments in Israel over the five-
year period commencing in 2013. A company that
has elected to apply the amendment cannot withdraw from its election.
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