Incredimail 2014 Annual Report Download - page 80

During 2013, we applied the provisions of Amendment 69 to all undistributed exempt profits accrued prior to 2011 by us and our Israeli
subsidiary. Consequently, we paid ILS 6.3 million (approximately $1.8 million) corporate tax on exempt income of ILS 63.2 million
(approximately $17.9 million). This income is available to be distributed as dividends in future years with no additional corporate tax liability.
As a result, we are required to invest ILS 4.7 million (approximately $1.2 million) in our industrial enterprises in Israel over a five year period.
Such investment may be in the form of the acquisition of industrial assets (excluding real estate assets), investment in R&D in Israel, or payroll
payments to new employees to be hired by the enterprise.
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.
Transfer Pricing
In accordance with Section 85A of the Israeli Tax Ordinance, if in an international transaction (where at least one party is a non-
Israeli
or all or part of the income from such transaction is to be taxed abroad as well as in Israel) there is a special relationship between the parties
(including but not limited to family relationship or a relationships of control between companies), and due to this relationship the price set for an
asset, right, service or credit was determined or other conditions for the transaction were set such that a smaller profit was realized than what
would have been expected to be realized from a transaction of this nature, then such transaction shall be reported in accordance with customary
market conditions and tax shall be charged accordingly. The assessment of whether a transaction falls under the aforementioned definition shall
be implemented in accordance with one of the procedures mentioned in the regulations and is based, among others, on comparisons of
characteristics which portray similar transactions in ordinary market conditions, such as profit, the area of activity, nature of the asset, the
contractual conditions of the transaction and according to additional terms and conditions specified in the regulations.
Taxation of our Shareholders
Starting in 2012, dividends paid to Israeli individuals, are subject to 25% or 30% withholding tax depending on ownership percentage,
unless reduced by an applicable tax treaty. Capital gains derived by Israeli resident individuals, on sale of our shares are subject to tax at a 25%
or 30% rate unless an exemption is available under domestic law or an applicable tax treaty.
Capital Gains Taxes Applicable to Israeli Resident Shareholders
. An individual is subject to a 25% tax rate on real capital gains
derived from the sale of shares, as long as the individual is not a "substantial shareholder" (generally a shareholder with 10% or more of the right
to profits, right to nominate a director and voting rights) in the company issuing the shares.
A substantial shareholder will be subject to tax at a rate of 30% in respect of real capital gains derived from the sale of shares issued by
a company in which he or she is a substantial shareholder. The determination of whether the individual is a substantial shareholder will be made
on the date on which the securities are sold. In addition, the individual will be deemed to be a substantial shareholder if at any time during the 12
months preceding the date of sale, he or she was a substantial shareholder.
• 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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