Incredimail 2009 Annual Report Download - page 69

Tax benefits under the 2005 Amendment
A recent Amendment to the Investment Law, effective as of April 1, 2005 has significantly changed the provisions of the Investment
Law. The amendment includes revisions to the criteria for investments qualified to receive tax benefits as an Approved Enterprise.
However, a company granted benefits according to section 51 of the Investment Law (prior the amendment) would not be allowed to
choose a new tax year as a Year of Election (as describe below) under the new amendment, for a period of 2 years from the company’
s previous
Year of Commencement under the old Investment Law.
As a result of the Amendment, it is no longer necessary for a company to acquire Approved Enterprise status in order to receive the tax
benefits previously available under the Alternative Route, and therefore such companies need not apply to the Investment Center for this
purpose. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns by notifying the Israeli Tax
Authority within 12 months of the end of that year, provided that its facilities meet the criteria for tax benefits set out by the Amendment (the “
Beneficiary Enterprise ”). Companies are also granted a right to approach the Israeli Tax Authority for a pre-
ruling regarding their eligibility
for benefits under the Amendment. The Amendment includes provisions attempting to ensure that a company will not enjoy both Government
grants and tax benefits for the same investment program.
Tax benefits are available under the Amendment to production facilities (or other eligible facilities), which are generally required to
derive more than 25% of their business income from export. In order to receive the tax benefits, the Amendment states that the company must
make an investment in the Beneficiary Enterprise exceeding a certain percentage or a minimum amount specified in the Law. Such investment
may be made over a period of no more than 3 years ending at the end of the year in which the company requested to have the tax benefits apply
to the Beneficiary Enterprise (the " Year of Election
"). Where the company requests to have the tax benefits apply to an expansion of existing
facilities, then only the expansion will be considered a Beneficiary Enterprise and the company’
s effective tax rate will be the result of a
weighted average of the applicable rates. In this case, the minimum investment required in order to qualify as a Beneficiary Enterprise is
required to exceed a certain percentage or a minimum amount of the company’s production assets at the end of the year before the expansion.
The amended Investment Law specifies certain conditions that a Beneficiary enterprise has to comply with in order to be entitled to
benefits. These conditions include among others:
The duration of tax benefits is subject to a limitation of the earlier of 7 to 10 years from the Commencement Year (Commencement
Year defined as the later of: (i) the first tax year in which the Company had derived income for tax purposes from the Beneficiary Enterprise or
(ii) the year in which the Company requested to have the tax benefits apply to the Beneficiary Enterprise –
Year of Election), or 12 years from
the first day of the Year of Election. The tax benefits granted to a Beneficiary Enterprise are determined, as applicable to its geographic location
within Israel.
Similar to the previously available alternative route, exemption from corporate tax on undistributed income for a period of two to ten
years, depending on the geographic location of the Beneficiary Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the
remainder of the benefits period, depending on the level of foreign investment in each year. Benefits may be granted for a term of seven to ten
years, depending on the level of foreign investment in the company. If the company pays a dividend out of income derived from the Beneficiary
Enterprise during the tax exemption period, such income will be subject to corporate tax at the applicable rate (10%-25%) in respect of the
gross
amount
of the dividend that we may be distributed. The company is required to withhold tax at the source at a rate of 15% from dividends
distributed from income derived from the Benefited Enterprise.
There can be no assurance that we will comply with the above conditions in the future or that we will be entitled to any additional
benefits under the amended Investment Law.
●
that the Beneficiary Enterprise
’
s revenues during the applicable tax year from any single market (i.e. country or a separate customs
territory) do not exceed 75% of the Beneficiary enterprise
’
s aggregate revenues during such year; or
● that 25% or more of the Beneficiary Enterprise’
s revenues during the applicable tax year are generated from sales into a single
market (i.e. country or a separate customs territory) with a population of at least 12 million residents.
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