Incredimail 2009 Annual Report Download - page 70

The Amendment changes the definition of “foreign investment”
in the Investments Law so that the definition now requires a minimal
investment of NIS 5 million by foreign investors. Furthermore, such definition now also includes the purchase of shares of a company from
another shareholder, provided that the company’s outstanding and paid-
up share capital exceeds NIS 5 million. Such changes to the
aforementioned definition will take effect retroactively from 2003.
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.
A substantial portion of our taxable operating income is derived from our approved enterprise program and we expect that a substantial
portion of any taxable operating income that we may realize in the future will be also derived from such program.
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.
Taxation of our Shareholders
Taxation of Non-Israeli Shareholders on Receipt of Dividends. Non-
residents of Israel are generally subject to Israeli income tax on the
receipt of dividends paid on our ordinary shares at the rate of 20%, which tax will be withheld at source, unless a different rate is provided in a
treaty between Israel and the shareholder’
s country of residence. With respect to a substantial shareholder (which is someone who alone, or
together with another person, holds, directly or indirectly, at least 10% in one or all of any of the means of control in the corporation), the
applicable tax rate will remain at 25%. Under the U.S.-
Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a
holder of our ordinary shares who is a U.S. resident (for purposes of the U.S.-
Israel Tax Treaty) is 25%. However, generally, the maximum rate
of withholding tax on dividends, not generated by our Approved Enterprise, that are paid to a U.S. corporation holding 10% or more of our
outstanding voting capital throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%. Furthermore,
dividends paid from income derived from our Approved Enterprise are subject, under certain conditions, to withholding at the rate of 15%. We
cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’ tax liability.
A non-
resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel
in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no
other taxable sources of income in Israel.
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders.
Shareholders that are not Israeli residents are generally exempt
from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that (1) such
shareholders did not acquire their shares prior to our initial public offering, (2) the shares are listed for trading on the Tel Aviv Stock Exchange
and/or a foreign exchange, (3) the provisions of the Income Tax Law (inflationary adjustments), 1985 do not apply to such gain, and (4) such
gains did not derive from a permanent establishment of such shareholders in Israel. However, non-
Israeli corporations will not be entitled to the
foregoing exemptions if an Israeli resident (i) has a controlling interest of 25% or more in such non-
Israeli corporation, or (ii) is the beneficiary
of or is entitled to 25% or more of the revenues or profits of such non-
Israeli corporation, whether directly or indirectly. In certain instances,
where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the
withholding of Israeli tax at the source.
● 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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