Incredimail 2010 Annual Report Download - page 70

Law for the Encouragement of Capital Investments, 1959
The Law for Encouragement of Capital Investments, 1959 (the "Investment Law") provides that capital investments in a production
facility (or other eligible assets) may, upon approval by the Investment Center of the Israel Ministry of Industry and Trade (the "Investment
Center"), be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment
program, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset. The tax benefits
from any certificate of approval relate only to taxable income derived from growth in manufacturing revenues attributable to the specific
Approved Enterprise. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is
the result of a weighted combination of the applicable rates. The tax benefits under the law are not available for income derived from products
manufactured outside of Israel.
On April 1, 2005, a comprehensive amendment to the Investment Law came into effect ("the 2005 amendment"). The amendment
revised the criteria for investments qualified to receive tax benefits. An eligible investments program under the amendment will qualify for
benefits as a Beneficiary Enterprise (rather than the previous terminology of Approved Enterprise). As the amended Investment Law does not
retroactively apply for investments programs having an Approved Enterprise approval certificate issued by the Israeli Investment Center prior to
December 31, 2005.
Currently we have two Approved Enterprise Programs under the Investment Law, which entitle us to certain tax benefits, and
Beneficiary Enterprise Programs that began in 2008 and in 2010. The Approved Enterprise Programs granted to us are defined in the Investment
Law as Alternative Benefits Programs, which allow for a two years exemption for undistributed income and reduced company tax rate of
between 10% and 25% for the following five to eight years, depending on the extent of foreign (non-
Israeli) investment in us during the relevant
year. The tax rate will be 20% if the foreign investment level is more than 49% but less than 74%, 15% if the foreign investment level is more
than 74% but less than 90%, and 10% if the foreign investment level is 90% or more. The lowest level of foreign investment during a particular
year will be used to determine the relevant tax rate for that year. The period in which we receive these tax benefits may not extend beyond 14
years from the year in which approval was granted and 12 years from the year in which operations or production by the enterprise began.
A company that has elected to participate in the alternative benefits program and that subsequently pays a dividend out of the income
derived from the Approved Enterprise or Beneficiary Enterprise during the tax exemption period will be subject to corporate tax in respect of the
amount distributed at the rate that would have been applicable had the company not elected the alternative benefits program (generally 10% to
25%, depending on the foreign (non-
Israeli) investment in it). Since 2009, this has applied to the Company as it has changed its dividend policy,
committing to distribute at least 50% of its net income starting 2009. As the Company has changed its dividend policy, having decided it does
not intend to distribute dividends in 2011 and beyond, the Company will again benefit more fully from these programs in 2011.
The Investment Law also provides that an Approved Enterprise is entitled to
accelerated depreciation on its property and equipment that
are included in an approved investment program.
The benefits available to an Approved Enterprise are conditioned upon terms stipulated in the Investment Law and the regulations
thereunder and the criteria set forth in the applicable certificate of approval. If we do not fulfill these conditions in whole or in part, the benefits
can be canceled and we may be required to refund the amount of the benefits, with the addition of the Israeli consumer price index linkage
differences and interest. We believe that our Approved Enterprises currently operate in compliance with all applicable conditions and criteria,
but there can be no assurance that they will continue to do so.
Income derived from sources other than "Approved Enterprise" or "Beneficiary Enterprise" programs during the benefit period will be
subject to tax at the regular corporate tax rate.
Pursuant to the amendment to the Investments Law, only Approved Enterprises receiving cash grants require the approval of the
Investment Center. Approved Enterprises which do not receive benefits in the form of governmental cash grants, such as benefits in the form of
tax benefits, are no longer required to obtain this approval (such enterprises are referred to as Beneficiary Enterprises). However, a Beneficiary
Enterprise is required to comply with certain requirements and make certain investments as specified in the amended Investment Law. The
amendment to the Investment Law addresses benefits that are being granted to Beneficiary Enterprises and the length of the benefits period.
Tax benefits under the 2005 Amendment
The 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.
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