Incredimail 2010 Annual Report Download - page 72

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.
In December 2010, the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, was passed, and among others,
amended the Investment Law, effective January 1, 2011. According to the amendment, the benefit tracks in the Investment Law were modified
and a flat tax rate applies to the Company's entire preferred income. The Company will be able to opt to apply (the waiver is non-
recourse) the
amendment and from then on it will be subject to the amended tax rates as follows: 2011 and 2012 - 15%, 2013 and 2014 -
12.5% and in 2015
and thereafter - 12%.
The Company is examining the possible effect of the amendment on its results, and at this time has not yet decided whether to opt to
apply the amendment.
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 at the time
of distribution or at any time during the preceding 12 months period), the applicable tax rate to the shareholders will be 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.
• 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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