Incredimail 2011 Annual Report Download - page 73

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.
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.
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. An eligible investment
program under the amendment will qualify for benefits as a “Beneficiary Enterprise” (
rather than the previous terminology of Approved Enterprise). Among other
things, the amendment provides for tax benefits to both local and foreign investors and simplifies the approval process.
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%, depending on the level of foreign investment in the company), 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.
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.
• 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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