Incredimail 2013 Annual Report Download - page 78

Foreign Currency Regulations
We are permitted to measure our Israeli taxable income in U.S. dollars pursuant to regulations published by the Israeli Minister of
Finance, which provide the conditions for doing so. We believe that we meet and will continue to meet, the necessary conditions and as such,
we measure our results for tax purposes based on the U.S. dollar/NIS exchange rate as of December 31st of each year.
Law for the Encouragement of Capital Investments, 1959
The Law for Encouragement of Capital Investments, 1959 (the "Investment Law") provides tax benefits for income of Israeli companies
meeting certain requirements and criteria. The Investment Law has undergone certain amendments and reforms in recent years.
The Israeli parliament enacted a reform to the Investment Law, effective January 2011. According to the reform, a flat rate tax applies
to companies eligible for the "Preferred Enterprise" status. In order to be eligible for Preferred Enterprise status, a company must meet minimum
requirements to establish that it contributes to the country’
s economic growth and is a competitive factor for the Gross Domestic Product (a
competitive enterprise).
We elected "Preferred Enterprise" status commencing in 2011.
Benefits granted to a Preferred Enterprise include reduced tax rates. In peripheral regions (Development Area A) the reduced tax rate
was 10% in 2011 and 2012, 7% in 2013 and will be 9% starting from 2014. In other regions the tax rate was 15% in 2011 and 2012, 12.5% in
2013 and will be 16% starting from 2014. Preferred Enterprises in peripheral regions will be eligible for Investment Center grants, as well as the
applicable reduced tax rates.
A distribution from a Preferred Enterprise out of the "Preferred Income" would be subject to 15% withholding tax for Israeli-
resident
individuals and non-
Israeli residents (subject to applicable treaty rates), or 20% for dividends which are distributed on or after January 1, 2014
and from preferred income that was produced or accrued after such date.
A distribution from a Preferred Enterprise out of the "Preferred Income" would be exempt from withholding tax for an Israeli-
resident
company. A company electing to waive its Beneficiary Enterprise or Approved Enterprise status, which relate to tax incentive programs afforded
under previous versions of the Investment Law, through June 30, 2015 may distribute "Approved Income" or "Beneficiary Income" subject to
15% withholding tax for Israeli resident individuals and non-
Israeli residents (subject to applicable treaty rates) and exempt from withholding tax
for an Israeli-
resident company. Nonetheless, a distribution from income exempt under Beneficiary Enterprise and Approved Enterprise
programs will subject the exempt income to tax at the reduced corporate income tax rates pertaining to the Beneficiary Enterprise and Approved
Enterprise programs upon distribution, or complete liquidation in the case of a Beneficiary Enterprise’s exempt income.
Pursuant to a recent amendment to the Investments Law which became effective on November 12, 2012 (“Amendment 69”),
a company
that elects by November 11, 2013 to pay a corporate tax rate as set forth in that amendment (rather than the regular corporate tax rate applicable
to Approved Enterprise income) with respect to undistributed exempt income accumulated by the company up until December 31, 2011, will be
entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such dividend. A
company that has so elected must make certain qualified investments in Israel over the five-
year period commencing in 2013. A company that
has elected to apply the amendment cannot withdraw from its election.
During 2013, we applied the provisions of Amendment 69 to all undistributed exempt profits accrued prior to 2011 by us and our Israeli
subsidiary. Consequently, we paid NIS 6.3 million corporate tax on exempt income of NIS 63.2 million. This income is available to be
distributed as dividends in future years with no additional corporate tax liability. As a result, we are required to invest NIS 4.7 million in our
industrial enterprises in Israel over a five year period. Such investment may be in the form of the acquisition of industrial assets (excluding real
estate assets), investment in R&D in Israel, or payroll payments to new employees to be hired by the enterprise.
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.
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