Friday, 10 February 2017

Israel's budget confirms expansion of IP incentives for tech

Israel's budget for 2017-18 confirms some measures for tech companies announced last year, with the changes applying from 1 January 2017.

Firstly, the budget reiterates the 'innovation box' regime proposed last year, introducing a 6% corporate income tax on 'technological earnings'.

The budget also expands on the tax incentives for 'preferred technological enterprises' and 'special preferred technological enterprises':

For PTEs:
- the corporate tax rate is 12% instead of 24% on tech earnings (or lower, if in a development area)
- the withholding tax on dividends out of tech earnings of qualifying companies is reduced to 4% (unless lower by treaty)
- the capital gains tax rate on the sale of qualifying intangibles to a related nonresident is reduced to 12% where the assets were bought from a non-resident (unusual to see a tax incentive for outbound sales of IP)

For SPTEs:
- the corporate tax rate is 6% on tech earnings
- the withholding tax rate on dividends of tech earnings is reduced, as above; the withholding tax rate on all dividends to a nonresident parent is reduced to 5% (unless lower by treaty)
- the capital gains tax rate on qualifying intangibles (as above) is 6%
- the requirements to be an SPTE are modified, reducing the required preferred income by one third, and total required annual income by half

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