2022 Recommendations Regulations
Israel Digital Assets and Currency
In tradition with the decades long fiscal encouragement of Israel’s Ministry of Finance’s of industry and innovative initiatives, on August 18, 2022 a draft proposal for reinstatement of tax benefits for investors in high tech and innovative companies was published as an intended temporary order for ‘Encouragement of Knowledge-Intensive Industry’ 5772-2022.
Against the background of the expiration at the end of 2019 of previous similar tax benefits under the Budget Law of 2011 – 2012 5771-2011 the proposal seeks to grant, this time around:
- a tax credit to an individual, and to certain companies that are ‘individually owned’ or ‘tax transparent’ (as per Sect 76 of the Income Tax Ordinance) and partnership who make an investment in start-up companies up to an amount of 25% of the amount invested (with a maximum of 3,5 M NIS – U$ 1 M);
- deferral of tax on a capital gain from the sale of shares of a “preferred company” which owns a “technological enterprise” when a new investment in an R&D company is made, or when there is a share for share exchange;
- recognition of the amount of the investment in shares as an expense for tax purposes;
- withholding tax exemption for foreign investing ‘financial institutions’ on interest, discount and linkage differentials on convertible loans to a qualifying Israel corporate recipient for financing provided of at least 10 M U$;
- a special depreciation on IP for five years when at least 80% control in an Israel based “preferred” company is acquired – at a minimum purchase price of 20 M U$, and the company owns IP in the framework of a ‘technological enterprise’[1] by a qualifying acquirer (of which the average revenue in three previous years over NIS 75 M NIS) Various additional terms apply, among which minimum increases of R&D expenses and the filing of a request for recognition with the innovation authorities. Also such a depreciation is proposed for an Israel based corporate investor which acquires a similar foreign company
If accepted the temporary order would apply until the end of 2025 with a possibility of extension
In parallel an extension has been proposed of the tax benefit of recognition of a deductible capital loss for an investor up to the sum of the invested amount in an Israel based R&D company at the occasion of the public offering of the company. A capital loss may be recognized up to a maximum NIS 5 million (approx. 1,45 M U$). This significant benefit would be in effect, if accepted, until the end of 2028.</
These proposals are still pending today in January 2023 and are expected to revive once the new government of Israel picks up steam.
[1] Law for Encouragement of Capital Investment 1959
