ISRAELI HOLDING COMPANIES

Reform of Israeli tax legislation eliminated the possibility of using local companies as a means of avoiding taxation. Nevertheless, under certain conditions, Israel provides tools, very attractive for foreign investors, while keeping all options of the State, which gained the confidence of the international financial community.
 

First of all, we speak about building of holding structures and tax breaks for such companies, the most significant of which is the ability to receive dividends from an Israeli holding company with a tax rate not exceeding 5%. In order for the company to qualify as an Israeli holding company, the following conditions must be met:

• The company must be registered in Israel and all control and monitoring of its activities should also be implemented in the country;
• The company may not be public (shares are not registered on the stock exchange) and should not have the status of a financial institution;
• Annual total value of shares (the price at which they were acquired) together with loans to subsidiaries must be at least 50 million shekels (about 12 million USD) - and that amount must constitute at least 75% of the holding’s assets;
• The company should not be involved in active business and earn income, except for the services provided to the subsidiaries and the income from such companies;
• Within 90 days after establishment of the company an application for registration of the company as an Israeli holding must be filed with the management of the Tax Administration. All shareholders must sign such petition.

In addition to the above requirements for Israeli companies, there are a number of conditions for subsidiaries:
• The company should not be a resident of Israel. It should be a tax resident of the country, which has signed an agreement on avoidance of double taxation with Israel. If there's no such agreement in place, then the qualifying condition for the subsidiary under an Israeli holding company regime is a 15% or higher tax on the subsidiary's income, practiced in this country at the time of purchase of shares by an Israeli holding company. This condition is setup in order to exclude the possibility of holding pronounced low-tax companies.
• At least 75% of revenue outside of Israel must be obtained from active business, that is not from dividends, interest, profit from copyright, property sales, etc.
• Proportion of the company’s property in Israel should not exceed 20% of its total assets. The concept of "property" in this case includes equipment, real estate, shares, rights to profits and rights to foreign companies, owning directly or indirectly, property in Israel.
• Revenues in Israel, including from the sale of real estate, must not exceed 20% of the total revenues for the year.

Ministry of Finance of Israel has developed a comprehensive program of stimulating business activity. Reduction of the tax burden for the Israeli holding company creates optimal conditions for establishment in Israel of a centre of management of the company’s global investments.
Companies that meet the criteria of the Israeli holding company, have the following tax benefits:
1. A foreign resident, the owner of the Israeli holding company, has significant tax benefits - his income tax on dividends from the activities of the holding is only 5% instead of 25% or 20%.
2. Exemption from tax on profits from the sale of shares in acquired companies.
3. Dividends received from subsidiaries are exempt from tax (in case of ownership of shares in these companies for at least 12 months).
4. Exemption from tax on profits made in the Israeli financial market, such as exchange earnings, return on savings, dividends.

Summarizing the above, we would like to note that Israel has an excellent reputation in international financial markets. Establishment of a holding company in this country will allow your corporation not only to optimize its financial policies without fear of damage to the image, but also create certain international guarantees to protect assets of the companies operating in countries with fragile economies.