© All rights reserved to Barnea Jaffa Lande & Co. Law offices

Blog  / Tax

Adv. Harel Perlmutter
It is vital that entrepreneurs pay attention to possible tax benefits and tax liabilities from a startup’s earliest stages. Click to read the four things you should pay particular attention to.
Adv. Dreyfuss Ariella
Goodnight 2017…
December 31, 2017 / by Ariella Dreyfuss
It has certainly been an interesting 2017 in the Israeli Hi-Tech world, here is a rundown of 5 highlights, in case you missed them.
Adv. Danny Boguslavsky
Israel has long been acknowledged and admired for its vibrant start-up culture, fostered through government investment and pro-business policies. Further, the national focus on business development provides a regulatory structure that protects business owners from creditors and ensures proper structure for the public – incorporation. To take advantage of the corporate structure, you need to ensure that you follow the proper registration process, and select the right corporate vehicle to fit your emerging business model.   Why should start-ups incorporate? The most common corporate vehicle in Israel, and especially for start-ups, is a limited liability company. The main reasons for its popularity, and why entrepreneurs should incorporate at an early stage, are: The first and foremost reason for any individual to incorporate a company and become a shareholder thereof, is the fact that a company is a separate legal entity from its shareholders. This separation creates a “wall” between the company’s shareholders and its creditors, so that the shareholders and their private property are protected against the company’s creditors and they will not be personally liable for the company’s debts, to the extent allowed under the ‘piercing of the corporate veil’ provisions, according to law (whereby in extreme cases a shareholder can be held personally liable for the company’s debts). In addition, the shareholders cannot be obliged to pay the company's debts beyond the amount of their investment. Any early stage start-up is always seeking investors to invest in their product or idea. In exchange for their investment, the investors expect a form of guarantee in return. When operating under a company, the company can leverage its capital raising without actually giving a substantial consideration in return (such as personal guarantees) by offering the investors consideration in the form of company shares and/or share options. One of the main reasons for investors to invest in a start-up is its intellectual property. With incorporation, the IP is owned by the company and not by the founders, and the investors, who are also shareholders of a company, are the owners of the intellectual property too, in proportion to their shareholding percentages. Moreover, in the event one of the company’s founders terminates its engagement with company, the IP shall remain with the company and not with the departing founder. A start-up which wishes to expand will search for quality employees to join and can offer them benefits such as options.     For those start-ups who are or become profitable, the tax rate for companies in Israel is 24% (as of 2017), compared to the individual tax rate, which can be as high as 50%.   How to incorporate Before you can do business in Israel as a company, you must register your company with both the Registrar of Companies and the Tax Authorities, which fall within the control of the Ministry of Justice and the Ministry of Finance, respectively.   When registering a company, the following steps must be taken: File an application for the company’s incorporation which includes, inter alia, the company’s suggested name, its share capital, its shareholders and their holdings, and its first directors. Draft the company’s articles of association, which governs the relationship between the company and its shareholders and between the shareholders and themselves. Pay a registration fee of NIS 2,606 (as of today).   The process can feel onerous at times, but each step is important. Besides the importance of operating legally, the paperwork establishes the rules of conduct and governance both in respect of the present and going forward. This is why the incorporation procedure is critical.   “Originally published on the IDC Legal Clinic website”
Adv. Liat Keisary
What do the United States, the UK, France, Germany, Italy, Spain, Switzerland and the Netherlands all have in common? In these countries (and many others), estate tax is collected on large inheritances. These taxes are imposed not only on the money of the deceased, but also on their real-estate properties, shares, pension funds, and other assets.   In recent years, there has been a shift towards expanding the scope of these tax collections. An example of this can be found in the UK. On April 6, 2017, an amendment will take effect that expands the scope of the estate tax on trusts, or on individuals with residential properties in the UK.   The major impact of the new amendment is that now it will also apply to individuals who live outside the UK, to trusts with beneficiaries outside the UK, and to directors of foreign companies that own residential property in the UK.   In Israel, on the other hand, the estate tax was cancelled in 1981 and in recent years there has been a string of benefits granted to every new immigrant or returning resident that decides to leave it all and move to Israel.   On January 1, 2007, income tax reforms creating tax cuts for new immigrants and returning residents, took effect retroactively. The reform creates a ten-year tax exemption and reporting exemption in Israel.   Are you entitled to benefits? First of all, to clarify: a new immigrant/first-time Israeli resident is a person that becomes an Israeli resident that has never been an Israeli resident before. In contrast, a returning resident is a person that becomes an Israeli resident again, after residing outside of Israel for ten consecutive years.   Do you belong to one of the categories above? If so, in addition to other benefits, you are entitled to the following: Capital gains derived from abroad- a tax exemption on capital gains from the sale of assets outside of Israel, as long as they are sold within ten years of the date you became an Israeli resident - regardless of the date of purchase. Passive income derived from abroad - a tax exemption, lasting ten years from the date you became an Israeli resident, on passive income, such as interest, dividends, pension, and royalties produced or generated outside of Israel. Active income derived from abroad - a tax exemption, lasting ten years from the date you became an Israeli resident, on active income - i.e., income from work or business - produced or generated outside of Israel.   Beyond these benefits, new immigrants are also entitled to a discount on the purchase tax for property purchased in Israel during the period beginning one year prior to their immigration and continuing for seven years after their immigration. The immigrant purchase tax rate, starting on January 1, 2017 until January 15, 2018 is: 0.5% on the portion of the property’s value that is up to approximately NIS 1,759,310; 5% of the portion of the property's value above approximately NIS 1,734,225.   Note that this benefit may be exercised once for a residential apartment, and once for a business oriented property.   It is important to remember that after ten years, a reporting requirement for income from abroad goes into effect. Since the reform only went into effect in 2007, issues are only just starting to emerge for which answers haven’t been provided yet, such as the exposure for retroactive payments - with emphasis on national insurance payments - and exposure from the tax authority.   Have you started packing?   Source: barlaw.co.il
Dr. Baruch Dotan
The explosion of e-commerce in the last 15 years has made it easier than ever to manage the logistics of doing business in multiple countries. The global reach it creates, though, has spawned a litany of tax questions. You need to determine which jurisdictions have the authority to tax you and your business activity and what taxes apply. Your physical location and your end-customer locations can impact what you pay to whom, but other factors might also apply. Managing this process is critical to your continued e-commerce operations.   Where to Tax Income The issue of the jurisdiction to tax e-commerce is a complicated one, which many countries have yet to resolve. In 2016, the Israeli tax authority laid down guidelines on taxation for companies involved in e-commerce business in Israel. A company will owe taxes to Israel for e-commerce income if it either has a physical presence or a significant economic / digital presence in Israel. Thus, even if you do not have a physical presence within Israel, Israeli tax liability may still be triggered on account of various non-physical factors, which usually are not common in determining tax liability.   Value-Added Tax for E-Commerce Value-added tax (VAT) presents its own concerns. Do you pay this tax to the location where the customer is located, or where you have your base or a physical presence? Part of this depends on what you are selling. In the EU, for example, payment of VAT on physical goods goes to the seller's location. Electronic services, on the other hand, are charged VAT where the end consumer is located.   In Israel, Section 60 of the VAT Act requires foreign companies that have business or activities in Israel to register a representative in the country within 30 days of beginning to operate in Israel. This registration helps ensure that sales completed in Israel allow for identification and collection of VAT liability.  Here, too, the guidelines issued by the Israeli tax authority allow for creating VAT liability solely on the basis of a significant economic presence in Israel.   How to Collect Taxes on E-Commerce Your business can collect these taxes much more effectively by building multinational tax rates into its e-commerce platform. Applications that identify recipients by IP address or other indicators of the customers' locations can connect to current VAT tables to identify what to charge. Similarly, income taxes can be calculated by sorting where sales occur and where the economic impact falls.   Barnea & Co. has experienced attorneys adept at helping clients manage the intricacies of multinational tax issues that arise through e-commerce. Contact us for help piecing your taxation puzzle together.   Source: barlaw.co.il
Enter your email for newsletter sign up: