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Trends
in Israeli
Tax Law
In recent years the Israeli Tax Authority (“ITA”) has become more active when it comes
to the implementation of new regulations and enforcement of tax laws. On the one
hand, the ITA is trying to encourage investments, especially foreign ones, in the Israeli
economy, specifically in the high-tech sector. On the other hand, the ITA is trying to
expand the tax base and fight aggressive tax planning and "black money," including via
new legislative initiatives.
In an effort to live up to Israel's start-up nation title and in order to keep developed
technology and Israeli companies in the country, the Israeli government has taken
measures over the past few years to attract foreign investors to buy into Israeli
companies. To that end, the ITA initiated major legislative reforms intended to provide
certain tax reliefs to facilitate these types of investments. Some of these reforms are
addressed below.
Tax-Free Reorganizations
Chapter E2 of the Israeli Tax Ordinance (“ITO”) sets out terms and conditions for tax-
free restructuring, provided that the economic identity of the shareholders is mostly
preserved and no realization of assets has occurred during a period of two years. The
current limitations associated with restructuring can make it difficult for companies,
especially in the high-tech sector, to expand their business and/or to raise capital.
Policy makers have come to realize that the current legislation does not provide
adequate solutions compatible with the demands of the modern economic
environment, and in fact, it prevents or delays, the execution of transactions. In April
2016, the scope of Chapter E2 was expanded to include tax-free restructuring of
registered partnerships as well.
In addition, in June 2016 a new draft bill amendment to Chapter E2 of the ITO was
proposed (“Bill”). The purpose of the Bill is to increase the availability of tax-free
restructuring and to minimize the conditions and limitations currently imposed on
companies and their shareholders. The suggested changes shall facilitate companies
The proposed budget for 2017-2018 (“Budget”) wishes to introduce changes
in the Law to encourage foreign investments; to make Israel more attractive
to international high-tech companies and to attract the development and
registration of intellectual property in Israel.