Tax Incentives for the Encouragement and Development of the Hi-Tech Industry March 2012

Allowed Expense on Investments in Equity by Individuals Ad Hoc Provisions (1.1.11-31.12.15) An ad hoc law allows an individual who invests in a qualified company to deduct the total investment in equity, for up to 3 years, at his discretion, as an expense against various types of income. In the event that, in a given tax year, the investor has various types of income that are subject to different tax rates, the investor can choose how to deduct the expense and how it is allocated between the different types of income (there is no obligation to deduct the expense).

Approval of the Chief Scientist Allowed Expense on Investments in Equity by Individuals— Terms and Conditions for the Deduction Purchased Company (Target Company) Individual Israeli company whose shares are not listed on a stock exchange Owner of issued shares during the benefit period (3 years) At least 75% of the investment is used for R&D expenditures (No later than the benefit period) + During all the years of the tax benefit (until the above condition has been achieved), R&D expenditures are at least 70% of total company expenses At least 75% of R&D expenditures during the benefit period were expensed in Israel During the first two tax years, the company’s revenue was not in excess of 50% of R&D expenditures R&D expenditures were for the advancement or development of the company’s own production activities Neither tax avoidance nor improper tax reduction are the main objectives of the said investment Approval of the Chief Scientist

Allowed Expense on Investments in Equity by Individuals Tax Authority Bulletin Tax authorities recently issued a bulletin on the ad hoc provisions allowing the cost of investment in the equity of a qualified company by an individual as an expense. The following are excerpts from the bulletin: Maximum investment amount - in relation to the investor (including “a relative") for the investment in a qualified company (in the aggregate and not for each year separately), the investment limit (NIS 5 million) is only with regard to qualified investments and not with regard to the total investment in the company (some of which may have been invested previously) . Expense deductions by the investor - ✔ The investor can deduct the amount spent for investment in equity that relates to the tax years of his choice. For example – the entire deduction during the first year or the last year of the benefit period (the deduction cannot be in excess of total taxable income). ✔ In the event of non-compliance with conditions - the benefit will be retroactively cancelled with regard to the disallowance of the related expenses as a deduction against taxable income. Types of investors - ✔ Investment by a close-family company will not be considered a qualified investment by an individual. In the event of investment by a partnership / trustee of a trust, one must contact the Professional Practice Department of the Tax Authority for pre-approval. ✔ A non-resident investor can also claim the benefit, subject to conditions, against the income taxable in Israel of the investor (even though in some cases, the sale of equity will be exempt from tax).

Allowed Expense on Investments in Equity by Individuals Tax Authority Bulletin cont’d Conditions of R&D allocation by the investor 1. The deduction will only relate to R&D expenditures that were expensed after the beginning of the tax year in which the investment was made, and paid by the end of the term of the qualifying benefit. Expenses from previous years do not qualify. 2. Converting a loan into shares - R&D expenditures will only be taken into account from the date of conversion of the loan, and no later than the end of the term of the benefit. 3. Exercise of stock options - considered a qualified investment when the options have been exercised and exercise price has been paid (employee options do not qualify). 4. If several qualified investments are made, the allocation of the R&D expenses are performed using the FIFO method, in the order that the investments were made. 5. The verification of the existence of this condition will be performed separately for each allocation and not for each tax year, even if the same investor made several investments. Procedural and administrative guidelines ✔ An investor who wishes to claim the deduction shall notify the qualified company around the time of investment. ✔ In the event that the investor is not compliant with conditions, he shall inform the tax office and shall file a corrected report. ✔ Every year, the qualified company shall report to each investor the expenditure attributed to him thus far, approved by the Office of the Chief Scientist. ✔ The qualified company shall attach to the annual report a CPA-approved summary report, the details of all investments, the allocation of R&D expenses between the various investors, and the status of their fulfillment of the applicable conditions.

התרת השקעה במניות על ידי יחיד כהוצאה דוגמא להפחתה התרת השקעה במניות על ידי יחיד כהוצאה דוגמא להפחתה יחיד (שכיר) השקיע במהלך שנת 2011 סך של 600,000 ₪ בחברה העונה להגדרת 'חברת מטרה' (אשר קיבלה את האישורים הנדרשים). ליחיד הכנסות ממשכורת בלבד במהלך שנות ההטבה (אין הכנסות ממקורות אחרים). ליחיד קיימת אפשרות לבחור את אופן הפחתת ההשקעה, לדוגמא - * סך ההכנסה נטו מגיעה למדרגת המס השולי החייבת בשיעור מס 30%, כך שלמעשה המס שנחסך הינו בשיעור 33%. לחילופין, ניתן היה להפחית את ההשקעה בדרך אחרת - * לא ניתן לדרוש כניכוי סכום העולה על ההכנסה החייבת באותה שנה. 2013 2012 2011 480,000 450,000 400,000 שכר שנתי (260,000) (190,000) (150,000) פריסה ל-3 שנים 220,000 260,000 250,000 סה"כ הכנסה* 2013 2012 2011 480,000 450,000 400,000 שכר שנתי - (200,000) (400,000) פריסה 250,000 *- סה"כ הכנסה

Goal: to keep the technological know-how within Israel. Allowed Expense on Investments in Equity by Companies Ad Hoc Provisions Term: 2011-2015 Content: An Israeli technology company that purchases 80% of an Israeli start-up company— each of which own IP— can deduct the amount over five years. Objective: To encourage Israeli Hi-tech companies to purchase Israeli start-up companies Goal: to keep the technological know-how within Israel. Purchase price (-) Equity, premium and retained earnings Total deductible amount over five years

Purchased Company, beginning Year 2 Investing Company Allowed Expense on Investments in Equity by Companies— Terms and Conditions for the Deduction Approval of the Chief Scientist Approval of the Chief Scientist Purchased Company, beginning Year 2 Investing Company Israeli company– the control of the company is in Israel A beneficiary enterprise or preferred company under the Law for the Encouragement of Capital Investments R&D expenses are 7% of turnover 25% in the year of purchase 20% university graduates 40% in the year of purchase Securities are not listed on a stock exchange Prohibition to own more than 25% during the 12 months prior to purchase Control of another entity only if immaterial and an integral part of the company The first 3 years of R&D are for the promotion/development of own production activities with the investing/purchased company and 75% within Israel

התרת השקעה במניות על ידי חברה כהוצאה אישור מיוחד התרת השקעה במניות על ידי חברה כהוצאה אישור מיוחד אישור מנהל רשות המיסים שהימנעות ממס או הפחתת מס בלתי נאותות אינן בין המטרות העיקריות של הרכישה

התרת השקעה במניות על ידי חברה כהוצאה דגשים לחברה הרוכשת התרת השקעה במניות על ידי חברה כהוצאה דגשים לחברה הרוכשת במהלך הרכישה/D.D יש לבחון התקיימות התנאים בנרכשת לצורך הערכת חסכון המס הפוטנציאלי. יש לתכנן נכון את הרכישה על מנת למקסם את הסכום המותר להפחתה, לדוגמא במקרה של רכישת הלוואות/שטרי הון בנוסף למניות. יש לשים לב כי אחד מתכנוני המס החייבים בדיווח הינו רכישת חברה בעלת הפסדים בסך 3 מיליון ₪ ומעלה

רו"ח דיויד קריסמן, שותף KPMG סומך חייקין 02-5312010 dkrisman@kpmg.com

המידע המוצג כאן הינו בעל אופי כללי ואינו מיועד לענות על הצרכים הייחודיים של כל יחיד או ישות. אף על פי שאנו משתדלים לספק מידע מדויק וזמין, אין באפשרותנו להבטיח את עדכניות המידע ביום בו הוא מתקבל וכן כי המידע ימשיך להיות מדויק גם בעתיד.אין לפעול לפי המידע המוצג ללא ייעוץ מקצועי מתאים לאחר בדיקה מקיפה ויסודית של המצב הספציפי.   (“KPMG International”) KPMG International Cooperativeהינה ישות שוויצרית. פירמות החברות ברשת של פירמות עצמאיות של KPMG מסונפות ל KPMG International - . KPMG International אינה מספקת שירותים ללקוחות. לאף פירמה החברה ברשת אין סמכות לחייב את KPMG International או כל פירמה אחרת החברה ברשת כלפי צדדים שלישיים ול- KPMG International אין סמכות כזו לחייב כל פירמה החברה ברשת. KPMG, הלוגו והביטוי "cutting through complexity" הינם סימנים מסחריים רשומים או סימנים מסחריים של KPMG International.