National Economic Conference

To Offset U.S. Tax Reform, Israel to Cut Red Tape For Transfer Tax Exemption

Speaking at Calcalist’s National Economic Conference, Israel’s tax chief Eran Yaacov said a special plan to enable Israel-based companies to change holding structure without paying a capital gains tax is in the works

To offset the U.S. tax reform and its potential effects on entrepreneurs debating whether to set up their companies in Israel or overseas, Israel’s tax authority will be introducing in the upcoming weeks a special tax plan intended to encourage local entrepreneurs to register their companies—and their intellectual property—in Israel.

 

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In December 2017 the U.S. signed into law a major overhaul of the federal tax system. The new model lowered the U.S. corporate tax rate from 35% to 21%, making in-country operations more attractive, and also levied a new tax on cross-border payments and other modified taxable income of American corporations with average annual gross receipts of $500 million or more.

 

Israeli Tax Authority director general Eran Yaacov. Photo: Amit Sha'al

 

 

The reform stirred debate in Israel, raising concerns that it will make registration of companies in the country less appealing. Prime Minister Benjamin Netanyahu formed a special team to look into the possible impact of the reform on Israel’s economy and devise recommendations in January, as did three other government entities: the country’s ministries of economy and finance, and the local tax authority.

 

Speaking at Calcalist’s National Economic Conference held in Tel Aviv Wednesday, Israeli Tax Authority director general Eran Yaacov said a tax category that will enable Israel-based companies to register their company under a foreign holding company without it being a taxable event is in the plans. The option currently exists, but entrepreneurs looking to make use of it must go through lengthy bureaucratic processes, which the new plan will do away with.

 

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The change is intended to bolster Israel’s economy and encourage companies to keep their intellectual property in the country, Yaacov said.

 

“Israel is a small country that is very much affected by international and global events,” Yaacov said. “We need to constantly consider the creation of growth engines.”