To Encourage Local Tech, Israel to Expand Tax Benefits to Small Companies

An update to an Israeli law encouraging capital investments will see companies employing less than 10 people benefit from the same tax benefits as large enterprises. The update was confirmed to Calcalist by two people from Israeli tax authority, speaking on condition of anonymity. The update is a result of an understanding the rise in prominence of Israel’s tech sector and the changes to the country's general industry, these people said. Under the new updates, a small number of Israeli startups would now be able to pay lower corporate tax rates.

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In recent years, the authority rejected a few dozen appeals from small companies looking to receive the benefits given to bigger companies in accordance with the law. Originally written into the books in 1959, the law referred only to manufacturing facilities but has since been revised and updated several times.

Only companies that generate more than 25% of their revenues through exports can benefit from the exemptions. If they meet the threshold requirements, those based in central Israel will be eligible to pay a 16% corporate tax rate, compared a standard corporate tax of 23% paid in Israel, and a dividend tax of 20% compared to 20%-30%. Companies based outside of Israel’s dense urban center are eligible for a corporate tax rate of 7.5%, if meeting all other requirements.

Based on the criteria for the benefits, and taking into account the number of companies that were previously turned down, the update is expected to affect a few dozen of Israel’s thousands-strong startup community.