The Knesset has passed the second and third readings to the taxation section of the government’s economic stimulus plan. The aim of the new provisions is to encourage inward investment in Israel and the flow of funds to Israel from foreign companies under control of Israeli residents. For 2009, a temporary provision reduces the rate of taxation on a dividend distribution by a foreign company controlled by an Israeli company from 25% to 5%, as long as the dividend is used in Israel to pay salaries to an Israeli resident, to rent or buy property in Israel, and for other similar purposes. The aim is to encourage the immediate transfer of funds to Israel to help ease the credit squeeze and encourage economic activity.
A further provision is a tax exemption on interest on bonds listed for trading on the Tel Aviv Stock Exchange paid to an overseas resident. This is in order to encourage foreign investors to invest in Israeli corporate bonds. Similar exemptions are in force in developed countries such as France, the UK, Switzerland and the US. Foreign investors will enjoy an unconditional tax exemption on the sale of securities in Israel, again similarly to provisions in many other countries. The exemption will not apply to capital gains on the sale of securities of companies mainly engaged in real estate in Israel, or on gains attributable to a foreign resident’s fixed enterprise in Israel. The Knesset also approved the extension for a further year of a 25% tax credit for residents of Sderot and the southern Negev. (Globes)