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Hi Tech Taxation

The advent of the Internet enabled the sharing and transfer of information from all corners of the globe. The swift integration of digital technology into our lives has essentially created a world without boundaries. Consumers from one country can now access the services and products of a company in another, without the need for the company to have a physical presence in the former. Furthermore, development and research teams from different countries can collaborate on innovative projects or provide services to a consumer from another country. The dissolution of traditional borders and the influx of capital into the global high-tech industry has sparked tensions and competition between countries vying for their share of the digital economy's tax revenue.

In recent years, two major events have had a profound impact on the taxation of the high-tech industry: the publication of the BEPS rules by the OECD organization and the US tax reform. The BEPS rules were designed to combat illegitimate tax planning by diverting profits to tax havens and ensuring the taxation of economic-digital activity in the place where the value is created and the place where it is consumed or stockpiled. The US tax reform, meanwhile, granted significant tax benefits to multinational technology companies, companies owned by Americans, and companies operating in the US in order to incentivize their economic activity to return to the US. The sweeping changes in international taxation and the taxation of the digital economy have not gone unnoticed by the Israeli high-tech industry. The Israel Tax Authority has responded by issuing several positions regarding the taxation of digital activity, aligning itself with the countries of the world.

Realizing that the Israeli high-tech industry is the driving force behind the nation's economy, the State of Israel has taken decisive action to provide generous tax incentives to companies that establish development centers in Israel and investors that inject capital into the country. This is to ensure that the Israeli high-tech industry remains competitive and attractive to international investors and companies, while providing the tax security needed for individuals and companies in a rapidly changing digital landscape. Our office has the expertise and capability to ensure that these incentives are utilized to their fullest potential.

Additional Information

Benefits for a scientific worker (during a sabbatical year) - Law to encourage research, development, and innovation.

ESPP (Employee Stocks Purchase Plan)

Equity-based compensation whose vesting depends on performance (allocation of options to employees) - Income Tax Circular 18/2018

Hold Back

Recognition as a biotechnology/ nanotechnology/ company with qualified knowledge - capital investment promotion law

Recognition as a company performing R&D for an international company - Capital Investment Encouragement Law

Recognition of expenditure for the benefit of scientific research - Income Tax Ordinance

Reverse Vesting

Section 102 of the Income Tax Ordinance (allocation of options to employees) - general background

Tax benefit when changing a structure - Chapter 2 of the Income Tax Ordinance and the regulations pursuant thereto

The tax aspects of investing in a company through the SAFE agreement