INNOVATION BOX PROPOSAL IP INCENTIVES
- Wide definition of IP assets and IP sourced income
- 8 years tax amortization on acquired IP
- Easy entrance: no additional investments and no legal registration are required
- Easy exit: only 6%/12% capital gain tax and no clawback of tax benefits under certain conditions
- The IP sourced income doesn’t include marketing or manufacturing
- The Innovation Box would be in addition to already existing tax incentives presented in this publication
QUALIFYING CONDITIONS
To qualify, the Israeli company should meet the following conditions:
- 7% of the last three years’ turnover was invested in R&D, or $20M R&D expense per year; and,
- One of the following conditions are met:
- 20% of the employees are in R&D, or 200 R&D employees
- Venture capital investment of $2M was previously made in the company
- Average annual growth over three years of 25% in sales or employees (and more than ILS10/$2.8 million or 50 employees)
> Companies not meeting the above conditions may still qualify under the discretion of the Israeli Innovation Authority at the Ministry of Economy and Industry.
ISRAEL’S NEXUS FORMULA
In line with Israel’s commitment to the BEPS principles, the new IP regime regulations comply with the Action 5 Nexus approach. Israel’s formula is aimed at providing benefits for those IP assets developed by the qualifying Israeli companies.The formula can generally be illustrated as follows:
Extended Nexus approach for the qualifying IP expenditures including R&D performed outside Israel by the company branch and unrelated subcontractors, as well as IP acquisition by Israeli R&D centers and transfer of trade.
A = Qualifying expenditures incurred to develop the IP asset
B = Non-qualifying expenditures incurred to develop the IP asset.This category of expenditures includes IP acquisition costs, royalties paid for IP rights, and R&D outsourced to non-Israeli related parties
C = Taxable income derived from IP, including capital gain
D = Taxable income eligible for tax benefits