The government of Israel has introduced a bill that slashes corporate taxes and introduces a participation exemption regime.
The draft legislation, which the government tabled in parliament in June, also changes the way the tax system deals with real estate investment trusts. Under the Bill holding companies would enjoy exemption from tax on dividends, interest and capital gains arising from sales of shares.
The draft legislation also proposes that many foreign taxpayers should not be liable for tax on capital gains from investments in Israel between July 1 this year and December 31 2008.
The plans build on the 2003 overhaul of Israel's tax system. The proximity of the reforms however, has caused concern among some tax professionals, who claim the industry is still struggling with some aspects of the 2003 legislation.
Some tax experts think the new measures do not go far enough including Yaniv Shekel, a partner the law firm Shekel & Co in Tel Aviv. "It's a great step towards Israel becoming a preferred country for investment. However, the reform only goes half way. Israel should have gone one step further and forfeited the 5% [withholding tax] for foreign investors," said Shekel.
If passed, the Bill is expected to become law on January 1 2006.
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