OrdinanceTax Law
Income Tax Ordinance [New Version]
פקודת מס הכנסה [נוסח חדש]
Published: 1961-04-25Last amended 2026-06-08✓ Amendment status checked against the Knesset legislation record on 2026-09-04
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Chapter VII: International Financial Reporting Standards – Non-Application in the Determination of Taxable Income for Tax Years 2007 to 2013
Non-Application of Accounting Standard No. 29 – Temporary Provision§
87a.
In the determination of taxable income, Accounting Standard No. 29 prescribed by the Israel Accounting Standards Board shall not apply, even if it was applied in financial statements in respect of the tax years 2007 to 2013.
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Contact Us →Chapter VIII: Micro-Business Owner
Definitions§
87b.
In this Chapter –
"micro-business owner" – an individual, a resident of Israel, who derives income from a business or profession and in respect of whom all of the following apply:
(1)the total transaction turnover arising from the individual's profession and all of the individual's businesses in the tax year does not exceed the amount prescribed in the definition "exempt dealer" in section 1 of the Value Added Tax Law;
(2)the assessing officer has registered the individual pursuant to section 87c;
"transaction turnover" – the transaction turnover of a dealer, as defined in the Value Added Tax Law.
Registration as a Micro-Business Owner§
87c.
(a)An individual requesting to be registered as a micro-business owner shall submit an application therefor to the assessing officer not later than the time for submission of the report pursuant to section 131 or as part of such report; however, if the individual was an exempt dealer as defined in the Value Added Tax Law, the assessing officer shall register the individual as a micro-business owner even without submission of such an application; where an assessing officer has registered an exempt dealer as a micro-business owner without submission of such an application, the assessing officer shall notify the exempt dealer accordingly and shall indicate in the notification that the exempt dealer is entitled to request that the registration as a micro-business owner be cancelled as referred to in subsection (b).
(b)Where an assessing officer has registered an individual as a micro-business owner, the individual shall be entitled to request from the assessing officer, by the time at which the individual is required to submit a report pursuant to section 131 or as part of such report, to cancel the registration as aforesaid.
(c)The assessing officer shall cancel the registration of an individual as a micro-business owner in any of the following:
(1)the individual does not satisfy the condition referred to in paragraph (1) of the definition "micro-business owner";
(2)the individual does not satisfy the conditions for the deduction as referred to in section 87e;
(3)the individual has submitted an application as referred to in subsection (b).
Computation of Income for a Micro-Business Owner§
87d.
(a)Notwithstanding that stated in this Ordinance, for the purpose of determining the taxable income of a micro-business owner in a tax year, an amount equal to 30% of the micro-business owner's transaction turnover in that year shall be deducted from the income from the business or profession (in this Chapter – the deduction amount), provided that the conditions for the deduction as referred to in section 87e have been satisfied in respect of the micro-business owner; the provisions of sections 17 to 27, except section 17(5a) in respect of the provisions of this Chapter, shall not apply to the taxable income of a micro-business owner from a business or profession, and the provision of section 47a shall also not apply in respect of national insurance payments and parallel tax.
(b)For the purpose of computing capital gains tax or land appreciation tax applicable upon the sale of an asset that was used in deriving the income from the business or profession, the maximum amount of depreciation or amortisation that could have been deducted under any law, had it not been for the provisions of subsection (a), for the tax years in which the deduction amount was deducted, shall be added to the sale value.
(c)Notwithstanding that stated in subsection (a), an individual who was registered at the beginning of the tax year as a micro-business owner and ceased to be a micro-business owner in that tax year may deduct the deduction amount for the purpose of determining the taxable income in that tax year, even if the conditions for the deduction as referred to in section 87e have not been satisfied in respect of the individual, provided that the deduction amount shall not exceed 30% of the amount prescribed in the definition "exempt dealer" in section 1 of the Value Added Tax Law, and that the conditions set out in section 87e(a)(2), (4) and (6) and (b) have not been satisfied in respect of the individual.
Conditions for the Deduction§
87e.
(a)A micro-business owner shall not be entitled to deduct the deduction amount as referred to in section 87d if any of the following applies:
(1)the micro-business owner employs workers;
(2)the micro-business owner does not maintain acceptable books of account;
(3)the micro-business owner had income in the tax year from a business or profession that was not derived from personal exertion;
(4)part of the micro-business owner's income from a business or profession was received from a person who is the micro-business owner's employer in the tax year;
(5)part of the micro-business owner's income from a business or profession was attributed to the micro-business owner from a transparent corporation as defined in section 64(a);
(6)more than 25% of the micro-business owner's income from a business or profession was received from any of the following:
(a)from a relative of the micro-business owner; in this sub-paragraph, "relative" – as defined in section 88;
(b)from a person who was the micro-business owner's employer at any time during the three preceding tax years;
(7)the micro-business owner is a controlling shareholder in a company as referred to in section 32(9);
(8)the micro-business owner does not satisfy another condition prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset.
(b)A micro-business owner who deducted the deduction amount in a certain tax year, and in the following tax year had income from a business or profession and did not deduct the deduction amount, shall not be able to deduct the deduction amount in the two tax years following that tax year either; for this purpose, a person who was entitled to deduct the deduction only by virtue of the provisions of section 87d(c) shall be deemed not to have deducted the deduction.
Exemption from Advance Payments§
87f.
The assessing officer may exempt a micro-business owner from advance payments as their meaning in Part 10, Chapter II, Section A, provided that the assessing officer is of the opinion that the benefit from collecting the advance payments from that business owner is low, having regard to the amount of tax expected to be paid and the risk that the tax will not be collectible at the end of the year.
Regulations§
87g.
(a)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe by Regulations categories of transactions, income or sales to be added to or excluded from the transaction turnover, generally or for categories of taxpayers, all subject to conditions prescribed.
(b)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may amend by Order the rate prescribed in section 87d(a) and (c).
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Contact Us →Part 5: Capital Gains
Definitions§
88.
In this Part –
"means of control", in a body of persons – any of the following:
(1)the right to profits;
(2)the right to appoint a director or general manager in a company, or holders of similar positions in another body of persons;
(3)the right to vote at a general meeting of a company, or at a body equivalent thereto in another body of persons;
(4)the right to a share in the surplus assets after discharge of debts upon liquidation;
(5)the right to instruct a person who holds any of the rights referred to in paragraphs (1) to (4) as to the manner of exercising that right;
and all of the foregoing, whether by virtue of shares, rights to shares or other rights, or in any other manner, including by means of voting agreements or trust;
"substantial shareholder" – a person who holds, directly or indirectly, alone or together with another, at least 10% of one or more of any class of means of control in a body of persons;
"together with another" – together with a relative, and also together with a person who is not a relative and with whom there is ongoing cooperation pursuant to an agreement on material matters of the body of persons, directly or indirectly;
"asset" – any property, whether real property or movable property, as well as any vested or contingent right or benefit, all whether situated in Israel or outside Israel, excluding –
(1)movable property of an individual held by that individual for personal use or for the personal use of members of that individual's family or of persons dependent on that individual;
(2)trading stock;
(3)a right of possession in real property – whether at law or in equity – used for residential purposes and not for the purpose of earning income or profit;
(4)rights in real property and rights in a real property association as defined in the Land Taxation Law, upon the sale of which betterment tax is imposed or would have been imposed but for the exemption under that Law;
"depreciable asset" – an asset for which a depreciation rate has been prescribed in Regulations under section 21 or in respect of which a deduction has been granted and which has been used by the taxpayer for the purposes of producing income;
"trading stock" – as its meaning in section 85;
"index" – the consumer price index as most recently published before the day in question by the Central Bureau of Statistics, and in respect of the period before 1951 – the index prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset; however, a person who, while being a non-resident, acquired an asset in foreign currency lawfully, may request that the rate of the currency in which the asset was acquired be treated as the index; notwithstanding the foregoing, for the purpose of a security held by an individual, denominated in foreign currency or whose value is linked to foreign currency, the rate of the currency shall be treated as the index;
"determining date" – the 27th of Tevet 5763 (1 January 2003);
"adjusted depreciation from the determining date" – (deleted)
"original price" –
(1)in the case of an asset that was purchased – the amount expended by the taxpayer in acquiring that asset;
(2)in the case of an asset received in exchange – the consideration at the time of the exchange;
(3)in the case of an asset received as a gift –
(a)before the 4th of Kislev 5712 (3 December 1951) – the value of the asset at the time it was received by the taxpayer;
(b)from the 4th of Kislev 5712 (3 December 1951) until the 2nd of Nisan 5728 (31 March 1968) – the balance of the original price of the asset at the time it was given as a gift by the last purchaser who acquired it otherwise than as a gift, and for the purposes of section 21 depreciation shall be permitted as if the asset had not been given as a gift;
(c)from the 3rd of Nisan 5728 (1 April 1968) onwards –
(i)if the asset was received as a gift otherwise than from a relative – the consideration on the date of sale; and the amount of that consideration shall also be the original price for the purposes of section 21;
(ii) if the asset was received as a gift exempt from tax under section 97(a)(4) or (5) – the balance of the original price of the asset at the time it was given as a gift by the last purchaser who acquired it otherwise than as a tax-exempt gift, and for the purposes of section 21 depreciation shall be permitted as if the asset had not been given as a gift;
(4)in the case of an asset received by inheritance – the value of the asset on the date of the testator's death; if the value of an asset was determined for the purposes of estate duty as its meaning in the Estate Duty Law, 5709-1949, that shall be the value for this purpose; however, if the testator died after the 25th of Adar II 5741 (31 March 1981) – the value shall be the value that would have been determined had the testator sold the asset; that value shall also be the original price for the purposes of section 21;
(5)in the case of an asset created by the taxpayer – the amount expended by the taxpayer in creating the asset;
(6)in the case of an asset that came to the taxpayer in any other manner – the amount expended by the taxpayer in acquiring that asset;
and all of the foregoing with the addition of expenditure incurred by the taxpayer in improving or maintaining the asset from the day of its acquisition until the day of its sale, provided that such expenditure has not previously been allowed as a deduction in computing the taxpayer's taxable income (hereinafter – improvement expenditure or maintenance expenditure, as the case may be);
"adjusted original price" – (Repealed)
"acquisition date" – the day on which, in any manner, the asset came into the possession of the taxpayer or the taxpayer became entitled to it, whichever is the earlier; however –
(1)if the asset came to the taxpayer, or the taxpayer became entitled to it, by way of gift, before the 3rd of Nisan 5728 (1 April 1968), or even thereafter if the asset came into the possession of the taxpayer as a tax-exempt gift under section 97(a)(4) or (5) – the day on which the asset came into the possession of the last purchaser who acquired it otherwise than as a tax-exempt gift;
(2)if the asset came to the taxpayer by way of inheritance from a testator who died after the 25th of Adar II 5741 (31 March 1981), or by way of another person's waiver of that person's right to inherit from such a testator – the day that would have been determined as the acquisition date had the testator sold the asset;
"depreciation" – the amounts deductible in respect of an asset under section 21, as well as the amounts deducted from taxable income on account of the original price of the asset;
"adjusted depreciation" – (Repealed)
"balance of original price" – the original price of an asset after the depreciation amounts have been deducted therefrom;
"adjusted balance of original price" – the balance of the original price excluding the balance of improvement expenditure and one half of the balance of maintenance expenditure, multiplied by the index on the date of sale and divided by the index on the acquisition date, with the addition of the balance of each improvement expenditure multiplied by the index on the date of sale and divided by the index on the date of completion of the improvement;
"sale" – including exchange, waiver, assignment, transfer, grant, gift, redemption, and any other act or event as a result of which an asset leaves a person's possession in any manner whatsoever, all whether directly or indirectly, but excluding inheritance;
"security" – as defined in "securities" in the Securities Law, including a debenture or loan of the State of Israel or guaranteed by it, a debenture of a foreign state, a unit, a participation unit in a petroleum partnership, a participation unit in a film partnership, a right in a real property association, a security issued outside Israel, and also a futures transaction;
"commercial paper" – as defined in commercial securities in the Securities Law;
"futures transaction" – an obligation or right to deliver or receive in the future any of the following: differentials between rates of foreign currency, index differentials, interest differentials, an asset or the price of an asset, all in the quantity, amount, at the time and on the conditions set out in the obligation or right, as the case may be, and also the sale of a security not yet acquired by the seller;
"participation unit in a petroleum partnership" and "participation unit in a film partnership" – as their meaning in Regulations under sections 20, 31 and 98, as the case may be;
"consideration" – the price to be expected from the sale of an asset by a willing seller to a willing buyer when the asset is free of any charge (security interest) securing a debt, mortgage, or other right securing a payment; however, if the assessing officer is satisfied that the price for the asset was determined in good faith and was not influenced, directly or indirectly, by the existence of special relations between the seller and the buyer – and in the case of real property also on condition that the sale was made in writing – the consideration shall be the price so determined; and all of the foregoing net of the selling expenses incurred by the taxpayer in that sale; upon redemption of a debenture or commercial paper, linkage differentials shall be treated as part of the consideration;
"relative" – any of the following:
(1)spouse, brother, sister, parent, grandparent, descendant and descendant of a spouse, and the spouse of each of these;
(2)descendant of a brother or of a sister, and brother or sister of a parent;
(3)a body of persons held by a person or that person's relative, a person who holds such a body of persons, and a body of persons held by a person who holds it; for the purposes of this definition, "holding" – directly or indirectly, alone or together with another, at least 25% of one or more of any class of means of control;
(4)a trustee as defined in section 75c, in relation to the settlor in an Israeli residents' trust or in a revocable trust, and also a trustee in relation to a beneficiary in a non-resident beneficiary trust or in a testamentary trust;
however, for the purposes of tax exemption under section 97, only those enumerated in paragraphs (1) and (2) shall be treated as a relative;
"capital gain" – the amount by which the consideration exceeds the balance of the original price;
"inflationary amount" –
(1)that part of the capital gain equal to the amount by which the adjusted balance of the original price exceeds the balance of the original price;
(2)(deleted)
(3)(deleted)
"taxable inflationary amount" – any of the following:
(1)(deleted)
(2)the amount that would have been deemed the inflationary amount had the asset been sold on the 17th of Tevet 5754 (31 December 1993) at a consideration equal to the adjusted balance of the original price;
"real capital gain" – the capital gain less the inflationary amount;
"real capital gain up to the determining date" – the real capital gain, multiplied by the ratio between the period from the acquisition date to the day preceding the determining date and the period from the acquisition date to the date of sale; the Minister of Finance may prescribe rules for rounding the said periods;
"balance of real capital gain" – (deleted)
"change date" – the 6th of Tevet 5772 (1 January 2012);
"real capital gain after the determining date and up to the change date" – the real capital gain, multiplied by the ratio between the period from the determining date or from the acquisition date, whichever is the later, to the day preceding the change date, and the period from the acquisition date to the date of sale; the Minister of Finance may prescribe rules for rounding the said periods;
"balance of real capital gain after the change date" – the difference between the real capital gain and the sum obtained by adding the real capital gain up to the determining date and the real capital gain after the determining date and up to the change date;
"regulated market" – (deleted)
"capital loss" – the amount by which the balance of the original price exceeds the consideration;
"stock exchange" – (Repealed)
"real estate investment fund" – as defined in section 64a2;
"trust fund", "unit", "unit holder", "fund agreement" and "prospectus" – as their meaning in the Joint Investments in Trust Law;
"taxable trust fund" – a trust fund in whose fund agreement or prospectus it has been determined that it shall be a taxable trust fund;
"exempt trust fund" – any of the following:
(1)a trust fund in whose fund agreement or prospectus it has been determined, by a determination that is not subject to change, that it shall be an exempt trust fund;
(2)a taxable trust fund whose manager has notified the administrator, no later than 30 days before the commencement of a particular tax year, that the fund shall be treated as an exempt trust fund commencing from the first day of that tax year, and the fund manager has paid the tax as provided in section 88a.
Taxable Trust Fund that Became an Exempt Trust Fund§
88a.
Where the manager of a taxable trust fund has submitted a notice to the administrator, as provided in paragraph (2) of the definition of "exempt trust fund", the following provisions shall apply:
(1)all of the fund's assets shall be deemed to have been sold on the last day of the tax year in which the notice was submitted and its income shall be deemed to have been received on that day, and the fund manager shall pay the tax in respect of such income within 30 days from that day;
(2)for the purpose of a unit holder in the fund whose capital gain from the sale thereof is exempt from tax in that unit holder's hands, the last day of the tax year in which the notice was submitted shall be treated as the acquisition date, and the original price thereof shall be its value on that day.
Status of Consideration and Status of Capital Gain§
89.
(a)Consideration shall have the same status as income under section 2 and capital gain shall have the same status as taxable income, all with the necessary modifications according to the matter and in the absence of another express or implied interpretation from the provisions of this Part or Part 5-A.
(b)
(1)A resident of Israel is liable to tax on capital gain accrued or derived in Israel or outside Israel; for this purpose, "resident of Israel" – includes an Israeli national as its meaning in paragraphs (1), (3) and (4) of the definition of "Israeli national" in section 3a, who is a resident of a region as defined in that section;
(2)a non-resident is liable to tax on capital gain accrued or derived in Israel;
(3)the place where capital gain is derived or accrued shall be in Israel in any of the following:
(a)the asset sold is situated in Israel;
(b)the asset sold is situated outside Israel and consists principally of a right, directly or indirectly, to an asset, or to stock, or it is an indirect right to a right in real property or to an asset in a real property association situated in Israel (in this section – the property), in respect of that part of the consideration derived from the property situated in Israel;
(c)a share or a right to a share in a body of persons that is a resident of Israel;
(d)a right in a body of persons that is a non-resident, which consists principally of a right, directly or indirectly, to property situated in Israel – in respect of that part of the consideration derived from the property situated in Israel.
(c)A gain from the sale of an asset that may be liable to tax both under Chapter I of Part 2 and under this Part or Part 5-A shall be treated as liable to tax under Chapter I of Part 2 alone; the Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe that certain sales of rights in an intangible asset for periods that the Minister has prescribed shall be classified as income under Chapter I of Part 2, all subject to conditions that the Minister has prescribed.
(d)An amount received under a life insurance policy in respect of which the premiums were not permitted as an expense under section 32(10) shall be treated, net of those premiums, as liable to tax under this Part alone.
(e)Notwithstanding the provisions of subsection (c), linkage differentials received upon redemption of a debenture or commercial paper, the income from which does not constitute income from a business or profession, shall be treated as liable to tax under the provisions of this Part alone.
90.§
(Repealed — תשס״ח־7)
Tax on capital gain§
91.
(a)A body of persons shall be liable to tax on real capital gain at the rate prescribed in section 126(a).
(b)
(1)An individual shall be liable to tax on real capital gain as referred to in section 121, at a rate not exceeding 25%, and the capital gain shall be treated as the highest tier in the scale of that person's taxable income;
(2)Notwithstanding paragraph (1), real capital gain as referred to in section 121, on the sale of a security in a body of persons where the seller is an individual who is a substantial shareholder at the time of sale of the security or at any time in the 12 months preceding the sale, shall be charged to tax at a rate not exceeding 30%;
(3)
(a)Notwithstanding paragraphs (1) and (2), capital gain on the sale of a bond, commercial paper, loan stock or loan that is not linked to the index shall be charged to tax at a rate not exceeding 15%, or 20% in the case of a substantial shareholder, and the entire capital gain shall be treated as real capital gain;
(b)The Minister of Finance may, by Order, vary the rate of tax prescribed in sub-paragraph (a), in accordance with a change in the index;
(c)For the purposes of this paragraph, "not linked to the index" means that their face value or amount is not linked to the index, or is partially linked to the rate of increase of the index, in whole or in part, up to redemption or repayment.
(b1)
(1)Notwithstanding the provisions of subsection (b), with respect to an asset whose acquisition date falls before the date of change, other than an asset that is goodwill for which no consideration was paid upon acquisition, the following provisions shall apply:
(a)Where the asset was acquired before the determining date, real capital gain shall be charged to tax at the rates set out below:
(1)On real capital gain up to the determining date — as referred to in section 121;
(2)On real capital gain after the determining date and up to the date of change — as referred to in section 121 at a rate not exceeding 20%, provided however that if the circumstances referred to in subsection (b)(2) are met — at a rate not exceeding 25%, and if the circumstances referred to in subsection (b)(3) are met — at the rate prescribed in that subsection;
(3)On the balance of real capital gain after the date of change — at the rate prescribed in subsection (b)(1), (2) or (3), as the case may be;
(b)Where the asset was acquired after the determining date, real capital gain after the determining date and up to the date of change, and the balance of real capital gain after the date of change, shall be charged to tax in accordance with the provisions of sub-paragraph (a)(2) and (3);
(1a)On the sale of a security whose acquisition date is before the determining date, for the purpose of computing real capital gain up to the determining date and the balance of capital gain, the real capital gain shall be treated as the real capital gain after deducting therefrom the distributable profits computed as referred to in section 94b;
(1b)The provisions of this subsection shall not apply to the sale of securities listed for trading on a stock exchange that were listed for trading before the date of change, nor to the sale of a unit in an exempt trust fund, and the provisions of subsection (b)(1) or (2), as the case may be, shall apply;
(2)For the purposes of this subsection, the capital gain shall be treated as the highest tier in the scale of taxable income.
(b2)Notwithstanding the provisions of subsections (a), (b) and (b1), on the sale of a participation unit in an oil partnership and on the sale of a participation unit in a film partnership, the portion of the real capital gain equal to the amount of a depletion deduction, exploration and development expenditure deduction, or film production expenditure, that were allowed under Regulations made pursuant to sections 20, 31 and 98, as the case may be, shall be charged to tax as referred to in section 121 — in the case of an individual, and at the rate prescribed in section 126(a) — in the case of a body of persons.
(c)The tax on the inflationary amount liable to tax shall be 10%.
(d)
(1)Where an asset has been sold, the seller shall submit to the assessing officer, within 30 days of the date of sale, a return in the form prescribed by the Director, setting out the computation of the capital gain or capital loss that arose to the seller and the computation of the tax applicable on the sale as aforesaid, and shall pay an advance payment in the amount of the tax applicable on the gain under this section;
(2)Where a return as referred to in paragraph (1) or (1a), as the case may be, has not been submitted to the assessing officer, and the assessing officer is of the opinion that a particular person has sold an asset and is liable to pay an advance payment, the assessing officer may demand the submission of the return and the payment of the advance payment within 7 days of the date of the demand, and if the demand is not complied with, the assessing officer may determine the original price of the asset sold, the consideration received and the amount of the advance payment to which the seller is liable in respect of the capital gain; where the assessing officer has so determined, the advance payment shall be paid within 7 days of the date on which the determination is served on the seller;
(2a)Where the assessing officer has reasonable grounds to assume that the advance payment that the seller is required to pay on the capital gain exceeds by at least 20% the amount of the advance payment set out in the return submitted pursuant to the provisions of paragraph (1), (1a) or (2), as the case may be, the assessing officer may increase the amount of the advance payment by the amount of the expected difference; where the assessing officer has so determined, the difference shall be paid within 30 days of the date of the decision;
(2b)A decision as referred to in paragraphs (2) and (2a) shall have, for the purposes of objection and appeal, the same status as an assessment under section 145(b), provided however that an objection to a decision under paragraph (2) shall be submitted only by way of submitting a return as referred to in paragraph (1);
(2c)
(a)The provisions of this subsection shall not apply to capital gain on the sale of a security listed for trading on a stock exchange or on the sale of a unit, if at the time of sale tax was withheld from the capital gain pursuant to section 164;
(b)Where tax was not withheld as referred to in sub-paragraph (1) and the seller is required to submit a return pursuant to section 131, the return on the capital gain shall, notwithstanding paragraph (1) or (1a), as the case may be, be submitted on 31 July and on 31 January of each tax year, in respect of the sale of securities in the six months preceding the month in which the reporting date falls; upon submission of the return as aforesaid, an advance payment shall be paid in the amount of the tax applicable under the provisions of this Ordinance on the capital gain in respect of the sale;
(c)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe additional cases to which the obligation to report and to pay an advance payment as referred to in this paragraph shall apply, both with respect to types of assets and with respect to types of taxpayers, all with such adjustments, conditions and modifications as may be prescribed;
(2d)Notwithstanding paragraph (1) or (1a), as the case may be, on the sale of a share in a body of persons whose liquidation has commenced as referred to in section 93(a), the seller shall, within 30 days of the date of commencement of the liquidation, submit to the assessing officer a notice of the commencement of the liquidation proceedings; where the liquidator has transferred an asset to a member of that body of persons as referred to in that section, the member shall report on the capital gain that arose to the member, as referred to in this subsection, within 30 days of the date on which the asset was transferred to the member, and shall pay tax at the rates prescribed in this section, as the case may be, on the value of the asset so transferred; for the purposes of this paragraph, "asset" — as defined in section 93(b6);
(2e)The assessing officer may, if sufficient reason is given therefor, extend the time for payment of the advance payment, and may also defer the payment of the tax or reduce the amount of the advance payment if the assessing officer sees that there are reasonable grounds that no tax shall apply to the capital gain or that the tax applicable shall be in a different amount;
(3)Where a taxpayer has not paid the advance payment as referred to in paragraphs (1) or (2), in whole or in part, on time, or where the taxpayer paid such an advance payment and it transpires that the tax to which the taxpayer is liable exceeds the tax paid, the taxpayer shall be liable, from the end of the said thirty days until the date of payment,
(a)To the payment of linkage differentials and interest as their meaning in section 159a(a) on the difference between the amount paid and the amount of the tax to which the taxpayer is liable;
(b)(Repealed)
(3a)Where a taxpayer has been charged an advance payment pursuant to section 48a of the Land Taxation Law, or where a self-assessment or a final assessment has been made for the taxpayer pursuant to that Law, and it transpires that the tax to which the taxpayer is liable exceeds the tax with which the taxpayer was charged pursuant to the Land Taxation Law (hereinafter — the amount payable), the taxpayer shall be liable, from the end of the period prescribed in the Land Taxation Law until the date of payment, to the payment of linkage differentials and interest as their meaning in section 159a(a), on the difference between the amount payable and the tax to which the taxpayer is liable;
(4)A person who has been charged linkage differentials and a fine under paragraph (3) shall not be liable, in respect of those amounts and periods, to the payments referred to in sections 187 and 190;
(5)
(a)Where a taxpayer has paid an advance payment as referred to in paragraphs (1) or (2) or the amount of the tax to which the taxpayer is liable under the Land Taxation Law in excess of the amount to which the taxpayer is liable according to the return submitted pursuant to section 131, the balance shall be refunded pursuant to the provisions of section 159a(b) with the addition of linkage differentials and interest as their meaning in section 159a(a) for the period from the date of payment until the date of refund;
(b)The provisions of section 159a(c) and (d) and section 160 shall not apply to a refund as referred to in sub-paragraph (a);
(6)An amount withheld pursuant to sections 93(b4), 164 and 170 in respect of the capital gain shall be treated as a payment on account of the advance payment to which the taxpayer is liable, and the taxpayer shall be entitled to set it off against the advance payment, provided that the taxpayer holds a written confirmation of the withholding; however, a set-off against the tax to which a substantial shareholder is liable shall be made only after the amount withheld has been paid to the assessing officer, unless the substantial shareholder holds any type of means of control at a rate of less than 50% and has satisfied the assessing officer that the substantial shareholder did not know that the amount withheld had not been paid to the assessing officer or that the substantial shareholder took all reasonable measures to ensure payment.
(e)
(1)At the request of the taxpayer, the tax on the real capital gain shall be computed as if the gain had accrued in equal annual instalments over a period not exceeding four tax years or the period of ownership of the asset, whichever is the shorter, ending in the tax year in which the gain accrued; provided however that for the purpose of determining advance payments under sections 174 to 181, the income in each of the said years within the said period shall be treated as if the annual instalment had been added thereto; the computation of the tax shall be made having regard to the rate of tax prescribed in subsection (b), and for the purposes of land appreciation tax — having regard to the rate of tax prescribed in section 48a(b) of the Land Taxation Law, and also having regard to the rates of tax applicable to the total taxable income of the taxpayer and the balance of credit points to which the taxpayer is entitled in each of the tax years in the said period; for the purposes of this subsection, "period of ownership of the asset" means a period commencing at the beginning of the tax year following the tax year in which the asset came into the possession of the taxpayer and ending at the close of the tax year in which the asset left the taxpayer's possession;
(2)On the sale of an asset whose acquisition date is before the determining date, or on the sale of a right in real property or an action in a real property association, where the acquisition date of the right in real property or the right in the real property association, as the case may be, was before the commencement date, the provisions of paragraph (1) shall apply with the following modifications:
(a)Real capital gain up to the determining date, real capital gain after the determining date and up to the date of change, the balance of real capital gain after the date of change, real appreciation up to the commencement date, real appreciation after the commencement date and up to the date of change, and the balance of real appreciation after the date of change, as the case may be, shall be computed as they would have been computed had the taxpayer not submitted a request as referred to in paragraph (1);
(b)The computation of the tax shall be made having regard to the rates of tax prescribed in subsection (b1) or in section 48a(b1) of the Land Taxation Law, as the case may be, and also having regard to the rates of tax applicable to the total taxable income of the taxpayer and the balance of credit points to which the taxpayer is entitled, as referred to in paragraph (1);
(c)In this subsection, "right in real property", "right in a real property association", "commencement date", "land appreciation tax", "real appreciation up to the commencement date", "balance of real appreciation after the commencement date and up to the date of change" and "balance of real appreciation after the date of change" — as defined in the Land Taxation Law;
(3)The provisions of paragraph (1) shall not apply to capital gain on the sale of securities listed for trading on a stock exchange.
(f)
(1)In respect of an asset acquired up to the 1948 tax year, the tax shall not exceed 12% of the capital gain, and in respect of an asset acquired in the 1949 to 1960 tax years, the tax shall not exceed 12% of the capital gain plus 1% for each tax year from the 1949 tax year up to the year of acquisition;
(2)With effect from the 2005 tax year, 1% shall be added to the rate of tax under sub-paragraph (1) for each tax year, or part thereof, provided however that if the rate of tax on the capital gain in the year of sale under the provisions of this subsection exceeds the rate prescribed in subsections (a) or (b)(1) or (2), as the case may be, the capital gain shall be charged at the rates under the provisions of subsections (a) or (b)(1) or (2), as the case may be.
(g)The tax applicable to capital gain on the expropriation of an asset shall be one half of the tax determined under subsections (a) to (f).
(h)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe that with respect to special events or special circumstances in which assets have been transferred between controlling shareholders or related parties, notwithstanding the provisions of this section, the rates of tax as referred to in sections 121 or 126, as the case may be, shall apply.
Set-off of capital loss§
92.
(a)
(1)An amount of capital loss that a person sustained in a particular tax year, which, had it been a capital gain, would have been chargeable to tax, shall first be set off against real capital gain, and every new shekel of the balance shall be set off against three and a half new shekels of taxable inflationary amount; for this purpose, appreciation and loss as their meaning in the Land Taxation (Appreciation, Sale and Purchase) Law, 5723-1963, shall be treated as if they were capital gain or capital loss, as the case may be;
(2)(Repealed)
(3)Where a person sustained a capital loss on the sale of an asset outside Israel, which, had it been a gain, would have been chargeable to tax in Israel, the provisions of paragraph (1) shall apply thereto, provided however that a capital loss from such an asset shall first be set off against capital gain from outside Israel;
(4)Where a person sustained a capital loss on the sale of a security in the tax year, the provisions of paragraphs (1) or (3), as the case may be, shall apply thereto, provided however that the capital loss shall also be set off against the following:
(a)Income from interest or dividend paid in respect of that security;
(b)Income from interest or dividend in respect of other securities, provided that the rate of tax applicable to the interest or dividend received by that person does not exceed the rate prescribed in section 126(a) if that person is a body of persons, and the rate prescribed in sections 125b(1) or 125c(b), as the case may be, if that person is an individual;
(5)Expenditure in respect of securities, as prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset, that was not deducted in the tax year, shall be treated for the purposes of this section as a capital loss from securities.
(b)An amount that could not be set off, in whole or in part, as referred to in subsection (a), in a particular tax year, shall be set off against capital gain only as referred to in subsection (a) in the tax years following one after the other after the year in which the loss occurred, provided that a return for the tax year in which the loss occurred has been submitted to the assessing officer as referred to in sections 131 and 132; where the amount that could not be set off is a loss from the sale of an asset outside Israel, the loss shall first be set off against capital gain from the sale of an asset outside Israel.
(c)(Expired)
Recognition of capital loss in respect of investment in a research and development company — temporary provision§
92a.
(a)In this section —
"issued share capital" — as its meaning in the Companies Law;
"qualifying investment" — an investment in cash in a research and development company in any tax year, in respect of which shares in that company were allotted to the investor in that year;
"research and development company" — a company incorporated in Israel whose business is controlled and managed in Israel, in respect of which all of the following conditions are met:
(1)The company was first offered to the public on a stock exchange in Israel during the determining period;
(2)The company was not listed for trading on a foreign stock exchange prior to its first listing on a stock exchange in Israel;
(3)At the time of the first listing as referred to in paragraph (1), the company was classified as a research and development company in accordance with the stock exchange rules, and it was not determined that it is not a research and development company up to the date of the qualifying investment;
(4)The market value of the company is between NIS 200 million and NIS 1 billion, or such other value as the Minister of Finance may prescribe with the approval of the Finance Committee of the Knesset;
(5)For each of the tax years from the date of the company's listing as referred to in paragraph (1) until the date of the first qualifying investment, the approval of the Israel National Technological Innovation Authority was received that at least 70% of the company's expenditure in that year was incurred, directly or indirectly, in connection with a product based on research and development carried out in the company;
"offering unit" — securities offered in units comprising securities of different types or on different terms;
"minimum price of the share" — the price determined for the share in the initial public offering prospectus, and if the share was offered as part of an offering unit — the price of the offering unit in the prospectus less the value of the warrants and purchase options included therein as defined in the stock exchange rules, in accordance with the computation formulae as their meaning in the definition of "effective price of a share" in the stock exchange rules;
"share" — as defined in the Companies Law;
"Israel National Technological Innovation Authority" — as its meaning in the Law for the Encouragement of Research, Development and Technological Innovation in Industry, 5744-1984;
"market value of the company" — the number of shares in the issued share capital of the company on the eve of the first public offering plus the number of shares offered to the public in the prospectus as part of the first offering, with the total number of shares as aforesaid multiplied by the minimum price of the share;
"determining period" — the period from the 25th day of Sivan 5776 (1 July 2016) to the 27th day of Sivan 5779 (30 June 2019);
"benefit period" — three tax years commencing in the tax year in which the amount of the qualifying investment was paid to the research and development company;
"stock exchange rules" — as their meaning in section 46 of the Securities Law;
"prospectus" — as its meaning in the Securities Law.
(b)An amount of a qualifying investment in a research and development company, up to NIS 5 million (in this section — the maximum investment amount), shall be recognised for the investor as a capital loss in the tax year in which the investor made the investment or in subsequent tax years up to the end of the benefit period, and the provisions of section 92 shall apply to that capital loss, provided that all of the following conditions are met:
(1)The investment amount was paid in the framework of a public offering of the company on a stock exchange in Israel during the determining period;
(2)Tax avoidance or improper tax reduction is not among the main purposes of the investment.
(c)In computing the maximum investment amount, all qualifying investments that the same investor has invested directly in the research and development company shall be taken into account, as well as investments as aforesaid made by the investor's relative.
(d)For the purpose of computing capital gain on the sale of shares of a research and development company, by an investor for whom the amount of the qualifying investment was recognised as a loss pursuant to this section, the original price of the shares shall be reduced by the amount of the investment recognised as a loss as aforesaid.
(e)Where an investor has made a qualifying investment in a research and development company, the Israel National Technological Innovation Authority shall examine, at the end of each tax year during the determining period, whether at least 70% of the company's expenditure in that year was incurred, directly or indirectly, in connection with a product based on research and development carried out in the company.
(f)Where the Israel National Technological Innovation Authority finds, in an examination pursuant to subsection (e), that the condition referred to in that subsection is not met in respect of the company, the company shall be liable to tax on the full amount of the qualifying investments invested in it, at the rate prescribed in section 125b(2), with the addition of linkage differentials and interest from the date on which the Authority found that the condition had ceased to be met as aforesaid until the date of actual payment.
(g)The provisions of this Ordinance with respect to assessment and collection shall apply to the company's liability under subsection (f).
Capital gain in a body of persons that has been wound up§
93.
(a)In a body of persons whose winding up has commenced, the following provisions shall apply:
(1)A gain from the sale of an asset by the liquidator shall be deemed a capital gain chargeable to tax by that body of persons;
(2)Where the sale was by way of a transfer of assets by the liquidator from the body of persons to a member thereof, the consideration shall be reckoned as it was on the day of the sale;
(3)Shares or other rights of a member in that body of persons shall be deemed to have been sold, and the assets received by the member from the liquidator shall be deemed to be the consideration for the said shares or rights;
(4)The computation of capital gain in respect of a member of that body of persons shall be made after the distribution of all the assets; however, if the distribution has not been completed within two years from the date of commencement of the winding up, the assets shall be deemed to have been distributed at the end of that period, provided that the Director may extend the said period if it has been proved to his satisfaction that the distribution was not completed as aforesaid by reason of a reasonable cause.
(b)(Repealed)
(b1)The provisions of this section shall apply also to the winding up of a real property association.
(b2)Where a transfer of a right in real property from the liquidator to a member was exempt from tax under the provisions of section 71a of the Land Taxation Law, the following provisions shall apply:
(1)The original price of the shares shall be deemed to be the original price, reduced by the original price multiplied by the ratio between the value of the right in real property or the right in the real property association, as the case may be, the sale of which was exempt from tax, and the sum obtained by adding the consideration received as referred to in section 93(a)(3) and the value of the right in real property or the right in the real property association the sale of which is exempt from tax as it was on the day on which the winding up of the association commenced;
(2)For the purposes of the provisions of section 94b of the Ordinance, there shall be deducted from the profits available for distribution, as defined in that section, an amount equal to the additional profit as it would have been had the right in real property been sold on the day on which the winding up of the association commenced, provided that the said additional profit is a positive amount.
(b3)For the purposes of subsections (b1) and (b2), every term shall have the meaning assigned to it in the Land Taxation Law, including in section 71a thereof, unless expressly stated otherwise.
(b4)A liquidator who has transferred an asset of a body of persons whose winding up has commenced to a member thereof shall, at the time of the transfer, withhold tax at a rate of its value, as detailed below:
(1)Where the asset was transferred to a member that is a body of persons — at the rate referred to in section 91(a);
(2)Where an asset was transferred to a member who was a substantial shareholder in the body of persons at the time the winding up commenced or on any day during the 12 months preceding that time — at a rate of 30%;
(3)Where an asset was transferred to an individual to whom paragraph (2) does not apply — at a rate of 25%;
unless the assessing officer has approved, in writing, that no tax shall be withheld, or that less than the said rates shall be withheld.
(b5)Tax as referred to in subsection (b4) shall be paid to the assessing officer within 7 days from the day on which the asset was transferred to the member; a report on the asset transferred and the tax withheld shall accompany the payment; within the said time the liquidator shall deliver to the member a confirmation of the withholding, in the form prescribed by the Director.
(b6)For the purposes of subsections (a)(2) to (4), (b4) and (b5), "asset" means any property, whether real property or movable property, as well as any right or benefit, whether future or vested, all whether in Israel or outside Israel, excluding a right in real property and a right in a real property association that were transferred to a member exempt from tax pursuant to section 71(a) of the Land Taxation Law.
(c)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe special provisions with respect to the definitions of "asset" and "consideration", and may also prescribe that this section shall apply to the winding up of real property associations as defined in the Land Taxation Law, and the adjustments required by reason of such prescriptions.
Special provisions for winding up in the 2003 tax year§
93a.
(a)The provisions of section 93 shall not apply to a voluntary winding up of a company that commenced and was completed in the 2003 tax year, and the sale of the assets or activity shall not be charged to tax under this Ordinance or under the Inflation Adjustments Law, as the case may be, where all of the following conditions are met:
(1)The company was incorporated during the period commencing in the 2002 tax year until the 1st of Sivan 5763 (1 June 2003), or was incorporated before the said period but had no assets, activity, income, expenses or losses before that period;
(2)The company was incorporated by an individual whose income is from a profession as referred to in section 2(1) or from employment as referred to in section 2(2) (in this section — the service provider), who is the controlling shareholder in that company;
(3)The activity of the service provider was transferred to the company, and if rights in real property as defined in the Land Taxation Law were also transferred — their designation was not changed in the course of the transfer;
(4)The sale of the assets or activity is a sale without consideration to the same shareholders from whom the assets or activity were transferred to the company, in accordance with their proportionate share of the rights in the company, and their designation was not changed in the course of the sale;
(5)The company and the shareholders requested that the provisions of this section apply to the winding up proceedings;
(6)In the course of the winding up proceedings, all profits available for distribution, all surpluses and all sums of money remaining in the company were paid to the shareholders, all as prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset (in this section — the surpluses), and were charged to tax in the hands of the shareholders pursuant to sections 2(1) or 2(2);
(7)Other conditions, restrictions and adjustments as prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset.
(b)Notwithstanding the provisions of Chapter III of Part 5-B, a winding up to which the provisions of this section apply shall not be regarded as a breach of the conditions set out therein.
(c)The Director may approve the application of the provisions of this section to a voluntary winding up of a company even if it was completed after the 2003 tax year, provided that the conditions in subsection (a) were met and the following two conditions are also met:
(1)The company had no income after the 2003 tax year;
(2)By the end of the 2003 tax year, all of the assets and activity of the company were sold to the shareholders as referred to in subsection (a)(4), and all the surpluses as referred to in subsection (a)(6) were paid to them.
(d)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe provisions for the implementation of this section, as well as conditions and adjustments, including with respect to the original price, the date of acquisition, the set-off of losses, the computation of the surpluses and the computation of the capital gain, and may also prescribe that against the tax applicable to the surpluses a credit shall be given for the tax paid by the company if it had a loss that could be carried forward to the 2004 tax year which originated in the surpluses, all subject to conditions prescribed by the Minister of Finance, provided that no credit shall be given that is higher than the amount of tax applicable.
Bonus shares and option warrants§
94.
(a)Where a person sold bonus shares allotted to him, or the shares in respect of which the bonus shares were allotted (hereinafter — the principal shares), the following provisions shall apply:
(1)A bonus share shall be deemed to have been acquired on the day on which the principal share was acquired;
(2)The original price in respect of a single bonus share or a single principal share shall be the amount that bears the same ratio to the original price of the total of all the said bonus shares and principal shares as the nominal value of that single share bears to the nominal value of all the said shares;
the provisions of this subsection shall apply, with the necessary modifications, to a unit in a mutual trust fund within its meaning in the Joint Investments Law.
(b)(Repealed)
(c)Where a person sold an option warrant in a company whose securities are not listed for trading on a stock exchange, or sold the shares received as a result of the exercise of the option warrant, the Minister of Finance shall prescribe by Regulations, with the approval of the Finance Committee of the Knesset, the original price and the date of acquisition of the securities by virtue of which the option warrant was allotted, of the option warrant and of the securities received as a result of the exercise of the option warrant.
(d)In this section —
"securities" — (deleted)
"rights offering" — (deleted)
"option warrant" — a security that confers on its holder the right to purchase shares issued by a company against an exercise supplement at the price or on the terms set out in the option warrant;
"bonus shares" — including the bonus component in rights that were allotted or in shares originating from such rights.
(e)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe rules for the computation of the amount of the bonus component.
Sale of a loan together with shares§
94a.
On the sale of an unlinked and interest-free loan, at least three years after it was given by a shareholder to a company, together with his shares or other rights in that company, that part of the total consideration for the shares and the loan equal to the balance of the adjusted original price of the loan shall be deemed to be the consideration for the loan; a capital loss on the sale of the shares as a result of a computation as aforesaid shall be set off against the capital gain from the loan, pound for pound.
Profits available for distribution§
94b.
(a)On the sale of a share of a company whose shares are not listed for trading on a stock exchange by an individual, if the date of acquisition of the shares being sold was before the determining date, or by a body of persons, the following provisions shall apply:
(1)The rate of tax on that part of the real capital gain equal to a portion of the profits available for distribution, in the ratio between the seller's share of the right to profits in the company pursuant to the share and the total rights to profits in the company, shall be the rate of tax that would have applied thereto had they been received as a dividend immediately before the sale, pursuant to sections 125b or 126(b), as the case may be;
(2)Notwithstanding the provisions of paragraph (1), the rate of tax on the real capital gain equal to a portion of the profits available for distribution as referred to in paragraph (1) up to the determining date shall be 10%; for the purposes of this section, "profits available for distribution up to the determining date" means the amount that would have been regarded as profits available for distribution had the share been sold on the determining date, reduced by the amount of dividend income charged to tax pursuant to the provisions of section 168 of the Economic Efficiency Law (Legislative Amendments for the Implementation of the Economic Plan for 2009 and 2010), 5769-2009.
(a1)The provisions of subsection (a) shall apply, with the necessary modifications, to the sale of a share of a company whose shares are listed for trading on a stock exchange, provided that the seller of the share was a substantial shareholder in the company whose shares are being sold, at the time of the sale or on any day during the 12 months preceding the sale.
(b)For the purposes of subsection (a) —
(1)"profits available for distribution" — profits as aforesaid that have accumulated in the company from the end of the tax year preceding the tax year of acquisition of the share until the end of the tax year preceding the tax year of its sale, and in a winding up — until the day of completion of the winding up proceedings, provided that profits available for distribution as aforesaid that accumulated before the 9th of Tevet 5756 (1 January 1996) shall not be taken into account, all according to the balance sheet of the company at the end of the tax year preceding the tax year of the sale or the day of commencement of the winding up, as the case may be, including profits that were capitalised; however, amounts that accumulated in a capital stabilisation fund within its meaning in section 53k of the Capital Investment Encouragement Law, 5719-1959 or amounts whose deduction was permitted pursuant to section 53q of that Law or profits as aforesaid in a co-operative society in those years in which sections 56, 57, 61 and 62 applied in the computation of its income and those profits were included in the balance of the original price, shall not constitute profits available for distribution, and the amount of profits available for distribution shall not exceed the amount of profits that were charged to tax including land appreciation tax during the said period less the tax thereon and dividends distributed therefrom and less any loss incurred in the company whose shares are being sold that was not set off, plus profits that would have been chargeable to tax as aforesaid had they not been exempt therefrom;
(2)An increase in the seller's share of the right to profits in the company within the two years preceding the sale shall not be taken into account.
(c)The provisions of subsection (a) shall apply if the seller has submitted to the assessing officer a computation showing the profits available for distribution as referred to in subsection (b).
Reduction of the dividend§
94c.
On the sale of a share by a body of persons, there shall be deducted from the amount of the capital loss on the sale of the share the amount of dividend received by the body of persons in respect of the share during the 24 months preceding the sale, but not more than the amount of the loss; for this purpose —
"dividend" — excluding a dividend on which tax has been paid at a rate of 15% or more;
"tax" — excluding tax paid outside Israel.
Redemption of a share in a co-operative society§
94d.
(a)On the redemption of a share of a member in a co-operative society by the society, carried out upon the retirement of the member of the society after 25 years of work or membership in the society, or upon the retirement of the member from the society due to the loss of his capacity to work or upon his death, and whose date of acquisition is before the determining date, the following provisions shall apply:
(1)The redemption amount, when multiplied by the ratio between the number of months from the date of acquisition of the share until the determining date and the number of months from the date of its acquisition until the date of redemption (in this section — the exemption period ratio), shall be exempt from tax up to the amount of NIS 317,000, and the remainder of the redemption amount shall be chargeable to tax;
(2)The original price of the remainder of the redemption amount shall be the original price less the original price multiplied by the exemption period ratio;
(3)The date of acquisition of the remainder of the redemption amount shall be the date of acquisition of the share; however, if the exempt amount under sub-paragraph (1), less the adjusted original price of the share, is less than NIS 317,000, the date of acquisition shall be the date of acquisition or the date of commencement of the 1961 tax year, whichever is later.
(b)For the purposes of this section, "co-operative society" means a society registered under the Co-operative Societies Ordinance, which by its objects operates in one of the following fields: transport, haulage, production or services.
Capital gain from sale in consideration for shares in a company§
95.
(a)Where a capital gain from the sale of an asset to a company in consideration for shares only in that company accrued to a person or to a number of persons, the capital gain shall not be charged to tax if immediately after the sale the seller or sellers held 90 percent or more of the voting power in that company.
(b)On the sale of an asset acquired by a company as referred to in subsection (a), and also on the sale of the shares received by the seller in consideration for the said asset, the balance of the original price of the asset in the hands of the seller as referred to in subsection (a) shall be deemed to be their original price, and the date of acquisition of the asset shall be deemed to be the day on which it was acquired by the person who sold it to the company.
(c)This section shall apply to a capital gain that accrued to a person or to a number of persons from an asset sold until the 18th of Tevet 5754 (1 January 1994).
Capital gain from an asset on which depreciation was determined§
96.
(a)Where a capital gain from the sale of a depreciable asset accrued to a taxpayer, and within a period of twelve months after the date of the sale, or four months before it, the taxpayer acquired another asset in replacement of the asset that was sold, at a price exceeding the balance of the original price of the asset that was sold, the taxpayer may claim that only the amount by which the consideration received for the asset that was sold exceeds the price of the asset acquired shall be deemed a capital gain, and may do so with respect to the entire capital gain or with respect to the real capital gain only; and having done so, for the purpose of computing the capital gain on the asset acquired when it is sold, and the amount of depreciation allowable on it pursuant to section 21, its original price shall be reduced by any amount of capital gain that it had on the previous sale and that was not charged to tax by reason of the taxpayer's claim; on an amount so reduced, equal to a capital gain that accrued in part before the determining date, the tax rates set out in sections 121 or 126, as the case may be, shall apply with respect to that part of the capital gain; for the purposes of this section, "the part of the capital gain that accrued before the determining date" means the part of the capital gain that bears the same ratio to the total capital gain as the period from the date of acquisition until the determining date divided by the period from the date of acquisition until the date of sale.
(b)The provisions of subsection (a) shall not apply to a capital gain from the sale of an asset that is one of the following:
(1)A private passenger car as defined in the Traffic Regulations, 5721-1961, used by the seller for hire or other leasing;
(2)A right in real property situated outside Israel;
(3)An asset sold in a deemed sale as referred to in section 100a1.
(c)Where a real capital gain from the sale of a right in real property situated outside Israel as referred to in subsection (b)(2) (hereinafter — the sold property) accrued to a taxpayer, and in the state in which the sold property is situated no foreign tax, as defined in section 199, was paid solely by reason of the provisions of foreign law with respect to the deferral of capital gain upon the exchange of the sold property for other real property situated in the same state (hereinafter — the acquired property), the following provisions shall apply:
(1)Where foreign taxes as defined in section 199 were paid in the foreign state in which the acquired property is situated upon its sale, a credit for the foreign taxes paid on the deferred part of the capital gain shall be given against the tax applicable to the taxpayer in the tax year in which the foreign taxes were paid, first against capital gain derived outside Israel, and the balance against other income derived or accrued outside Israel; if it was not possible to receive a credit against foreign-source income as aforesaid, the credit shall be given against the tax applicable to income derived or accrued in Israel from any source; an amount that could not be set off, in whole or in part, against the foreign taxes paid in respect of the acquired property shall be refunded to the taxpayer at the end of the tax year in which the acquired property was sold;
(2)The credit referred to in paragraph (1) shall apply where the following conditions are met:
(a)The provisions of this section would have applied to the exchange of the real property had the sold property not been an asset that is real property outside Israel;
(b)The taxpayer proved to the satisfaction of the assessing officer that the exchange of the real property in the foreign state was not subject to tax by reason of provisions of foreign law in the country of origin that are similar in nature to the provisions of this section;
(3)The amount of the credit referred to in paragraph (1) shall not exceed the foreign taxes in respect of which a credit could have been received pursuant to the provisions of Part 10, Chapter III, Section B, in respect of the deferred capital gain that accrued from the sold property, or the amount of tax paid in Israel in respect of the deferred capital gain that accrued from the sold property, as adjusted according to the rate of increase of the index from the end of 30 days after the sale of the sold property until the end of the tax year in which the acquired property was sold;
(4)Where a balance of foreign taxes remains in respect of which no credit was given pursuant to the provisions of paragraphs (2) and (3), the provisions of Part 10, Chapter III, Section B shall apply to it.
Exemption from tax§
97.
(a)Capital gain shall be exempt from tax if it arises from one of the following:
(1)the sale of a non-convertible debenture traded on a stock exchange in Israel, provided that the debenture was issued before the 3rd of Iyyar 5760 (8 May 2000) and was listed for trading on a stock exchange in Israel before the determining date;
(2)the sale of a bond or loan bond issued by the State or guaranteed by it, provided that the bond was issued or put out before the 3rd of Iyyar 5760 (8 May 2000);
(3)(Repealed)
(4)a gift to the State, to a local authority, to the Jewish National Fund, to the Keren Hayesod – United Jewish Appeal for Israel, or to a public institution within the meaning of section 9(2);
(5)a gift to a relative and also a gift to another individual if the assessing officer is satisfied that the gift was given in good faith, provided that the recipient of the gift is not a foreign resident;
(6)(Repealed)
(7)capital gain accruing to an individual from the sale or redemption of a unit in a liable trust fund.
(b)
(1)An individual who has become a resident of Israel for the first time and a veteran returning resident, as referred to in section 14(a), is exempt from tax on capital gain from the sale of an asset that was held by that individual outside Israel, if sold within ten years from the day on which that individual became a resident of Israel; for this purpose, "asset" – excluding an asset that came into the possession of the individual by way of a tax-exempt gift pursuant to subsection (a)(5), with effect from the 11th of Tevet 5767 (1 January 2007);
(2)A returning resident as defined in section 14(c) is exempt from tax on capital gain from the sale of an asset that was acquired outside Israel during the period in which that individual was a foreign resident, if the asset, including the right or the right in a foreign body of persons, is not a right, directly or indirectly, to an asset situated in Israel, all provided that it is sold within ten years from the day on which that individual became a returning resident; for this purpose, "asset" – including assets outside Israel that are preferred securities as defined in section 14(c);
(3)Where the asset referred to in paragraph (1) or (2) is sold after 10 years have elapsed from the day on which the individual became a resident of Israel as referred to in those paragraphs, that part of the real capital gain up to the end of the exempt period shall be exempt from tax, and the remainder of the capital gain shall be liable to tax at the rate prescribed in section 91(b); for this purpose, "part of the real capital gain up to the end of the exempt period" – the real capital gain multiplied by the ratio between the period from the date of acquisition until the end of 10 years from the day on which that individual became a resident of Israel and divided by the period from the date of acquisition until the date of sale.
(b1)(Repealed)
(b2)A foreign resident is exempt from tax on capital gains from the sale of securities traded on a stock exchange in Israel, if the capital gain does not form part of that resident's permanent establishment in Israel; where the date of acquisition of the security was prior to the date of its listing for trading on the stock exchange, and had it been sold prior to such listing the foreign resident would not have been entitled to the exemption on its sale under subsection (b3), that portion of the capital gain that would have accrued had the security been sold prior to the date of its listing for trading on the stock exchange and not exceeding the amount of the capital gain at the time of sale of the security, shall be liable to tax at the rate prescribed in section 91, provided that its value on the date of listing is higher than its value on the date of acquisition and that the consideration at the time of its sale is higher than its value on the date of acquisition; the provisions of this section shall not apply to capital gain from the sale of a share in a real estate investment fund or in a company that has ceased to be a real estate investment fund, nor to capital gain from the sale of a debenture or loan bond of the State of Israel or guaranteed by it, listed for trading on a stock exchange in Israel and whose redemption date does not exceed 13 full months from the date of their issue (in this section – short-term State loan), nor to a futures transaction whose underlying asset is, directly or indirectly, a short-term State loan.
(b3)
(1)A foreign resident is exempt from tax on capital gain accruing to that resident from the sale of a security of a company that is a resident of Israel, or from the sale of a right in a foreign body of persons whose principal assets are rights, directly or indirectly, in assets situated in Israel, if all of the following conditions are met:
(a)the capital gain does not form part of that resident's permanent establishment in Israel;
(b)(Repealed)
(c)the acquisition of the security was not from a relative and the provisions of Part 5-B, or the provisions of section 70 of the Land Taxation Law, did not apply thereto;
(d)(Repealed)
(e)(Repealed)
(f)the security was not traded on a stock exchange in Israel at the time of the sale;
(2)The provisions of paragraph (1) shall not apply to capital gain from the sale of a security of a company where, on the date of its acquisition and in the two years preceding the sale, the principal value of the assets held by it, directly or indirectly, derives from one or more of the following:
(a)a right in real property or a right in a real property association as defined in section 1, including any other right in real property within the meaning of the Land Law, 5729-1969;
(b)a right to use real property or any asset attached to real property in Israel;
(c)a right to exploit natural resources in Israel;
(d)a right to proceeds from real property situated in Israel;
(3)The provisions of this subsection shall apply, with the necessary modifications, also to an individual who has become a resident of Israel for the first time or who has become a veteran returning resident, as referred to in section 14(a), provided that at the time of acquisition of the security that individual was a foreign resident, and the provisions of subsection (b) shall apply in respect of the capital gain as if the security were an asset held by that individual outside Israel before becoming a resident of Israel as aforesaid;
(4)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe conditions, restrictions and provisions in respect of this section.
(c)(Repealed)
(c1)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may by Order exempt from payment of tax, in whole or in part, capital gain that is one of the following:
(1)capital gain arising from types of transactions, provided that they do not involve assets traded or listed for trading on a stock exchange or a regulated market, or in respect of assets traded or listed for trading as aforesaid;
(2)capital gain from the sale of a convertible debenture convertible into a share traded on a stock exchange or a regulated market, in Israel or outside Israel, either generally or for types of taxpayers, all subject to conditions that have been prescribed.
Method of calculating capital gain§
98.
Notwithstanding the provisions of this Part, the Minister of Finance may prescribe by Regulations the method for calculating capital gain, both generally and for the purposes of withholding at source, provided that a determination made generally shall require the approval of the Finance Committee of the Knesset.
98a.§
(Repealed — תשס״ה־9)
Requirement to furnish information§
99.
The Director may require a banking institution within the meaning of the Bank of Israel Law, 5714-1954, a person whose business or part of whose business is the trading in securities on behalf of others, or a person who holds securities in that person's own name on behalf of another, to furnish full particulars regarding the trading in or holding of such securities as aforesaid.
Transfer of asset to trading stock§
100.
Where the assessing officer is satisfied that a person has transferred an asset owned by that person to that person's business as trading stock, or has converted a fixed asset in that person's business into trading stock of that business (in this section – transfer), the following provisions shall apply:
(1)where four years have elapsed from the date on which the taxpayer acquired the asset until the date of transfer, the transfer shall be deemed a sale, but the taxpayer shall not be liable to pay the tax thereon until the time of sale of the said trading stock, in whole or in part; provided that if part thereof is sold, the taxpayer shall not be liable to pay tax in an amount exceeding the consideration received in that sale;
(2)where four years as aforesaid have not elapsed, the transfer shall not be deemed a sale and the balance of the original price shall be deemed the cost of the asset to the taxpayer.
Person who has ceased to be a resident of Israel§
100a.
(a)An asset of a person who is a resident of Israel and who has ceased to be a resident of Israel shall be deemed to have been sold on the day preceding the day on which that person ceased to be a resident of Israel.
(b)A person as referred to in subsection (a) who has not paid the tax at the time at which that person ceased to be a resident of Israel shall be deemed to have requested to defer payment of the tax to the time of realisation of the asset, and at the time of realisation that person shall pay the tax applicable in respect of the sale of the asset at the time at which that person ceased to be a resident of Israel, in an amount equal to the amount of tax applicable on the liable portion of the gain; however, linkage differentials and interest, as defined in section 159a, shall be added only from the time of realisation until the actual payment of the tax.
(c)Notwithstanding the provisions of subsection (b), where the sale of the asset was liable to payment of tax in Israel at the time of realisation, the tax payable in respect of the capital gain shall be paid at the time of realisation, in lieu of the tax pursuant to the provisions of subsection (b).
(d)For the purposes of this section –
"liable portion of the gain" – the real capital gain at the time of realisation multiplied by the holding period from the date of acquisition of the asset until the day on which that person ceased to be a resident of Israel, and divided by the total period from the date of acquisition of the asset until the date of its realisation;
"realisation" – the actual sale of the asset;
"asset" – including shares and rights granted as referred to in sections 3(i) and 102.
(e)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe provisions for the implementation of this section, including provisions for the prevention of double taxation and in respect of the filing of returns.
Distribution from revaluation gains§
100a1.
(a)In this section –
"company" – excluding a family company within the meaning of section 64a and excluding a real estate investment fund within the meaning of section 64a3;
"distribution of revaluation gains" – a distribution of a dividend from revaluation gains;
"revaluation gains" – surpluses that have not been subject to corporate tax, of the type prescribed by the Minister of Finance, with the approval of the Finance Committee of the Knesset, in an amount exceeding NIS 1,000,000, to be calculated on a cumulative basis from the date of acquisition of the asset; for this purpose, "surpluses" – amounts included in the equity of a company that are not share capital or a premium as defined in the Companies Law, all in accordance with the audited or reviewed financial statements prepared by the company in accordance with generally accepted accounting principles.
(b)Where a company has effected a distribution of revaluation gains, the asset in respect of which the revaluation gains were recorded in the financial statements of the distributing company shall be deemed to have been sold on the date of distribution (in this section – notional sale) and to have been re-acquired on that date (in this section – notional acquisition); the provisions of this Part shall apply to a notional sale and a notional acquisition with the following modifications:
(1)the consideration for the notional sale shall be the grossed-up distribution amount plus the balance of the original price of the asset sold; for this purpose, "grossed-up distribution amount" – one of the following:
(a)the amount of the distribution from revaluation gains divided by one minus the rate of corporate tax under section 126(a);
(b)the amount of the distribution plus the amount of tax that the company would have had to pay in order to retain a capital gain equal to the amount of the distribution of revaluation gains, if it has been proved to the satisfaction of the assessing officer that the tax in respect of the notional sale differs from that stated in sub-paragraph (a);
(2)the date of the distribution of revaluation gains as stated in the opening passage shall be deemed the new date of acquisition of the asset and its original price shall be the consideration referred to in paragraph (1);
(3)for the purpose of calculating depreciation in respect of the asset after the notional acquisition, there shall be deducted from the original price an amount equal to the inflationary amount as defined in section 88, that was calculated for the purposes of the notional sale (in this section – the updated original price);
(4)in calculating the inflationary amount as defined in section 88 upon an actual sale of the asset or upon an additional notional sale following the notional acquisition (in this section, each of them – additional sale), the original price shall be determined in accordance with the updated original price, and the balance of the adjusted original price shall be calculated in accordance with the updated original price;
(5)upon an additional sale, the amount of real loss from the notional sale shall be added to the balance of the adjusted original price of the asset; for this purpose, "real loss from the notional sale" – the amount by which the balance of the adjusted original price of the asset at the time of the notional sale exceeds the consideration calculated in accordance with the provisions of paragraph (1);
(6)in calculating the capital loss in an additional sale, the inflationary amount calculated for the purposes of the notional sale shall be deducted from the capital loss, but not more than the amount of the capital loss in the additional sale but for the provisions of this subsection;
(7)notwithstanding the provisions of paragraph (2), upon an additional sale by a house company within the meaning of section 64, by an agricultural cooperative society within the meaning of section 62, or by the holders of rights in a dissolving association pursuant to section 71 of the Land Taxation Law, of an asset that, had it actually been sold at the time of the additional sale disregarding all notional sales or notional acquisitions, would have been liable to tax, in whole or in part, under section 91(b1)(1), or under section 48a(b1)(1) of the Land Taxation Law, the date of acquisition shall be deemed, for the purpose of calculating real capital gain up to the determining date, real capital gain after the determining date and until the date of change, real appreciation up to the commencement date or real appreciation after the commencement date and until the date of change, to be the date of actual acquisition of the asset by the company or the cooperative society or the dissolving association, disregarding the notional sale and the notional acquisition.
(c)A company effecting a dividend distribution pursuant to this section may choose the order of distribution from the surpluses available to it.
(d)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may amend by Order the amount specified in the definition of "revaluation gains" in subsection (a), provided that the first amendment shall not be made before the 29th of Tammuz 5779 (1 August 2019).
100b.§
(Repealed — תשנ״ה־4)
100c.§
(Repealed — תשנ״ה־4)
100d.§
(Repealed — תשנ״ה־4)
100e.§
(Repealed — תשנ״ה־4)
Conversion of private shares into shares traded on a stock exchange§
101.
(a)
(1)The listing of shares of a company on a stock exchange in Israel, or the listing of shares of a company that is a resident of Israel on a stock exchange outside Israel, effected before the tax year 2006, shall be deemed a sale of the shares of the company on the date of listing, unless the shareholder requested that it not be so deemed at the time of first filing, after the listing, of a return pursuant to section 131;
(2)Where the shareholder requested that the listing of the shares not be deemed a sale thereof, as referred to in paragraph (1), that shareholder shall be liable to tax at the time of the first sale of the shares and the provisions of section 97(b2) shall not apply;
(3)Notwithstanding the provisions of paragraph (2), a shareholder may retract the request at the time of the first sale of the shares and pay the tax that would have been due in respect of the listing, together with linkage differentials and interest within their meaning in section 159a(a), commencing from the date on which that shareholder would have been required to pay the tax as referred to in paragraph (1) had the shareholder not so requested, plus the tax applicable from the date of their listing on the stock exchange until the date of sale as prescribed in sections 91(a) or (b) or 97(b2), as the case may be; where a shareholder has been assessed to tax as referred to in paragraphs (1) and (3), the date of listing of the shares for trading on the stock exchange shall be deemed the date of acquisition of the shares, and the consideration determined for the purposes of those paragraphs shall be deemed their original price.
(b)For the purposes of subsection (a) –
(1)"shares" – including rights to shares but excluding shares or rights as aforesaid that were acquired after they were offered for sale to the public pursuant to a prospectus in which it was stated that the stock exchange had agreed to list the shares for trading thereon;
(2)where the shares were sold to a person (hereinafter – the recipient) under circumstances where the sale was exempt from tax or where the sale was not subject to tax – this shall not be deemed a sale; where the recipient sells them – this shall be deemed the first sale.
(c)
(1)The provisions of subsection (a) shall not apply to shares listed for trading after the 25th of Tevet 5752 (31 December 1991), in respect of which, at the time of their sale, section 6(g)(1) of the Inflation Adjustments Law applies; and in respect of shares listed for trading after the 22nd of Tevet 5760 (31 December 1999), in respect of which, at the time of their sale, the rules under section 130a apply to their holders;
(2)The provisions of paragraph (1) shall not apply to the sale of shares as referred to in that paragraph in respect of which, at the time of their listing, Chapter II of the Inflation Adjustments Law or the rules under section 130a did not apply to their holders, provided that at the time of sale of the shares their holder chose to retract the request as referred to in subsection (a).
(d)Where bonus shares, as defined in section 94, were issued after the listing for trading on the stock exchange in respect of shares listed for trading as referred to in this section, the bonus shares or the bonus component as referred to in section 94 shall be deemed to form part of the listed shares for all purposes and matters.
(e)Notwithstanding the provisions of section 94b, upon the sale of a share pursuant to this section, the provisions of that section shall apply to profits available for distribution that have accumulated in the company from the end of the tax year preceding the tax year of acquisition of the share until the end of the tax year preceding the date of its listing for trading on the stock exchange; however, if the shareholder requested that the listing of the shares not be deemed a sale thereof and did not retract that request at the time of sale of the share, the provisions of the section shall apply to profits available for distribution up to the end of the tax year preceding the date of the actual sale of the share; for the purposes of this section, "profits available for distribution" – as defined in section 94b.
(f)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe rules in respect of the original price and the date of acquisition and in respect of shares that were listed for trading on a stock exchange without a public offering.
(g)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe the adjustments required in respect of shares whose date of acquisition is before the determining date or that were listed for trading on a stock exchange before the determining date.
Authority of the Minister of Finance§
101a.
(a)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe, with respect to capital gain on the sale of a security, provisions on the following matters:
(1)the method and manner of computing the capital gain and the real capital gain, determining the time thereof and computing the tax, generally or for the purpose of withholding tax, including with respect to the set-off of losses at the time of withholding tax;
(2)the allowance of expenses and the manner of their attribution;
(3)with respect to an asset whose acquisition date is before the determining date, or whose acquisition date is before the date of its listing for trading on a stock exchange, or in respect of which the provisions of the Inflation Adjustments Law or the provisions under section 130a applied — adjustments and transitional provisions, including provisions regarding the rate of tax, the computation of capital gain and the set-off of losses;
(4)circumstances and conditions under which income from the sale of a security shall be regarded as income under section 2(1), generally or according to the period of holding the security;
(5)the method for computing discount charges, including the determination of categories of cases in which the discount charges shall be added to the consideration;
(6)categories of cases in which a futures transaction shall be regarded as a hedging transaction and circumstances in which such a transaction shall be regarded as a transaction whose income is income under section 2(1), or in which its result shall be added to the hedged asset or liability, subject to conditions that have been prescribed; for the purpose of this paragraph, "hedging transaction" — a futures transaction carried out for the purpose of protecting the value of an existing or future asset or liability, provided that it has been reported in accordance with rules that have been prescribed;
(7)with respect to a futures transaction, and with respect to a securities lending or borrowing transaction, a short sale of a security, and also such transactions between related parties — circumstances in which the transaction shall be regarded as a sale and the method of computing the income and its timing;
(8)exemption from tax or a reduced tax rate on the income of a non-resident from a security traded on a stock exchange or through a banking corporation, from the sale of a unit or its redemption, or on profits received in respect of a unit;
(9)provisions and conditions upon the fulfilment of which the deduction of real interest expenses and linkage differentials shall be permitted, the method of their computation, the limitation of the rate of real interest that shall be permitted as a deduction when special relationships exist between the lender and the borrower, as well as the modes of proving the attribution of the loan and of the real interest expenses and linkage differentials, to a security;
(10)provisions and conditions with respect to sales and transactions between relatives or between parties to a sale or transaction between whom special relationships exist, including provisions with respect to the determination of the consideration, the original price and the date of acquisition;
(11)conditions and circumstances upon the fulfilment of which a shareholder shall be regarded as a substantial shareholder, in addition to that stated in section 88, if the provisions of Part 5-B applied to the company;
(12)cases in which a unit in an exempt trust fund shall be regarded as sold and repurchased, for the purpose of certain unit holders or for the purpose of all unit holders, all subject to such conditions and adjustments as prescribed.
(b)Until provisions as referred to in subsection (a)(9) are prescribed, an individual who claimed a deduction for real interest expenses and linkage differentials shall be charged tax on any capital gain derived from the sale of securities at a rate of 30%.
Authority of the Director§
101b.
The Director may, with respect to capital gain on the sale of a security, prescribe rules regarding reports to be submitted to the assessing officer by the taxpayer and by a stock exchange member, a banking corporation, a portfolio manager and a real estate investment fund, as well as confirmations that they are required to deliver to the taxpayer; in this section, "portfolio manager" — as defined in the Regulation of Investment Advisory and Portfolio Management Law, 5755-1995.
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