PART FOUR: CALCULATION OF INCOME
IN SPECIAL CASES

CHAPTER ONE: INSURANCE COMPANIES

General insurance companies
49. (a) Notwithstanding the provisions of this Ordinance, if a company carries
on a general insurance business, whether its earnings or profits are 72
derived wholly in Israel or partly in Israel and partly outside Israel, then
its earnings or profits on which tax is due shall be determined in the
following manner:
(1) from the total amount of gross premiums and interest and other
income received or receivable in Israel shall be deducted the total
of premiums returned to insured persons and paid for reinsurance;
(2) from the balance computed as aforesaid shall be deducted a
reserve for risks unexpired at the end of the tax year, calculated at
the percentage adopted by that company for those risks in relation
to all its business; and to it shall be added the balance of the
reserve so calculated for risks unexpired at the beginning of the
tax year, on condition that the percentage adopted shall not
exceed a percentage reasonable and appropriate in each
particular case;
(3) from the net amount computed under paragraph (2) shall be
deducted –
(a) the amount of actual losses, less the amount recovered in
respect of those losses under reinsurance;
(b) management and agency expenses in Israel;
(c) a fair share of the expenses of the head office, which is
outside Israel.
(b) If, during any period within the tax year or the year before it, the company
actually discontinued its business in Israel in any category of insurance,
then no reserve shall be deducted in respect of that category of
insurance.

Life insurance companies
50. Notwithstanding the provisions of this Ordinance, if a company carries on a life
insurance business, either exclusively or in addition to general insurance
(hereafter: life insurance company), then its profits from life insurance business
shall be taken to be equal to the amount of profits calculated according to
section 49, while creating the reserves according to actuarial calculation and
mutatis mutandis as the case may be, on condition that no reserves be allowed
in an amount that exceeds the amount of reserves calculated on the basis of
that actuarial calculation, which is reasonable and appropriate to each
particular case.

Expenses of a life insurance company
51. Expenses incurred by a life insurance company for the acquisition of life
insurance contracts, including payments to agents, shall be deemed expenses
in the year in which they were incurred or transferred to the agent's credit,
whether or not the company included them in its profit and loss account in
respect of that year.

Life insurance companies that receive premiums from abroad
52. If a life insurance company receives most of its premiums from abroad, then its
profit shall be taken to be a proportional part of its investment income, in the
ratio of the amount of premiums received in Israel to the total amount of
premiums received, or its actual income from investments in Israel, whichever
is the larger amount, after the expenses of the branch or agency in Israel and a
fair share of the expenses of the company's head office, which is located
outside Israel, were deducted from the amount of the profits.

Foreign insurer who received premiums from insurance in Israel 73
53. If a person who is not an Israel resident carries on an insurance business and
if premiums were paid to him for the insurance of assets in Israel, or for
insurance against a contingency liable to arise only in Israel, or if they were
paid by insured persons who are Israel residents, otherwise than through a
branch or agent in Israel authorized to issue policies on his behalf, then he is
deemed to have derived profits in Israel from that insurance business and
those profits are deemed to be 10% of the total amount of premiums paid to
him as aforesaid; however, if that person submitted to the Assessing Officer a
return of his profits from the said transactions, and if that return satisfies the
Income Tax Director, then those profits shall be calculated in accordance with
the provisions of section 49 or sections 50 to 52, all as the case may be.



CHAPTER TWO: COOPERATIVE BODIES

Article One: Kibbutzim

Definitions
54. (a) In this Article –
"kibbutz" – a kibbutz or a kvutza incorporated as a cooperative society
under the model rules approved by the Registrar of Cooperative
Societies for societies of that category;
"member", in relation to a kibbutz – an individual who was a member of
that kibbutz at the end of the tax year.
(b) The provisions of this Article do not derogate from the provisions of
section 9(2).

Assessment of a kibbutz
55. Notwithstanding the provisions of this Ordinance, the assessment of a kibbutz
and of all its members shall be made according to the provisions of sections 56
to 60.

Chargeable income
56. The value of the maintenance which the kibbutz, by virtue of membership,
provided for its members and for their spouses and children who are not
members, is deemed part of the chargeable income of the kibbutz and not
income of its members.

Tax
57. (a) A kibbutz shall pay tax in an amount equal to the total amount of tax
which its members would have to pay, if all its chargeable income were
equally distributed among them and if it were their only chargeable
income; for this purpose sections 34 to 46A and 47, and the provisions
of Chapter Three in Part Four, except for section 66 therein, shall apply
in accordance with the composition of the kibbutz members' families;
however, in respect of the allowance of deductions under section 47, a
member's income from outside the kibbutz, in respect of which he is
entitled to benefits, a grant or a pension, shall not be taken into account.
(b) (1) In order to calculate the tax, to which the kibbutz is liable, the
kibbutz may demand that a separate calculation be made of its
chargeable income after it was divided among its members under
subsection (a), up to the amount of NS 43,080 (in 2008; in 2007 –
NS 41,880 Tr.) for each married couple of kibbutz members on 74
condition that all the following hold true:
(a) the two kibbutz member spouses work at entitling work;
(b) the following conditions prescribed in section 66(e) have
been complied with –
(1) in paragraph (2) –
(a) subparagraph (a), and for this purpose it shall
be read as if "at the regular place of business"
had been replaced by "at entitling work";
(b) subparagraph (c);
(2) in paragraph (3);
(c) the kibbutz kept accurate records about the work of all
kibbutz members, both within the kibbutz and outside it.
For the purposes of this paragraph, the chargeable income of the
kibbutz that was calculated for the purposes of subsection (a), less
chargeable income that is not income under section 2(1) or (2),
shall be deemed the chargeable income in respect of which the
kibbutz may demand separate calculation.
(2) Notwithstanding the provisions of subsection (a), the provisions of
section 66(c) shall apply to the separate calculation.
(2a) The provisions of sections 38 and 39 shall not apply to the income,
in respect of which separate calculation was demanded, as said in
this subsection.
(3) The Minister of Finance may, with approval by the Knesset
Finance Committee, prescribe additional conditions and
adjustments – also on the matter of chargeable income in respect
of which the kibbutz may demand separate calculation – in respect
of the application of the provisions of section 66(c), and as part
thereof he may designate categories of workers who shall be
deemed to have worked at entitling work during 36 hours per
week, all on conditions which he shall prescribe;
in this section –
"entitling work" – work in a branch of the kibbutz, which directly or indirectly
produces income under section 2(1) or work for which income is paid
under section 2(2), all on condition that it is not work that – directly or
indirectly – is work of supplying daily needs of kibbutz members;
"kibbutz" – as defined in section 54.

Credit points for children
58. A kibbutz shall be entitled to the credit points to which its members would be
entitled under section 38, if the children were maintained by them.

Training fund for kibbutz members
58A. (a) In calculating the chargeable income of a kibbutz, amounts shall be
deductible that were paid by the kibbutz to training funds for kibbutz
members and kept in the names of the kibbutz members, after an
amount equal to 2.5% of the kibbutz' determining income was subtracted
from them; the said amounts shall not exceed 4.5% of the kibbutz'
determining income.
(b) Amounts paid to a kibbutz member by a training fund for kibbutz
members, as said in subsection (a), shall be deemed income for
purposes of this Article when they are received, and the provisions of
section 9(16a) shall apply, mutatis mutandis, as if the kibbutz member
were an employee.
(c) For purposes of this section – 75
"determining income" – the chargeable income of the kibbutz before
the deduction according to subsection (a), up to an amount of NS
218,000 per year (in 2007; in 2006: NS219,000; in 2005: NS213,000 –
Tr.), multiplied by the number of kibbutz members for whom the kibbutz
pays to a training fund for kibbutz members;
"kibbutz member" – a member as defined in section 54, on condition
that the following hold true for him:
(1) he has reached age 21 in the tax year and has not yet reached
age 70;
(2) no amounts in addition to the amounts said in subsection (a) are
deposited for him with a training fund;
(3) he regularly and permanently works in the kibbutz or on its behalf;
"training fund for kibbutz members" – a training fund designated for
kibbutz members.

59 and 60 – Repealed





Article Two: Moshavim and Agricultural Societies

Moshavim shitufiyim and the like
61. The Director may, at his discretion, direct that the provisions of Article One
apply to the assessment of moshavim shitufiyim or of other cooperative
societies for agricultural settlement and of their members, if it is proved to his
satisfaction that the way business is conducted in the said societies is similar
in character to that of a kibbutz.

Agricultural cooperative society
62. A cooperative society classified as an agricultural cooperative society for
purposes of the Stamp Duty Ordinance shall, in any particular tax year, be
treated like a partnership for the purposes of this Ordinance, if the society so
claimed in a return under section 131 in respect of that tax year, specifying the
names and addresses of its members and the share of its chargeable income
due to each of them in that tax year, on condition that the decision to claim as
aforesaid was adopted at a general meeting of the society in compliance with
its bylaws, and that a majority of its members gave their written consent
thereto.



Article Three: Partnerships and House Property Companies

Partnerships
63. (a) If it was proven to the Assessing Officer's satisfaction that a business or
vocation is carried on by two or more persons jointly, then –
(1) the share of the partnership's income, to which each partner is
entitled in the tax year, ascertained in accordance with the
provisions of this Ordinance, is deemed that partner's income, and
it shall be included in the return of income which he must make
under the provisions of this Ordinance;
(2) the precedent partner – that partner whose name is the first of the 76
names of Israel resident partners to appear in the partnership
agreement or, if that precedent partner is not active, the precedent
active partner – shall, at the Assessing Officer's request, make
and deliver a return of the partnership's income in every year, as
ascertained in accordance with the provisions of this Ordinance,
and there he shall specify the names and addresses of the other
partners in the firm and the share of the said income to which each
partner is entitled for that year; if none of the partners is resident in
Israel, then the return shall be made and delivered by the Israel
resident attorney, agent, manager or factor of the firm;
(3) the provisions of this Ordinance on non-delivery of returns or of
particulars required by notice from the Assessing Officer shall
apply to the said return.
(b) If it was not proven to the Assessing Officer's satisfaction that a business
or vocation is carried on jointly by two or more persons, then the gains or
profits from that business or vocation shall be deemed to have accrued
to that one of the persons entitled to a share thereof, whom the
Assessing Officer shall choose, and the assessment shall be made
accordingly; if an assessment was made as aforesaid, then the
partnership shall not be deemed a body of persons for the purposes of
section 162.
(c) No provision of this section shall prevent an Assessing Officer's decision
– in the exercise of the discretion given to him by this section – from
being appealed according to sections 153 to 158.
(d) The Minister of Finance may, by Order, designate categories of
partnerships that shall be deemed companies for purposes of this
Ordinance; when he has so designated, then the partnership shall – for
the purposes of this Ordinance – be treated like a company, and an
amount distributed by the partnership to the partners shall be treated like
a dividend; for this purpose: "partnership" – a partnership, the units of
which were issued according to a prospectus and are listed for trading
on the Tel Aviv Stock Exchange or on any other Exchange designated
for this purpose by the Minister of Finance.
(e) (1) The Director may order, in respect of certain limited partnerships
which he designated and which have income from business under
section 2(1), that all or some of the chargeable income of a limited
partner, who meets all the conditions set by the Director, be
deemed a capital gain under Part Five, during a period of not more
than 183 days, all on conditions and with adjustments which he
prescribed; for this purpose: "limited partnership" and "limited
partner" – within their meaning in the Partnership Ordinance [New
Version] 5735-1975.
(2) The Minister of Finance may, in regulations with approval by the
Knesset Finance Committee, extend the effect of an order made
by the Director under paragraph (1) to a period, on conditions and
with adjustments which he shall prescribe.

House property companies
64. The income of a small company, within its meaning in section 76, all the assets
and business of which is the holding of buildings, shall – on the company's
application – be deemed the income of the company's members, and the
apportionment of that income among some or all of the company's members
for purposes of assessment shall be made as the Director may direct; if a
person believes that a direction by the Director discriminates against him, then 77
he may appeal against it to a Court, as said in sections 153 to 158.

NOTE: The following Article Four and section 64A were repealed by Amendment No.
132,but that repeal will only go into effect when regulations are promulgated under
the provisions of section 64A1. Since those regulations – in respect of "transparent
companies" – have not yet been promulgated, Article Four and section 64A on
"family companies" still remain in effect.- Tr.


Article Four: Family Companies

Family companies
64A. (a) The chargeable income and the loss of a company, the members of
which are relatives who under section 76(d)(1) are deemed one person
(hereafter: family company), shall be deemed – according to an
application submitted to the Assessing Officer not later than one month
before the beginning of a certain tax year or three months after its
incorporation, all as the case may be – the income or loss of the member
with the right to the largest part of the company's profits, or of the
member designated by the company in its application as one of the
persons with rights to the largest equal shares of its profits, his written
consent having been attached to the application (in this section: the
assessee), and the following provisions shall apply:
(1) profits distributed out of the company's profits in years, in which
the tax to which it is liable was calculated under this section
(hereafter in this section: benefit period) shall be treated as if they
had not been distributed, and that even if they were distributed
after the benefit period or after the company ceased being a family
company;
(2) if the company paid salaries or wages to its members, then it shall
not have the obligation of employers to pay in their respect
employers tax and savings loan;
(3) retirement grants or death grants paid by the company to its
members in respect of the years in which it was a family company
shall not be allowed as its expense and shall not constitute income
for its members; payments paid by the company to benefit funds in
respect of the said years shall not be recognized as expenses, and
the members' wages shall not be deemed work income for
purposes of section 47;
(4) in respect of advances, the amounts that are the basis for the
assessee's and the company's advances shall be joined;
(5) the tax on the company's income, including advances, may be
collected either from the company or from the assessee;
(6) losses incurred by the assessee before the benefit period cannot
be set off against the company's income;
(7) when a share in a family company is sold, the consideration shall
be reduced – for the purposes of section 88, both for the seller and
the buyer – by an amount equal to that part of the profits accrued
in the company during the benefit period and not distributed by it,
which is proportional to the share's right to the company's profits;
amounts subtracted as aforesaid shall not be deemed profits
available for distribution for the purposes of section 94B.
(a1) If, within the tax year, one of the conditions said in subsection (a) ceases
to apply to the assessee, then another member, to whom the condition 78
applies and about whom the company gave notice when it submitted the
return under section 131 for that year, shall become the assessee; if the
company did not notify as aforesaid, then the company shall cease to be
a family company entitled to the application of the provisions of
subsection (a) (hereafter: entitled family company).
(b) (1) An entitled family company may inform the Assessing Officer, up
to the date on which the return under section 131 is submitted, that
it withdraws its application to be deemed an entitled family
company in the tax year to which the return refers; when the family
company has informed as aforesaid it shall cease to be an entitled
family company, and it shall have to pay – on the date of
submission of the said return – employers tax for that year, which
shall be treated – notwithstanding the provisions of section 4 of the
Employers Tax Law 5735-1975 – as if it had been income tax and
not a deduction for which the employer is responsible.
(2) A company that ceased being a family company cannot apply
again to be an entitled company before three tax years have
passed after the year in which it ceased to be an entitled company.
(c) The provisions of this section shall not remove a family company from
being a company for the purposes of sections 9(14) and 19 and for the
purposes of the Encouragement of Industry (Taxes) Law 5729-1969,
other than Chapter Five thereof.



Article Five: Transparent Companies

Transparent company
64A1. (a) In this section –
"shareholder" – a member of a transparent company;
"chargeable income" – including land appreciation, within its meaning
in the Real Estate Taxation Law;
"transparent company" – an Israel resident company for which all the
following hold true:
(1) it is not a public company, as defined in section 1 of the
Companies Law, and under its Articles it cannot be converted into
a public company;
(2) the number of its shareholders does not exceed 50 or a larger
number, if the Director so approved on conditions he set, and for
this purpose spouses and their children, heirs of a shareholder or
purchasers from a shareholder by an involuntary sale shall be
deemed a single shareholder;
(3) all its shareholders are individual residents of Israel;
(4) its shares are of one category, except for shares that carry voting
rights, and shareholders are not able to change the rights vested
by virtue of their shares, except for changes in voting rights;
(5) the right to the company's profits is accorded only by virtue of the
shares;
(6) a shareholder's right to profits is equal to his right to the company's
assets upon its liquidation;
(7) the company is not a financial institution, as defined in the Value
Added Tax Law;
(8) the company requested that it be deemed a transparent company,
by a notice signed by all its shareholders and delivered to the 79
Assessing Officer within 60 days after its incorporation;
"benefit years" – the tax years in which the company was a transparent
company;
(b) The chargeable income of a transparent company, including its income
from dividends and its losses, shall – for the purposes of tax calculation,
the tax rate and the set off of losses, and also for purposes of tax
exemption – be deemed the income or loss of its shareholders,
according to their parts of the rights to the company's profits, and the
following provisions shall apply:
(1) profits distributed out of the company's chargeable income shall
not be deemed income;
(2) for this matter, "profits distributed" – the chargeable income, plus
income exempt of tax, less the tax that applies to the shareholder
in respect of the income, if it was paid by the company and it did
not debit him accordingly;
(3) (a) the transparent company's losses during the tax year, which
were related to a shareholder, shall first be set off against
that shareholder's income from the transparent company, in
accordance with the provisions of the Ordinance;
(b) losses that were related to a shareholder in previous tax
years shall be allowed to be set off only against that
shareholder's chargeable income and shall not be allowed to
be set off against the transparent company's income;
(c) repealed
(4) classification of the chargeable income or the loss, as the case
may be, which was related to a shareholder as said in this section,
to a source of income shall be according to the source of income
from which it was produced or accrued for the transparent
company, but such income shall not be deemed income from
personal exertion, unless the shareholder played an active role in
the company;
(5) in respect of credit for foreign taxes, as defined in section 199, a
shareholder is entitled to his proportional share of the foreign tax
that the transparent company paid;
(6) in respect of a shareholder's advances, as said in section 175, his
proportional part of the transparent company's chargeable income,
including its income from dividends or its losses, shall be added to
the turnover that is the basis for advances;
(7) the tax on a transparent company's income, including advances,
may be collected either from the company or from its shareholders,
in the amount of the tax due on their proportional parts of the
transparent company's profits;
(8) the following provisions shall apply to the sale of a share in a
transparent company:
(a) for purposes of section 88, there shall be subtracted – from
the consideration in respect of the seller, and from the
original cost in respect of the purchaser – an amount equal
to part of the amount of undistributed profits accrued in the
company during the benefit years, the proportion of which to
the total of undistributed profits is as the proportion of the
share's rights to the profits of the transparent company to all
rights to its profits; for this purpose:
"profits" – the chargeable income of the transparent
company in the benefit years, less its losses in those years, 80
on condition that the result obtained is not a negative
amount;
"purchaser" includes a person who bought shares from the
transparent company;
(b) the provisions of section 94B shall not apply in respect of the
benefit years;
(c) for purposes of calculating capital gains, an amount equal to
the losses related to the seller of the share during the benefit
years shall be subtracted from the adjusted original cost, up
to the amount of the adjusted original cost; for this purpose:
"losses" – an amount equal to the chargeable income
related to a shareholder, less losses related to him, provided
it is a negative amount;
(9) if the holder of a share in an transparent company sold shares,
then he shall inform the transparent company of the sale within 90
days after the sale;
(10) the provisions of Part Five "B", except for Chapter Three there,
shall not apply to a transparent company;
(11) (a) the transfer of assets from a transparent company,
liquidation of which has begun, to its shareholders in
accordance with their parts of the rights in it shall not be
charged tax under this Ordinance or under the Real Estate
Taxation Law (in this paragraph: the taxes), on condition that
the transferred asset did not change its designation during
the transfer, as said in sections 85 and 100 and in section
5B of the Real Estate Taxation Law; however, if the sale
does not become liable to Land Appreciation Tax because
of the provisions of this paragraph, the sale shall be liable to
acquisition tax at the rate of 0.5%; the Minister of Finance
may, with approval by the Knesset Finance Committee,
designate instances in which exemption from the taxes
under this subparagraph shall not apply when the company
is liquidated, on conditions he shall set; for this purpose:
"Land Appreciation Tax" and "Acquisition Tax" – within
their meaning in the Real Estate Taxation Law;
(b) The Minister of Finance may, with approval by the Knesset
Finance Committee, prescribe conditions, provisions and
restrictions in respect of this paragraph, including the matter
of determining the original cost of the assets of a transparent
company in liquidation, the day of acquisition and the
acquisition cost, as defined in the Real Estate Taxation Law,
as well as provisions in respect of losses and the distribution
of income and also on instances, in which an increase in the
value of assets is to be taxed.
(c) (1) The Minister of Finance may, with approval by the Knesset
Finance Committee, make rules in respect of a transparent
company that has ceased to comply with the conditions and
provisions prescribed in this section, including the determination
that the company shall cease to be a transparent company; if he
so determined, then it cannot again come to be considered a
transparent company;
(2) if a company ceased being transparent, because of a violation of
one of the provisions of this section, then it may – with the
Director's approval and on conditions set by him – request that it 81
be wound up according to the provisions of subsection (b)(11)
within one year after the end of the tax year in which the said
violation occurred; for this purpose, the day of the violation shall be
deemed the day on which liquidation proceedings began.
(d) Notwithstanding the provisions of this Ordinance, the following
provisions shall apply to matters of assessment, objection and appeal:
(1) if an assessment was made for the transparent company, then the
Assessing Officer may – notwithstanding the provisions of this
Ordinance –determine or amend the assessment of a shareholder
in accordance therewith within two years after the end of the year
in which the company's assessment was made or at a time when
he may assess the shareholder's income, whichever is later;
(2) the transparent company may object to or appeal against the
assessment made for it according to the provisions of sections 150
or 153, as the case may be; a shareholder may object or appeal
as aforesaid against relating the transparent company's
chargeable income or losses and against the effect, which the
assessment made for the transparent company had on his
income, but not against the assessment made for the company.
(e) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe rules, provisions, conditions and restrictions for
purposes of this section, including –
(1) determination of the original cost;
(2) the consideration;
(3) assessment proceedings;
(4) the right to appeal and appeal procedures;
(5) prescribing an advance for the company – notwithstanding the
provisions of subsection (b)(6) – according to the company's
calculated basis for advances, at the rate he shall prescribe, rules
for relating the said advance to the shareholders, and rules for
setting off an advance for excess expenditure, as said in section
181B;
(6) relating and distributing the income according to the rights to
profits, and rules for rounding off the shareholders' proportional
parts of the rights to profits;
(7) tax obligation and tax payment under circumstances, under which
the company's shares are sold in the course of the year;
(8) returns to be submitted by the transparent company and its
shareholders;
(9) provisions on the restriction on a set off of losses;
(10) provisions on active officers of the company, as said in subsection
(b)(4).



CHAPTER TWO "A": REAL ESTATE INVESTMENT FUND

Definitions
64A2. (a) In this Chapter –
"means of control", "substantive shareholder", "original cost",
"relative" and "real capital gain" – as defined in section 88;
"income in the amount of depreciation expenses" – income in the
amount of the depreciation expenses deductible in respect of productive
real estate under the provisions of this Ordinance or under the provisions 82
of the Inflationary Adjustments Law;
"chargeable income" – including land appreciation;
"exceptional income" of a real estate investment fund – the following:
(1) income from the sale of business stock;
(2) income other than income specified in subparagraphs (a) to (c),
the total of which exceeds 5% of the Fund's total income in the tax
year;
(a) income from productive real estate and income from the sale
of building rights on real estate that was productive real
estate on the day of its acquisition;
(b) income from securities traded on an Exchange, from State
loans and from deposits;
(c) income which is deemed business income under section 7
of the Inflationary Adjustments Law;
for the purposes of this paragraph:
"income" includes real estate appreciation;
"tax" – including Land Appreciation Tax under sections 6 or 7 of
the Real Estate Taxation Law;
"real estate" – including real estate abroad and exclusive of real
estate association rights;
"real estate held for a short time" – real estate, for which less
than four years passed from the day of its acquisition by a real
estate investment fund until the day of its sale, including a tax
exempt sale;
"productive real estate" – real estate, the rental of which and
activities connected with its rental produce income under section
2(1) or (6) for the real estate investment fund, on condition that
buildings stand on it with a total area equal to at least 70% of the
area that can be built under the scheme that applies to it, including
movables used directly for activity on that real estate, other than –
(1) real estate for uses designated by the Minister of Finance, if
the management services of that real estate are provided by
that real estate investment fund or by its relative;
(2) real estate that is business stock of the Fund; for the
purposes of this definition,
"scheme" –
(a) in respect of real estate in Israel –within its meaning in
the Planning and Building Law 5725-1965;
(b) in respect of real estate abroad – the scheme under
the Law of the state in which it is located;
"asset" – any property, real or movable, and also any
prospective or vested right or benefit, all whether located in
Israel or abroad;
"issue and consideration assets" – State loans, deposits
or cash derived from money specified in paragraphs (1) to
(3) of this definition, held during periods no longer than the
periods specified in those paragraphs:
(1) money received from a first issue of the Fund's
securities, which were listed for trading on the Stock
Exchange in Israel – during two years after the day of
issue;
(2) money received from an additional issue of the Fund's
securities, which were listed for trading on the Stock
Exchange in Israel – during one year after the day of 83
issue;
(3) consideration from the sale of real estate – during one
year after the day of the sale;
"real estate investment fund" – a company for which the
conditions said in section 64A3 hold true.
(b) Every other term in this Chapter shall have the meaning it has in the
Real Estate Taxation Law, except when a different provision is expressly
stated.

Real estate investment fund
64A3. (a) A real estate investment fund is a company for which all the following
hold true:
(1) it was incorporated in Israel and the control and management of its
business is in Israel;
(2) its shares were listed for trading on an Exchange in Israel within
twelve months after its incorporation, and they are traded there;
(3) from the time of its incorporation until the provisions of this
Chapter began to apply to it, it had no assets, activity, income,
expenses, losses or obligations, other than for its activity as a real
estate investment fund;
(4) the provisions of Part Five "B" or the provisions of section 70 of the
Real Estate Taxation Law did not apply to the transfer of an asset
to it;
(5) all the following took place on June 30 and on December 31 of
each tax year:
(a) the value of its assets that are productive real estate,
debentures, securities traded on an Exchange, State loans,
deposits and cash was not less than 95% of the total value
of all its assets;
(b) the value of its assets that are productive real estate and
issue and consideration assets was not less than 75% of the
total value of its assets, or less than NS 200 million;
(c) the value of its assets that are productive real estate in Israel
is not less than 75% of the value of all its assets that are
productive real estate;
(d) the amount of loans it took, also by way of issuing
debentures or capital notes, does not exceed an amount
equal to 60% of the value of the assets that are productive
real estate, plus 20% of the value of its other assets;
(6) 50% or more of the means of control in it are held – directly or
indirectly – by more than five shareholders; for this purpose:
(a) members of a benefit fund, persons insured by an insurance
company in respect of its insured persons' investment, and
unit holders in a joint investment trust fund shall be deemed
shareholders in the Fund;
(b) a person and his relative shall be deemed one shareholder;
(7) the chargeable income was transferred to the shareholders as
said in the provisions of section 64A9;
(8) an auditor's certification of compliance with the conditions
enumerated in paragraphs (1) to (7) was attached to the return it
submitted under section 131.
(b) For the purposes of subsection (a)(5), the "value" of an asset – one of
the following, at the Fund's choice, on condition that its choice in respect
of each tax year apply to all its assets: 84
(1) the original cost or the acquisition value of the asset, as the case
may be, its amount having been adjusted from the day of
acquisition to the date on which the value is examined;
(2) the price to be expected at a sale of the asset by a willing seller to
a willing buyer, the asset being free of any encumbrance to secure
any debt, mortgage, or other right intended to secure a payment.
(c) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe provisions on determining the value, also in
respect of assets that will or will not be taken into account for the
purposes of subsection (a)(5).
(d) (1) If one of the conditions enumerated in subsection (a) ceases to
hold true for the company, then it shall cease being a real estate
investment fund.
(2) Notwithstanding the provisions of paragraph (1), if one of the
conditions specified under subsection (a)(5) ceased to hold true on
one of the dates prescribed there, then it shall be deemed to have
held true on that date if it comes to hold true again within three
months and continues to hold true continuously during at least one
year; if it did not come to hold true again as aforesaid, then the
company shall cease to be a real estate investment fund on the
date specified in subsection (a)(5), on which the said condition first
ceased to hold true.
(3) If the company has begun to be wound up, then it shall cease to
be a real estate investment fund.
(4) The company may inform the Assessing Officer that it elected not
to be a real estate investment fund; when it has notified as
aforesaid, it shall cease to be a real estate investment fund from
the day it stated in the notification, or on the thirtieth day after the
notice was given, whichever is later.

Income from a real estate investment fund
64A4. (a) For the purposes of tax calculation, tax rates and the set-off of losses,
the chargeable income of a real estate investment fund, which was
transmitted to the shareholders as said in section 64A9, shall be
deemed the shareholders' chargeable income (in this Ordinance:
shareholders' chargeable income).
(b) The shareholders' chargeable income shall be charged tax on the day
on which it was transferred to them.
(c) Notwithstanding the provisions of subsection (a), in respect of tax rates –
(1) exceptional income shall be charged tax at the rate of 70%,
without any right to exemption, deduction, credit or set-off;
(2) chargeable income from the sale from real estate held for a short
time shall be charged tax at the rates said in sections 121 or 126,
as the case may be.
(d) The chargeable income of shareholders shall be classified as to its
source according to the source from which it was produced or accrued to
the Fund, and the following provisions shall apply to this matter:
(1) the income shall not be deemed income from personal exertion;
(2) income in the amount of depreciation expenses shall be deemed
income from capital gain or from appreciation, as the case may be.
(e) The chargeable income of a Real Estate Investment Trust, which is not
chargeable income of the shareholders, shall be charged tax according
to the following provisions:
(1) chargeable income from the sale of real estate held for a short 85
time shall be charged tax at the rate prescribed in section 126;
(2) exceptional expenses shall be charged tax at the rate of 60%;
(3) other chargeable income shall be charged tax under the provisions
of any statute.
(f) The chargeable income of a shareholder shall be exempt of tax, on
condition that it is not exceptional income, if the shareholder is one of the
following:
(1) a pension benefit fund, a savings benefit fund and a severance
pay benefit fund;
(2) the resident of a reciprocating state, who manages a retirement
age savings plan or a long term savings plan that essentially
resembles a savings benefit fund, and also a pension fund that is
the resident in a reciprocating country or is managed by the
resident of a reciprocating country, on condition that the profits
they receive are exempt of tax in their country of residence
because they are profits on savings for the retirement age.
(g) Foreign taxes paid by a real estate investment fund may be deducted
from the income, in respect of which they were paid, and notwithstanding
the provisions of this Ordinance the Fund and its shareholders shall not
be given any credit for them.
(h) Losses suffered by a real estate investment fund shall not be set off
against the income of its shareholders.

Tax deduction
64A5. (a) When a real estate investment fund pays the chargeable income of its
shareholders, it shall deduct tax according to the following provisions:
(1) from real estate appreciation or from capital gains, other than from
the sale of real estate held for a short time, and also from income
in the amount of depreciation expenses – at the rates prescribed
in section 91, or in section 48A of the Real Estate Taxation Law,
as the case may be;
(2) from exceptional income – at the rate of 70%;
(3) from other chargeable income – at the maximum tax rate
prescribed in section 121 or at another tax rate set by the Minister
of Finance with approval by the Knesset Finance Committee, or at
the tax rate prescribed in section 126(a), as the case may be;
(4) from chargeable income transmitted to a shareholder that is an
exempt trust fund, as defined in section 88 – as specified in
subparagraphs (a) to (c) of this paragraph, as the case may be,
and notwithstanding the provisions of section 129C tax paid under
this paragraph shall be deemed the final tax to which the exempt
trust fund is liable, and in its respect it shall not be entitled to any
exemption, deduction, credit or set-off whatsoever:
(a) from real estate appreciation or from capital gains, other
than from the sale of real estate held for a short time – no
tax shall be deducted;
(b) from exceptional income – at the rate of 60%;
(c) from other chargeable income – at the rate of 25%.
(b) Notwithstanding the provisions of subsection (a), when income other
than exceptional income is paid to shareholders said in section 64A4(f),
tax shall not be deducted.
(c) (1) If chargeable income was transferred to shareholders and before
its transfer it was charged to tax under the provisions of section
64A4(e), then it shall be deemed dividend income and the 86
provisions of subsection (a) shall not apply to it, and the tax that
the Fund shall deduct shall be the tax that it must deduct from
dividend payments to its shareholders or from dividend payments
to its substantive shareholders, as the case may be.
(2) The shareholder shall not be given any credit for the tax paid by
the Fund, as said in section 64A(e).
(d) The Assessing Officer may give written permission that tax shall not be
deducted as said in subsection (a), or that less than the prescribed rates
be deducted, if he concludes that the shareholder's chargeable income
is not liable to tax or that the tax on it is less than the rates prescribed in
subsection (a).
(e) The deducted amounts shall be paid to the Assessing Officer on the
prescribed date and a return shall be attached to them, as prescribed.

Assessment, objection, contestation, appeal and collection
64A6 Notwithstanding the provisions of this Ordinance and the provisions of the Real
Estate Taxation Law, the following provisions shall apply to assessment,
objection, contestation, appeal and collection:
(1) The Assessing Officer or the Director, as defined in the Real Estate
Taxation Law, as the case may be, may – according to the provisions of
the Ordinance or of the said Law – determine the chargeable income of
a real estate investment fund and assess the tax it must pay even after
the chargeable income was transmitted to the shareholders;
(2) the real estate investment fund alone has the right to object, contest or
appeal against the assessment made for it according to the provisions of
the Ordinance or of the said Law; a shareholder may contest or appeal
against the effect of the real estate investment fund's assessment on his
income, but not against the assessment of the Fund;
(3) any additional tax on the shareholders' chargeable income in
consequence of assessment proceedings shall be collected only from
the real estate investment fund and tax refunds in respect of the said
income shall be refunded only to the Fund.

Reduced acquisition tax
64A7. Notwithstanding provisions under the Real Estate Taxation Law, if a real
estate investment fund acquired a real estate right from a company against the
allocation of shares in the Fund, then the Fund shall pay acquisition tax at the
rate of 0.5%, on condition that the acquisition was made no later than twelve
months after the date on which it became a real estate investment fund and
before its shares were listed for trading on an Exchange, and that the Director
approved the real estate sale in advance.

Set-off of loss suffered by a shareholder
64A8. A loss suffered in the tax year by a shareholder from the sale of a share in the
real estate investment fund may be set off as said in section 92 or against the
chargeable income of shareholders that the fund transferred to him in that
year, except for exceptional income transferred to him.

Transferring chargeable income to shareholders and distribution of profits
64A9.(a) The chargeable income of a real estate investment fund shall be
transferred to the shareholders according to the provisions of
paragraphs (1) or (2), as the case may be, on the date prescribed in
them:
(1) at least 90% of the Fund's chargeable income, other than real 87
estate appreciation or profits from the sale of productive real
estate, plus exempt income and less nondeductible expenses –
until April 30 of the year after the year in which the income was
produced or accrued;
(2) capital gains or real estate appreciation earned by the fund upon
the sale of productive real estate – up to twelve months after the
date of sale of the real estate; this provision shall not apply to real
estate appreciation upon the sale of a real estate right, if the
following two conditions hold true:
(a) the appreciation was exempt of tax, as said in the provisions
of Chapter Five "C" of the Real Estate Taxation Law,
because the right sold by the Fund was exchanged against
a real estate right in other productive real estate;
(b) the exchange was made during the period prescribed in the
said provisions.
(b) (1) Notwithstanding the provisions of the definition of "profits" in
section 302(b) of the Companies Law, a real estate investment
fund may make a distribution also out of income in the amount of
the depreciation expenses, on condition that the distribution was
made until April 30 of the year after the year in which the income
was produced or accrued.
(2) If the Fund distributed income as said in paragraph (1), then the
income shall be reduced by the amount of depreciation expenses
distributed out of profits distributable to shareholders under the
provisions of the Companies Law and also out of the capital gains
or real estate appreciation from the sale of that productive real
estate.

Provisions for a company that ceased being a real estate investment fund
64A10. If a company ceased being a real estate investment fund, then the following
provisions shall apply:
(1) the provisions of this Chapter shall apply to chargeable income produced
by or accrued to the Fund up to the day on which it ceased to be a real
estate investment fund (in this section: the last day) and to the
chargeable income transferred to the shareholders until April 30 of the
year after the year in which it was produced or accrued;
(2) the provisions of this Chapter shall not apply to income produced or
accrued to the company after the last day.

Powers of the Minister of Finance
64A11. The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe the following provisions in respect of the income of a real
estate investment fund and of the income transmitted to its shareholders,
including the matter of land appreciation tax:
(1) taxation of chargeable income, which a shareholder received in respect
of the period in which the share was owned by another person, including
the determination that in respect of aforesaid income there shall be no
right to a tax exemption, and including the determination of the tax rate
applicable to some or all the profits and of the rate applicable to the tax
deduction, notwithstanding the provisions of section 64A5;
(2) classification of part of the capital gain upon the sale of a real estate
investment fund share as income to which the provisions of Part Two
apply, with prescribed conditions and adjustments;
(3) transmission of the chargeable income to the shareholders, the ways of 88
transmission and how it is to be related to the Fund's income, profits or
real estate appreciation to which it is entitled, and also provisions that
rule out the setting off of losses;
(4) other conditions and adjustments necessary for the implementation of
this Chapter, also on the matter of a company that ceased to be a real
estate investment fund.



CHAPTER THREE: INCOME OF SPOUSES

Registered spouse
64B. (a) The Assessing Officer may determine, by notification to both spouses,
that one of them is a registered spouse for purposes of this Law, when
his chargeable income – in the tax year two years before the tax year
first under consideration for this purpose– was more than 50% of the
total chargeable income of the two spouses.
(b) Notwithstanding the provisions of subsection (a), the two spouses
together may notify the Assessing Officer in writing, at least three
months before the beginning of a certain tax year, that they choose that
the other spouse be deemed the registered spouse, on condition that his
income in the tax year before the tax year in which the notification was
given amounted to at least 25% of the income of his spouse; for
purposes of this subsection and of subsection (d)(2): "income during
the tax year" – exclusive of a spouse's income from a source dependent
on the source of income of his spouse according to section 66(d).
(c) If neither of two spouses had any chargeable income in the tax year said
in subsection (a), then the Assessing Officer may decide that one of
them is the registered spouse, and that without derogating from their
right to act under subsection (b).
(d) (1) Subject to the provisions of subsection (b), the determination or
choice of the registered spouse shall remain in effect for no less
than five tax years, except when the spouses no longer are
spouses or by a decision of the Director.
(2) Notwithstanding the provisions of paragraph (1), if during a tax
year the income of the spouse registered by choice was less than
25% of his spouse's income in that tax year, then the Assessing
Officer may designate a registered spouse for that tax year.
(e) The Director may prescribe, by rules, ways of determining and choosing
a registered spouse.

Joint calculation
65. The income of spouses shall – for the purposes of this Ordinance – be
deemed the income of the registered spouse and shall be charged in his
name; in respect of income from a transparent company, as defined in section
64A1, and of income from interest, discount or linkage differentials (for
purposes of this section: interest) and also of income transmitted from a real
estate investment fund, as defined in section 64A2, or of capital gain, the
registered spouse's said income shall be deemed to include also the said
income of his child who in the tax year has not yet reached age 18, unless the
assets from which came the interest income, from the real estate investment
fund or from capital gain, were received by way of inheritance or if they
stemmed from compensation or insurance payments received for a bodily
injury; 89
for the purposes of this section:
"preferred interest" – interest or discount and also profits paid on assets that
are savings programs, deposits, benefit funds or debentures listed for trading
on an Exchange, or joint investment fund units, unless those assets were
received by inheritance;
"preferred capital gain" – each of the following, unless it was received by
inheritance:
(1) capital gain from the sale of a security listed for trading on an Exchange
in Israel or abroad;
(2) capital gain from the sale of a joint investment fund unit;
(3) income from a futures transaction, to which applies the tax rate that
applies to the sale of a security listed for trading on an Exchange;
"unit" – as defined in the Joint Investment Trusts Law.

File in the name of spouses
65A. (a) The file kept by the Assessing Officer on the income of spouses shall
bear the names of both spouses.
(b) The provision of subsection (a) shall not apply until the end of tax year
1998, in respect of files opened before January 1, 1989, except by
decision of the Director or according to a written application submitted by
the spouses or by one of them to the Assessing Officer.

Separate calculation
66. (a) Notwithstanding the provisions of section 65 –
(1) a spouse who is not the registered spouse may demand that the
tax on his income from personal exertion in business or vocation
or from employment – including income from personal exertion as
said in paragraphs (1) to (7) of the definition of that term in section
1 – be calculated separately, but in respect of aforesaid income
which is a pension, a separate calculation shall be made if it is
paid in respect of work income for which the spouse who is not the
registered spouse would have been entitled to a separate
calculation or if the spouse who is not the registered spouse was
entitled – during the last five years before payment of the pension
began – to a separate calculation in respect of the income by
virtue of which the pension is paid;
(2) for the purposes of tax calculation, the income of both spouses
other than from personal exertion shall be added to the income of
that spouse, whose income from personal exertion is greater; if the
spouses had no income from personal exertion, then the income
not from personal exertion shall be deemed the income of the
registered spouse;
(3) for the purposes of income from a transparent company, as
defined in section 64A1, of income from a real estate investment
fund, as defined in section 64A2, and of income from interest or
from capital gain, the income of the registered spouse shall be
deemed to include also the said income of his child who has not
yet reached age 18; for the purposes of this section: "interest" –
as defined in section 65.
(b) Notwithstanding the provisions of subsection (a) and of section 65, if a
spouse had income from property which he owned a year before his
marriage, or from property which he inherited while he was married, then
he may claim separate tax calculation on the said income; however, if
the said spouse has other income on which tax is calculated separately, 90
then the income said in this subsection shall be added to the other
income.
(c) The following provisions shall apply to the separate tax calculation:
(1) each of the spouses is entitled to the deductions, credits and credit
points under sections 34, 35, 36, 45A, 47, 47A and 121A, to the
tax benefit under section 10 and to the tax reduction under section
11, and the woman shall be entitled to an additional credit point
against the tax on her income from personal exertion;
(2) for the purpose of a beneficiary individual's entitlement under
section 37, as defined in that section, only half a credit point shall
be taken into account, and there shall be no entitlement to credit
points under sections 38 and 39;
(3) only the registered spouse shall be entitled to pension points
under section 40(a); the woman shall be entitled to half a credit
point under section 36A, and – further against the tax due on her
income from personal exertion – to credit points for her children as
follows:
(a) half a credit point for each of her children in the year of its
birth and in the year of its maturity;
(b) one credit point for each of her children beginning with the
tax year after the year of its birth until the tax year before the
year of its maturity;
For this purpose: "year of birth" and "year of maturity" – as
defined in section 40(b)(3).
(d) The provisions of subsection (a) shall apply only if the income of one
spouse came from a source independent of the income of the other
spouse, and the income of one spouse shall not be deemed as
aforesaid if it came – inter alia – from one of the following:
(1) the business or vocation of the other spouse;
(2) a company, in which both spouses or the other spouse, directly or
indirectly, have a management right or 10% of the voting rights,
unless the recipient of the income received aforesaid income from
the company during a reasonable period of not less than one year
before the marriage or of five years before his spouse had any
right, direct or indirect, in the company;
(3) a partnership, in which both spouses or the other spouse, directly
or indirectly, have not less than 10% of the capital or of the right to
profits, unless the recipient of the income received aforesaid
income from the partnership during a reasonable period of not less
than one year before the marriage or of five years before his
spouse had any right, direct or indirect, in the partnership.
(e) (1) In this section, "regular place of business" – the place where the
spouses regularly conduct their business or occupation or the
place where they regularly work, on condition that it is not a
dwelling unit used for residential purposes by the spouses or by
one of them, but the Minister of Finance may – with approval by
the Knesset Finance Committee – prescribe conditions under
which a dwelling unit may be recognized as a regular place of
business.
(2) Notwithstanding the provisions of subsection (d), spouses may
claim that the tax be calculated separately on their income as
specified in subsection (a) up to the amount of NS 43,080 (in
2008; in 2007: NS41,880; in 2006: NS 42,000; in 2005: NS 25,008 91
– Tr.), if the following conditions apply:
(a) in order to obtain the income for which separate calculation
is claimed each of the spouses worked at the regular place
of business at least 36 hours per week during a period of ten
or more months during the tax year; if a separate calculation
is claimed in respect of part of a tax year – if each of the
spouses worked as aforesaid during a period, which stands
in proportion to the period in respect of which separate tax
calculation is claimed as is the proportion between the
aforesaid ten months to the entire tax year; for this purpose,
lawful absence from work shall be treated like work;
(b) the spouses have no income under sections 2(1) or (2),
other than the said income designated by the Minister of
Finance in regulations with approval by the Knesset Finance
Committee;
(c) notice of the claim was delivered to the Assessing Officer at
least one month before the beginning of the period for which
the separate tax calculation is claimed; if the Assessing
Officer is satisfied that it was not possible to deliver the
notice until the said time, then it may be delivered at another
time.
(3) The effect of the notice of a claim for separate tax calculation is for
three tax years, which begin at the beginning of the first tax year in
respect of which the separate calculation was claimed, and as
long as the conditions that entitle to separate calculation hold true
for the spouses.
(4) The provisions of sections 38 and 39 shall not apply to income, in
respect of which separate calculation is claimed, as said in this
subsection.

General provisions
66A. (a) (1) The spouse who is not the registered spouse may also object or
appeal on any matter under this Ordinance in respect of his part of
the income
(2) If one of the spouses objected or appealed, then the other can do
so in respect of the same tax year only within 30 days after the
Assessing Officer informed both spouses of the objection or
appeal submitted by one of them.
(b) Provisions of this Ordinance on collection and penalties shall also apply
to the spouse who is not the registered spouse in respect of his part of
the income, but the spouse who is not the registered spouse shall not be
accused of an offense and shall not have to pay an administrative fine
for any act or omission, which the registered spouse is obligated to
perform or to omit, if he proves that the act or omission was committed
without his knowledge and that he took all reasonable steps to prevent it.
(c) The Assessing Officer shall inform the spouse who is not the registered
spouse of any action by the Assessing Officer, which is likely to affect his
tax liability, and the times set for procedures which a person may take
under this Ordinance shall, for this purpose, begin on the day on which
the notification was received.
(d) If the spouses gave notice that they have chosen the registered spouse
under section 64B(b), then tax debts created during the period of
marriage may be collected from whoever was the assessee or from the
previous registered spouse, or from the spouse registered when the 92
collection is made; the provisions of this subsection shall also apply,
mutatis mutandis, to tax refunds.

Income of a foster family
66B. Out of the income of a foster family, received from the State or from a local
authority for the care of children referred to it, three quarters shall be deemed
income from the wife's personal exertion, and she or her husband may
demand that a separate calculation be made in respect thereof under section
66.

Income of husband and wife on an agricultural farm
67. (a) Income obtained by the personal exertion of husband and wife on an
agricultural farm and which, under section 2(8), is chargeable in respect
of one of them shall, for the purposes of this Ordinance, be deemed
income of the husband and the wife in equal parts, and the provisions of
section 38 shall apply to it, but a separate tax calculation under section
66 shall not be permitted.
(b) Notwithstanding the provisions of subsection (a), if income is obtained by
the personal exertion of a spouse and it has been proven to the
Assessing Officer's satisfaction that his spouse works mainly outside the
farm, then three fourths of the income from the farm shall be deemed the
income of the person who works mainly on the farm, and the man or the
woman may demand that a separate calculation under section 66 be
made in respect of the three fourths or the one fourth of the income from
the farm, as the case may be, which is credited to the woman.