Depreation: Israeli Tax Rules
September 30, 2010 By Dr. Avi Nov, Law Offices
This article focuses on the Israeli tax rules on depreation concerning various assets.
Goodwill
With regard to goodwill, if it was acquired after January 1, 2003, it is possible, in certain circumstances, to deduct the goodwill at the rate of 10% per annum (of the original value). The tax consequences of a sale and acquisition of IP is as follows: The seller of goodwill is subject to tax at the capital gains tax rate, while the acquirer is entitled to depreciate the goodwill purchased over a period of 10 years.
Goodwill is not defined in the Israeli Tax Code. However, case law indicates that goodwill comprises the advantage and/or connection of a business and is characterized by the tendency of customers to return for repeat business.
Goodwill valuation
The Israeli Supreme Court held in 2003 that the appropriate way to assess goodwill transferred as part of a sale of a business, is the “Residual Method”. Under this method, the consideration is first allocated to the physical assets sold and to the intangibles whose value can be determined. The residual is considered to be the value of the goodwill sold.
In addition, an “Industrial Company” may depreciate the costs of purchasing know-how, patents and rights to make use of a patent at the rate of 12.5% per year.
Intellectual property
The existing Israeli tax laws governing tax depreciation, negelect intellectual property assets (other than goodwill and specific assets held by an “Industrial Company”). However, recent court cases point out that intellectual property should be accepted as depreciable assets under the general depreciation rule that allows the depreciation of all asset used to generate business income.
Depreciation rates of various assets
The depreciation rates of various assets are as follows:
Buildings:
Industrial 5%
Hotels 5%
Agricultural 1.5%
Others 4%
Vehicles:
Private and commercial 15%
Trucks 20%
Machinery and equipment:
Construction equipment 20%
Hotel equipment 20%
Industrial 20%, 30%, 40% (in one, two or three shifts, respectively)
Computers and software 33%
ABOUT THE AUTHOR: Dr. Avi Nov, Adv.
Dr. Avi Nov, Adv., is an expert in Israeli Tax & international tax law.
Dr. Avi Nov Adv., specializes in Israeli and international taxation, and is involved in planning tax efficient structures for his Israeli and foreign clients. Dr. Nov advises on transactions and international ventures, as well as the establishment of low tax holding structures; the taxation of Israeli holding companies and the taxation of approved enterprises, withholding taxes for foreign residents; overseas investments; transfer pricing; change of residency and other matters. Another major focus relates to individuals and includes: international taxation; taxation of trusts; tax benefits for new immigrants and returning residents.
Copyright Dr. Avi Nov, Law Offices
More information about Dr. Avi Nov, Law Offices
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
With regard to goodwill, if it was acquired after January 1, 2003, it is possible, in certain circumstances, to deduct the goodwill at the rate of 10% per annum (of the original value). The tax consequences of a sale and acquisition of IP is as follows: The seller of goodwill is subject to tax at the capital gains tax rate, while the acquirer is entitled to depreciate the goodwill purchased over a period of 10 years.
Goodwill is not defined in the Israeli Tax Code. However, case law indicates that goodwill comprises the advantage and/or connection of a business and is characterized by the tendency of customers to return for repeat business.
Goodwill valuation
The Israeli Supreme Court held in 2003 that the appropriate way to assess goodwill transferred as part of a sale of a business, is the “Residual Method”. Under this method, the consideration is first allocated to the physical assets sold and to the intangibles whose value can be determined. The residual is considered to be the value of the goodwill sold.
In addition, an “Industrial Company” may depreciate the costs of purchasing know-how, patents and rights to make use of a patent at the rate of 12.5% per year.
Intellectual property
The existing Israeli tax laws governing tax depreciation, negelect intellectual property assets (other than goodwill and specific assets held by an “Industrial Company”). However, recent court cases point out that intellectual property should be accepted as depreciable assets under the general depreciation rule that allows the depreciation of all asset used to generate business income.
Depreciation rates of various assets
The depreciation rates of various assets are as follows:
Buildings:
Industrial 5%
Hotels 5%
Agricultural 1.5%
Others 4%
Vehicles:
Private and commercial 15%
Trucks 20%
Machinery and equipment:
Construction equipment 20%
Hotel equipment 20%
Industrial 20%, 30%, 40% (in one, two or three shifts, respectively)
Computers and software 33%
ABOUT THE AUTHOR: Dr. Avi Nov, Adv.
Dr. Avi Nov, Adv., is an expert in Israeli Tax & international tax law.
Dr. Avi Nov Adv., specializes in Israeli and international taxation, and is involved in planning tax efficient structures for his Israeli and foreign clients. Dr. Nov advises on transactions and international ventures, as well as the establishment of low tax holding structures; the taxation of Israeli holding companies and the taxation of approved enterprises, withholding taxes for foreign residents; overseas investments; transfer pricing; change of residency and other matters. Another major focus relates to individuals and includes: international taxation; taxation of trusts; tax benefits for new immigrants and returning residents.
Copyright Dr. Avi Nov, Law Offices
More information about Dr. Avi Nov, Law Offices
View all articles published by Dr. Avi Nov, Law Offices
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
