I SRAELI TAXES BENEFITS FOR FOREIGN RESIDENTS/INVESTORS

1. ISRAELI TAXES BENEFITS FOR FOREIGN RESIDENTS/INVESTORS DOV INGBER | CPA (ISR), MBA

2. Corporate Tax: From January 1, 2010, corporations in Israel are taxed at 25%. Known presently, corporate tax is expected to be reduced as of 2011 down to 18% in 2016 onwards. Dividend distributed by a company to its controlling shareholder (who is an individual) will be charged 25% tax. Israeli Tax Environment

3. Personal Tax Rates The rates of Income Tax on individuals who are residents of Israel are progressive up to a maximum, in 2010, of 45%. Known presently, the rates of Income Tax on individuals ("regular" income) are expected to be reduced from 2012, and by 2016 onwards the maximum tax rate will be 39%. The residents of Israel are taxed on their world wide income. Income Tax rate on individuals' income from financial sources (interest, dividend and capital gains on the capital market) is 20%. Controlling shareholder will pay capital gain tax of 25%. Israeli Tax Environment

4. Israeli Tax Environment • Social Security • All salaried workers and self employed are charged Social Security and Health Tax, paid as a single amount. • In the case of salaried workers, the employers are charged an additional amount for Social Security. • The rates of the Social Security and Health Tax are progressive to a certain extent. At top income levels the Social Security and Health Tax paid by self employeed is 16%, and by salaried workers it is 12%, with the employer contribution of another 5.5%, up to the income ceiling as decided. • On certain types of passive income (such as dividend, interest) no Social Security or Health Tax are charge. 4

5. Tax Treaties Israel has tax treaties with a number of countries: Argentina, Austria, Belarus, Brazil, Bulgaria, Belgium, Canada, China, Croatia, Czech Republic, Denmark, Ethiopia, Finland, France, Germany, Great Britain and N. Ireland, Greece, Hungary, India, Ireland, Italy, Japan, Jamaica, Latvia, Lithuania, Luxemburg, Mexico, Moldova, Netherlands, Norway, Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, USA, Uzbekistan

6. Tax Benefits for Foreign Residents - Capital Market • Interest on Foreign Currency Deposits - a foreign resident shall be exempt from tax on interest payable on foreign currency deposits (originating from funds brought in to Israel from abroad ) in a banking corporation. • Capital Gain on Sale of Securities Traded in Israel - a foreign resident shall be exempt from Capital Gains Tax on sale of securities traded on the Israel Stock Exchange to the extent the capital gain does not derive from the foreign resident's permanent enterprise in Israel. • Capital Gain on Sale of Securities Traded Outside Israel - a foreign resident shall be exempt from Capital Gains Tax on sale of securities of a corporation domiciled in Israel that are traded on Stock Exchanges outside Israel. • Capital Gain on "Futures" - a foreign resident shall be exempt from capital gains tax on "future transactions" traded on the Stock Exchange.  • Tax exemptions on income from on Securities Traded in Israel Purchased with Foreign Currency

7. Tax Benefits for Foreign Residents - Capital Gains • Capital Gain on Sale of Shares in an R&D Corporation - a foreign resident who sells shares in a corporation which was, at the time of the allotment, domiciled in Israel and is an "R&D intensive" corporation, shall be exempt from Capital Gains Tax. • "R&D intensive corporation" - whose principal operation is Research and • Development, whose assets all serve the R&D activity and at least 75% of • whose R&D expenses are expended in Israel (there are exceptions). • Exemptions on Capital Gain from Sale of Securities of Private Israeli Corporations, Purchased in the Period between July 1 2005 and December 31, 2008. • Capital Gain Derived by means of the "Foreign Residents Fund“. • Exemptions on Land Capital Gain Tax and Acquisition Tax - for foreign resident who sells or purchases a share in a foreign residents' real estate entity.

8. Tax Benefits for Foreign Residents - Other • Zero V.A.T. on sale of goods or provision of services to foreign residents on certain conditions. • Certain payments to foreign residents are not considered income in Israel, and therefore the transfer of such payments abroad is exempt from tax - such as management and consulting services provided by foreign residents, provided the work was performed outside Israel. • A foreign employee in the status of “foreign expert” (a number of criteria must be complied with) is entitled to deduct subsistence expenses - accommodation, rental fees, meals - from his taxable income in Israel. • Exemption on income from exchange rate differences on loans granted by a foreign resident (except loans granted by his permanent enterprise in Israel).

9. Participation Exemption Israeli resident Foreign resident Israeli Holding Company Foreign Subsidiary Foreign Subsidiary Subsidiary Foreign Subsidiary

10. Participation Exemption • A participation exemption will apply for Israeli Holding Companies, under specific conditions. • An Israeli Holding Company is exempted from tax on the following: • (1) Dividends - received from foreign subsidiaries; • (2) Capital Gains - from sale of it’s subsidiaries; • (3) Interest - on bank deposits in Israel; • (4) Interest, dividends capital gains - from securities traded in the Israeli stock exchange. • Foreign shareholders of the Israeli Holding Company enjoy a reduced withholding tax on dividends distributed by the Company - 5%. • Foreign shareholders of the Israeli Holding Company may apply for special exemption on capital gain from the sale of the Israeli Holding Company.

11. Participation Exemption • Israeli Holding Company : • Registers in Israel. • Managed and control from Israel. • Privately owned. • Not “tax transparent”. • Not a financial institution. • Its total investment in foreign subsidiaries is at least NIS 50 million ( at least 300 days of the year ). • At least 75% of its assets are the subsidiaries. • The company filed to be approved an Israeli Holding Company.

12. Participation Exemption • Subsidiary: • Resident of a treaty country. • Resident of non treaty country – only if corporate tax rate is at least 15% (when the subsidiary was purchased). • The Israeli Holding Company holds at least 10% of the rights in the subsidiary for 12 consecutive months. • At least 75% of the subsidiary’s income derived from sources outside Israel. • Subsidiary’s Israeli assets or subsidiary’s Israeli source of income - not more than 20% of the subsidiary’s total assets/income.

13. Approved Enterprise - General • A special status of an “approved enterprise” for investments (domestic and foreign) and industrial activities in Israel. • An approved enterprise will enjoy tax benefits - corporate income & dividend distributed - and/or government grants. • An approved enterprise - an industrial enterprises (including high-tech and bio-tech), hotels and other tourist ventures, industrial & residential buildings and also R & D centers located in Israel. • Grants scheme - the approved enterprise is required to fund 30% of the approved investments in equity. No such requirement for the tax benefits schemes.

14. Approved Enterprise – “Special” Schemes Approved enterprises located in preferred region A: • Tax exemptions during the concession period. • The company tax is deferred until distribution of untaxed profits. • Lower withholding tax on dividends - 15%, or lower according to a tax treaty. Ireland Scheme: • Corporate income taxed on rate of 11.5%. • No additional tax when profits are distributed. • Withholding tax on dividends - 15% for Israeli residents shareholders and 4% for foreign residents. A Strategic Investments Scheme : • Full exemption during the concession period. No additional tax when profit is distributed. No tax withholding on dividends. • A minimum investment -US $147 - 220 M (depending on location).

15. Approved Enterprise – Exemption Scheme “Exempt enterprise” (non-grants scheme): • Minimum investment in capital assets/equipment: • New investment - at least NIS 300,000. • Expansion of an existing enterprise - percentages of the value of assets: • Up to NIS 140 M - 12%. • Above NIS140 M and up to NIS 500 M - 7%. • Above NIS 500 M - 5%.

16. Approved Enterprise Tax exemptions (deferral) until the profit’s distribution: (1)On the undistributed profit.

17. Approved Enterprise – Foreign Investors • Investors defined as Foreign Residents - increased tax benefits for longer periods. • Foreign participation exceeds 74%,(program not less $ 20 M) are entitled to a longer benefit period (15 years), subject to the approval of the investment center board. • Grant Scheme - Approved enterprise will enjoy tax benefits for a period of 7 consecutive years. Can be extended up to 10 years for Foreign Invested Companies. • Approved Enterprise controlled by foreign residents – tax rates:

18. Approved Enterprise – Foreign Investors A Foreign Invested Company - An approved enterprise controlled by foreign residents: • The foreign residents invest at least NIS 5 M in the company’s capital (incl. shareholder loans). • Foreign resident who purchased a company whose paid-up capital exceeds NIS 5 M. • An enterprise controlled by an Israeli resident or a company that Israeli residents are eligible to25% and more of its profits, will not be considered as an approved enterprise controlled by foreign residents.