Preliminary tax planning

A company that penetrates to Israel and develops an extensive activity in Israel or that can be regarded as having a permanent establishment in Israel according to Israeli Tax Law is fully required to report to Israeli Tax Authorities. Hence, preliminary tax planning by local expert previously to entity establishment is not only recommended but necessary. Preliminary tax planning addresses two main issues:

  • Transfer pricing between the activity of the parent company in Germany and the subsidiary company in Israel
  • The aspect of profit allocation regarding activities between Israel and Germany.

Tax planning is based on market research and information that is received from the company CPA in Germany, as well as on similar relationships that the parent company may have with other subsidiaries around the world. Moreover, preliminary tax planning enables the institution of a uniform policy continuance of company activities and projects in Israel. Time savings in preparation of the adjustments needed in order to prepare financial statements for Israel and Germany, and allowance for implementation of the policies in the index accounting system. Prior to signing of contracts and or agreements with Israeli entities, we strongly recommend to consult with local experts. Frequently, the format and expressions within a contract can have a material effect on taxation applying to the transaction. Similarly, different expressions are open to varying interpretations, which can be of assistance in optimal tax planning for the client. Prior to executing a transaction or commencing activity, we offer to outline taxation strategy, including:

  • Preliminary strategic advice includes deep understanding of the transaction details, contracts, agreements and tax issues. At the end of the process, we supply our clients a detailed solution and optimal method for managing their business in Israel, by taking into account an optimal tax planning. The scope of the consultation process depends on the level of activity and complexity of the transaction.
  • Tax opinion services is usually deeper in scope than preliminary taxation consultation, mostly recommended prior to signing a contract, where the size of the contract is significant to the company
  • Pre-ruling is a special procedure conducted with the Israeli income tax authorities. In this process, a representative of the company applies to the tax authorities in order to obtain a final decision as to the level of tax on a specific transaction, this being carried out prior to carrying out the transaction. The decision on the tax liability, upon fulfillment of a number of conditions, is final and binding. The process is recommended only for very large and complex transactions and where the transaction might to develop.