In December 2016, a law was passed as part of which far-reaching amendments were made on tax matters including amendment and institution of sections in the Income Tax Ordinance dealing with owners’ withdrawals from companies (including use of company assets for shareholders’ own personal benefit) and attribution of “wallet companies” income to the shareholder; furthermore, the director of the Tax Authority is given the option, under certain conditions, to impose a coerced distribution of undistributed company earnings, and more.
Along with the above amendments, a relief was given with regard to distributing a ‘beneficiary’s dividend’ as a temporary order, its principles are as follows:

• A dividend that the company shall distribute to substantial shareholders over the period 01.01.2017-30.09.2017 will be taxed at a rate of only 25% and no surtax shall apply to it. If the dividend had been distributed in 2017 without the temporary order, a tax of 33% would have applied.
• The reduced tax rate shall apply to distribution of a dividend deriving from profit accumulated until 31.12.2016.
• As an anti-planning measure, and so that those substantial shareholders shall not distribute dividends at reduced rates and in the coming years reduce withdrawal of salaries, management fees, etc. from the company, thus reducing taxes paid to the state, it has been decided that for each year during 2017-2019, income received by substantial shareholders (salaries, management fees and other payments) from the company shall not be less than the average sum of such incomes, direct or indirect, during 2015-2016.
• It will not be possible to offset capital losses as against a dividend distributed as part of this temporary order.

Notes and attention:

• The temporary order shall apply to any company, including a foreign company.
• In wake of the legislation on the matter of debit balances, “distribution” of the debit balances should be considered and, in appropriate circumstances, also distribution of apartments used by shareholders as a beneficiary dividend.
• Revaluation profits do not constitute a source for distribution of a beneficiary’s dividend.
• The source of profit may also be profit accumulated in companies held by the distributing company, provided that they are actually distributed to the company distributing the beneficiary benefit to the individual by 30.09.2017.
• One may suffice with accounting entry of the dividend while withholding tax at source and transferring it to the Tax Authority (as opposed to requirement of actual cash distribution).
• Violation of the average income conditions by one of the shareholder shall not compromise the right of the other shareholders to a beneficiary dividend.