Tax Authority Announces New Tax Reliefs for High-Tech Companies
A new policy from the Tax Authority and the Ministry of Finance regulates the taxation of marketing assets, introducing a significant relief that protects companies' tax benefits if income from such assets does not exceed 10% of total technological income.
The Tax Authority, in cooperation with the Ministry of Finance and the Innovation Authority, published a new policy document on Tuesday regulating the taxation of "marketing assets" in high-tech and technology companies. The document aims to provide uniformity and transparency regarding the distinction between profits derived from technological developments and those stemming from a company's commercial power, brand, or customer relationships.
According to the Tax Authority, a marketing asset is intellectual property—such as trademarks, brand names, or customer lists—that is not considered a productive or technological asset. Under the Law for the Encouragement of Capital Investments, income from such assets is excluded from the definition of "technological income" and is therefore ineligible for the tax benefits granted to software or patent-based income.
However, the document introduces a significant relief: if the income attributed to a marketing asset does not exceed 10% of a company's total technological income, the asset's existence will not jeopardize the company's eligibility for tax benefits. The Tax Authority has established specific tests to verify this threshold. For instance, companies selling products to businesses or government entities where the purchase is driven by technical specifications or regulatory requirements rather than brand strength will be evaluated accordingly.
Furthermore, the Authority will consider cases where a company’s component is integrated into another firm's final product, losing its independent consumer identity. Other factors for relief include operating in markets with limited competition, granting long-term usage rights for royalties, and maintaining a low ratio of marketing expenses relative to research and development (R&D) investments.
A key innovation is the new protection mechanism: a tax assessor can no longer unilaterally deny tax benefits based on a claim regarding marketing assets. Any such decision now requires review by the Tax Authority's professional division and prior written approval. Companies may also apply for a pre-ruling to obtain an official position on the treatment of their specific marketing assets.
The goal of this move is to provide the Israeli high-tech industry with greater certainty, reducing fears among international companies that brand recognition might lead to the loss of tax benefits, and ultimately fostering a more stable tax environment.
