ISRAEL Law and Practice Contributed by: Charles Gottlieb and Osnat Issan, Gottlieb Gera & Co Advocates
1. Aircraft and Engine Purchase and Sale 1.1 Sales Agreements 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement Corporation Tax on Lease or Loan Payments The Income Tax Ordinance (New Version) 1961 (the “Ordinance”) provides generally that non-residents of Israel will be subject to income tax in Israel only with regard to income accruing or deriving from certain types of identifiable sources of income in Israel. Notwithstanding the foregoing, an exemption from income tax exists under Israeli law in connection with interest payments and leasing or rental payments made by an Israeli resident to a non-Israeli resident in relation to an aircraft or aircraft engine that is used for transporting passengers or cargo on international routes, subject to meeting the requirements of the exemption. Additionally, the applicable international tax treaty may dictate the tax treatment of such income and thus must be consulted on a case-by-case basis. Withholding Taxes Payments made by Israeli taxpayers to companies or individuals that are not deemed to be tax residents of Israel that constitute taxable income are subject to a withholding of tax at the source, which is typically between 20 and 25%. Certain exemptions under the Ordinance or international treaties may apply; how - ever, a specific exemption certificate will need to be issued by the Israel tax authorities for financial institu - tions in Israel to effect payment. VAT Israel’s VAT Law provides that value added tax, which is currently 18%, is imposed on transactions and the importation of goods into Israel. Certain aircraft sale transactions with purchasers who provide scheduled international passenger or cargo transportation ser - vices for consideration may be zero rated for the pur - pose of VAT.
Capital Gains Tax Aircraft sale transactions where the seller is an Israeli resident or the aircraft is physically located in Israel may be subject to capital gains tax. This should be examined on a case-by-case basis depending on the facts at hand. 1.1.2 Enforceability Against Domestic Parties From a practical point of view, in any court proceed - ing, any sale agreement that is not in Hebrew or Eng - lish should be translated into Hebrew or English. Ide - ally, this should be a certified translation. 1.2 Transfer of Ownership 1.2.1 Transferring Title Title to an aircraft, engine or any part that has a serial number is customarily transferred by a bill of sale that has been duly executed by the seller. The sale of an ownership interest in an entity that owns an aircraft or engine will not be recognised as a sale of such aircraft or engine. However, a change of control in such entity could in certain circumstances require the consent of the Minister of Transport (whose authority was delegated to the Director General of the Israeli Civil Aviation Authority) if the new owners are not citizens or permanent residents of Israel. 1.2.2 Sales Governed by English or New York Law Transfer of title to an aircraft or engine delivered in Israel through a bill of sale governed by English or New York law will generally be recognised in Israel, as Israeli legislation does not generally prohibit par - ties from choosing foreign law as the governing law of their contracts. In the case of an aircraft, the Aviation Regulations (Registration and Marking of Aircraft) 1973 provide that the bill of sale must include the following details: • the manufacturer, type and design of the aircraft; • the serial number of the aircraft; • the nationality and registration mark; • the names of the seller and purchaser; and • the date of transfer of ownership.
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