ISRAEL Law and Practice Contributed by: Shiri Shaham, Yuval Shalheveth, Aviad Lachmanovitch and Asher Bichoonski, Arnon, Tadmor-Levy
linked loan is 13% per annum; the maximum penalty interest rate is 17%. Note that this limit may also apply to loans extended to corporations. In insolvency proceedings, interest exceeding a cer- tain rate is deferred and is paid only after the repay- ment of unsecured debt (which means that such Companies whose securities are listed on the Tel Aviv Stock Exchange are required to publicly report material information relating to significant financial contracts. Such disclosure is subject to regulations promulgated under the Securities Law 1968 and to instructions issued by the Israeli Securities Authority. The disclosure is included in the financial reports of the listed company. Additional immediate reports may be required upon execution of new contracts, material changes therein as well as defaults. Large foreign credit may be subject to reporting to the Bank of Israel (for research and statistical purposes). excessive interest is rarely paid). 3.11 Disclosure Requirements Interest payments and payments deemed to be inter- est (such as discounts on convertible loan securities or discounts on assignment of cheques and receiva- bles (“factoring”)) made by Israeli borrowers are sub- ject to withholding tax by certain borrowers, currently at 23% for corporate lenders. The said duty applies to borrowers who are corporations and businesses but usually does not apply to individuals with respect to non-business loans. Reduced rates may be available under tax treaties, subject to approval from the Israel Tax Authority. Recent legislation provides tax exemption for inter- est paid by high-tech companies to foreign financial institutions, subject to certain conditions. Most Israeli lenders are eligible for an exemption from such tax withholding; upon presentation of such exemption (which is usually also accessible online) – the borrower is not required to withhold taxes. 4. Tax 4.1 Withholding Tax
Israeli banks are required to withhold taxes when transferring payments to foreign accounts, unless they are presented with an exemption of such withholding duty or are provided with satisfactory evidence that such payments are not subject to tax withholding duty (eg, repayment of principal amount, as opposed to interest). 4.2 Other Taxes, Duties, Charges or Tax Considerations Interest payments to commercial lenders may also be subject to value added tax (VAT) at 17%, typically handled through a reverse-charge mechanism. Israeli banks are classified as “financial institutions” and are not subject to VAT, but other types of Israeli lenders are normally subject to VAT on the interest and other fees they charge. There is currently no stamp duty or similar documen- tary tax on credit transactions in Israel. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Withholding tax is generally deducted at source (by the borrower or by the bank transferring the pay- ments). The tax withholding duty cannot be contrac- tually waived, but this can be addressed and mitigat- ed through gross-up provisions in loan agreements. Additionally, certain lenders may be eligible to exemp- tion from such tax withholding duty, which can be pre- sented to the borrowers and the banks. Depending on the activities of the foreign lender and local presence in Israel, including whether person- nel of the foreign lenders are present in Israel, there may be permanent establishment issues, which could result in Israeli taxation and trigger tax reporting and compliance obligations.
5. Guarantees and Security 5.1 Assets and Forms of Security
Israeli law recognises both fixed and floating charges. Fixed charges can be created over essentially all types of assets, such as shares, patents, trade marks, real estate, equipment, machinery, receivables, contrac- tual rights and other specific assets. Floating charges
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