The Israeli Minister of Finance, Dr Yuval Steinitz, has announced the decision to cancel the tax exemption granted to foreign investors on gains arising from investing in Makams (short-term loans issued by the Bank of Israel) and in short-term government bonds (issued by the Accountant General).
This measure, together with its possible ramifications, has been examined by a government team headed by the Director General of the Ministry of Finance, Haim Shani, which has been scrutinizing the foreign exchange market in recent weeks.
A statement from the Finance Ministry said: “The strengthening of the shekel in recent years is mainly due to the strength of the Israeli economy and its resilience to the global economic crisis. Recently, in addition to welcomed foreign investments in the Israeli economy, there has been a significant increase in the inflow of foreign currency. These inflows, the sole intent of which is the creation of short-term financial gains, result from the interest-rate spread between Israel and foreign countries, as well as other reasons. This situation causes currency appreciation, which could harm the long-term competitiveness of the economy”.
The team headed by Shani is examining ways of taking action to deal with this situation, the first of these being the cancellation of the tax exemption for foreign investors on gains arising from Makams and short-term government bonds.
Currently, the law permits foreign investors to be exempted from paying tax on gains arising from investments in Makams and bonds issued by the Bank of Israel and the Accountant General, respectively. This exemption is granted with the aim of encouraging the activity of foreign investors on the Israeli capital market and, were it not for this exemption, such gains would be liable to tax at a rate of 15%.
Nevertheless, there is concern that the exemption is being exploited by players on the foreign exchange market for the purpose of making quick profits. Therefore, the cancellation of the exemption, a process that is subject to legislation, is expected to somewhat diminish the attractiveness for foreign residents to buy Makams and short-term bonds, which will in turn reduce the purchase of shekels, thereby weakening the local currency.
The Israel Tax Authority is to draft a bill that will be submitted for government approval, before being presented to the Knesset.
This measure, together with its possible ramifications, has been examined by a government team headed by the Director General of the Ministry of Finance, Haim Shani, which has been scrutinizing the foreign exchange market in recent weeks.
A statement from the Finance Ministry said: “The strengthening of the shekel in recent years is mainly due to the strength of the Israeli economy and its resilience to the global economic crisis. Recently, in addition to welcomed foreign investments in the Israeli economy, there has been a significant increase in the inflow of foreign currency. These inflows, the sole intent of which is the creation of short-term financial gains, result from the interest-rate spread between Israel and foreign countries, as well as other reasons. This situation causes currency appreciation, which could harm the long-term competitiveness of the economy”.
The team headed by Shani is examining ways of taking action to deal with this situation, the first of these being the cancellation of the tax exemption for foreign investors on gains arising from Makams and short-term government bonds.
Currently, the law permits foreign investors to be exempted from paying tax on gains arising from investments in Makams and bonds issued by the Bank of Israel and the Accountant General, respectively. This exemption is granted with the aim of encouraging the activity of foreign investors on the Israeli capital market and, were it not for this exemption, such gains would be liable to tax at a rate of 15%.
Nevertheless, there is concern that the exemption is being exploited by players on the foreign exchange market for the purpose of making quick profits. Therefore, the cancellation of the exemption, a process that is subject to legislation, is expected to somewhat diminish the attractiveness for foreign residents to buy Makams and short-term bonds, which will in turn reduce the purchase of shekels, thereby weakening the local currency.
The Israel Tax Authority is to draft a bill that will be submitted for government approval, before being presented to the Knesset.
