cimatron ltd phần 6 ppt

As a result of the Amendment, tax-exempt income generated under the provisions of the new law will subject us to taxes upon distribution of the tax-exempt income to

shareholders or liquidation of the company, and we may be required to record a deferred tax liability with respect to such tax-exempt income.

The amendment sets a minimal amount of foreign investment required for a company to be regarded as a FIC.

Law for the Encouragement of Industrial Research and Development, 1984

Under the Law for the Encouragement of Industrial Research and Development, 1984 (the “Research Law”), research and development programs approved by the Research

Committee of the Office of the Chief Scientist (the “Research Committee”) are eligible for grants or loans if they meet certain criteria, in return for the payment of royalties

from the sale of the product developed in accordance with the program. Once a project is approved, the Office of the Chief Scientist, or OCS, will award grants of up to 50% of

the project’s expenditures in return for royalties, usually at rates between 3% to 5% of sales of products developed with such grants, up to a dollar-linked amount equal to 100%

to 150% of such grants. Grants received under programs approved after January 1, 1999, are subject to interest at an annual rate of LIBOR for 12 months applicable to dollar

deposits, which will accrue annually based on the LIBOR rate published on the first day of each year.

For information regarding restrictions upon, and conditions to, (a) the manufacture outside of Israel of products using technology developed using OCS funding and (b) the

transfer of such technology to a non-Israeli entity whether through the direct transfer of the technology or through a transaction involving the company that received such

funding, see “Item 5 – Operating and Financial Review and Prospects – Research and development, patents, licenses, etc.”

Tax Benefits and Grants for Research and Development

Israeli tax law allows, under specified conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year in which they are

incurred. These expenses must relate to scientific research and development projects, and must be approved by the relevant Israeli government ministry, determined by the field

of research. Furthermore, the research and development must be for the promotion of the company and carried out by or on behalf of the company seeking such tax deduction.

The amount of such deductible expenses, however, is reduced by the sum of any funds received through government grants for the finance of such scientific research and

development projects. Expenditures not so approved are deductible over a three-year period.

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