The Israeli Income Tax Ordinance was amended as of January 1, 2009 (the "Amendment") to introduce, among other things, tax exemptions designed to stimulate and encourage foreign investments in Israel.

Exemption on Interest, Discount Premiums or Linkage Differentials

In order to encourage foreign investment in bonds traded on the Tel Aviv Stock Exchange ("TASE"), foreign resident individuals or entities are now exempt from Israeli tax on interest, discount premiums or linkage differentials paid to them in connection with these bonds. This exemption does not apply if one or more of the following applies: (i) the income is attributed to a permanent establishment maintained by the foreign resident in Israel; (ii) the foreign resident is a controlling shareholder (holding 10% or more of the means of control of the entity issuing the bonds ("Paying Entity"), directly or indirectly, either alone or together with another) of the Paying Entity; (iii) the foreign resident is related to the Paying Entity; or (iv) there are special relationships (such as employment, service or goods provider) between the Paying Entity and such foreign resident (unless it was proven that the interest or the premium rate was determined in good faith without the influence of such relationship).

Expansion of Exemptions in respect of Israeli Capital Gains (in respect of Securities Purchased on or after January 1, 2009)

To further encourage foreign investment in securities of public and private Israeli companies, the Amendment contains the following new rules with respect to capital gains:

(i) The Amendment further expands the available exemptions on capital gains on sale of Israeli securities traded on TASE to include capital gains generated from the sale of securities that were purchased prior to their listing on TASE; and
(ii) The Amendment exempts any foreign resident individuals or entities (regardless, as required before the Amendment) of whether they are residents of a country with which Israel has a double tax treaty) from Israeli capital gains tax on the sale of non-listed securities (of an Israeli resident company or a non-Israeli resident company which has most of its assets located in Israel) provided, inter alia, that the capital gains are not attributed to a permanent establishment maintained by such foreign residents in Israel. * * *