Overseas companies, part 3 – the Foreign Professional Company
Another type of company that the Israeli tax office doesn’t like is one where a profession is carried out abroad, and the profits are not directly taxed in Israel. As such, the tax law sets out rules for a Foreign Professional Company (FPC). These rules were revised for 2014, and below are the new rules.
What is an FPC?
In order to be an FPC, the foreign company must meet the following criteria:
(1) Be owned by fewer than 5 people. For these purposes, members of the same family or business partners count as a single person.
(2) At least 75% of the ownership and control of the company are held by Israelis. For these purposes, those within their 10-year exemption period are not considered Israelis.
(3) The majority of the income of the Company is from a “Special Profession”
(4) Controlling shareholders, who together control at least 50% of the company, work for the company in the “Special Profession,” either directly or via another company that they have control over.
What is a “Special Profession”
The Regulations give a closed list of professions that are considered “Special Professions” for these purposes. They are the following (translation of list in alphabetical order in the Regulations):
- Art, including creation of art
- Music & entertainment
- Audit (of various types)
- Teaching & seminars etc.
- Creating and operating computer hardware
- Computer software
- Aircrafts & boats
- Representation of any “Special Profession”
- Advice, including the fields of financial, personal, security, agriculture, technical, engineering, organisational, management, national, scientific, tax, business & economic
- Writing & composition
- Scientific research & development
- Management – including assets & investments, companies, organisations, institutions, businesses – including those in the process of dismantling, bankrupcy or administration
- Journalism & editing
- Advertising & public relations
- Lawyers, patent attorneys, representation before law
- Medical – including developmental treatment, psychology, physiotherapy & dentistry, and including para-medical and alternative medical services
- Religious services
- Communications & event organisers