What are Israel's new COVID-19 accelerated depreciation rules? - opinion

• Published date: 30 September 2021
• Author: LEON HARRIS
• Publication title: Jerusalem Post, The: Web Edition Articles (Israel)

Israeli tax regulations allow accelerated depreciation on new equipment, to help address the economic consequences of the coronavirus crisis ["Income Tax Regulations (Accelerated Depreciation in the Period of Dealing With Coronavirus)(Ad Hoc), 2020"]

Accelerated depreciation supplements: (a) coronavirus grants paid to businesses and major shareholders and (b) isolation pay reimbursed to employers who kept paying salaries to employees quarantined because of coronavirus.

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Description

According to the ITA Circular, the aim of the accelerated depreciation regulations is to encourage investment in the Israeli economy. The regulations double the depreciation rate otherwise allowed on equipment under any law, but not beyond the original price of the equipment.

The regular depreciation rates appear on lengthy lists in the tax regulations. The accelerated depreciation regulations apply to equipment purchased in the period from September 1, 2020, to June 30, 2021, and used in Israel.

Typically the annual depreciation rates before doubling up are:

6% for furniture;

10% for mechanical equipment

15% for electronic equipment

33% for a personal computer

25% for other computers

Many exceptions are prescribed.

For example, it seems that after doubling up under the above regulations, a new laptop purchased and put into service on January 1, 2021, may be written off at the rate of 66% in 2021 and 34% in 2022. In the case of other computers, such as a new server, the double depreciation would amount to 50% in the first year, and 50% in the second year, where the applicable conditions are met.

Depreciation begins on the date the equipment is first put into service, but the commencement of the accelerated depreciation regulations are subject to deadlines:

Put into service within three months after purchase or June 30, 2021 – whichever is later;

For equipment that cannot be put into service within three months after purchase, or equipment in an industrial plant – within nine months after purchase or June 30, 2021, whichever is later.

The regulations do not apply to purchases from a related party, purchases without consideration, inventory purchased for resale (ITO Sec. 85), acquisitions within a tax deferred reorganization (ITO Secs 103-105), nor to certain gas field operators.

If equipment is used outside Israel...