On June 25^th 2005, amendment 147 of the revenue tax ordinance was passed, whose purpose was to improve the competitive ability of the Israeli tax system vis-à-vis tax systems world-wide, and as a probable consequence to increase the Israeli market job supply. With that aim, another chapter was added to the ordinance, which deals with exemption from participation for Israeli holding companies, which promotes the establishment of administrative centers of multi-national companies (foreign companies) in Israel, and which is intended to draw foreign investors to Israel; a fact which, at the end of the day, causes an increase in employment in Israel, by increasing the demand for services on the part of foreign entities, by granting an exemption from company tax for profits the holding companies gain from their sub-companies.

Generally speaking, a corporation whose main occupation is possessing means of control over other corporations, and which does directly deal with other financial activities, constitutes a holding company.

An Israeli holding company is a company in which the following terms, among others, exist: It was incorporated in Israel and the control and management of its businesses are operated solely in Israel: it is not a public company; for 300 days or more of every tax year, beginning with the tax year after the one in which it was incorporated, its original investment in the held companies' shares, in addition to the remainder of loans which were granted to the held companies, was not below 50 million NIS. In addition, its original investment in the shares of the held companies, in addition to the remainder of loans which were granted to the held companies, is at least 75% of the original price of all its assets; it had no revenue according to clause 2(1) (revenues from a business), except for revenues from services given to the held companies;

A people group constitutes a held company if the following terms exist in it: It is a foreign resident, whose residence is in a country which shares a tax treaty with Israel, and it files a tax report for its revenues in that same country, or it is a foreign resident, whose residence is in a country in which the tax rate which applies to the revenues of a people group from business activities is 15% or higher; 75% or more of its revenues in a tax year, which was produced or grown outside Israel, is revenues from a business [clause 2(1)]; the cost of its assets in Israel is not higher than 20% of the cost of all its assets in every tax year; its revenue during a tax year, including from sale of real-estate or real-estate corporation rights, which have been produced or grown in Israel, is not higher than 20% of all its revenues in a tax year.

In order to promote the establishment of Israeli holding companies, a fact which will draw foreign investors to Israel, and as a probable consequence will increase the demand in Israel for workers in the field of providing services, the legislature has created a mechanism of exemptions, which benefit holding companies, on account of the following revenues: