Recently, after initial approval by the Finance Committee, the Knesset has passed a temporary order to the Income Tax Law with regards to deduction of issue expenses.

According to the law, the expenses related to issuing the shares of companies and partnership participation units on the Tel Aviv Stock Exchange (TASE) will now be recognized as expenses for tax purposes. This means, in effect, that companies and partnerships will be allowed to deduct the expenses for listing their shares or units on the TASE from their earnings during the first year of an IPO.

These “issue expenses” include payments to underwriters, distributors, lawyers, and accountants who assisted the corporation in its registration on the TASE, as well as other associated fees and expenses incurred during the stock issue.

The tax relief the law provides only applies to companies and partnerships offering shares and units of participation, and not to companies only offering bonds to the public (bond companies).

At this stage, the Knesset has ruled that the law will remain in effect until the end of 2020. However, if the law accomplishes its objective – encouraging IPOs on the TASE – it may be extended for additional periods.

The numerous advantages of this law are quite obvious. Primarily, it is expected to encourage new corporations to register for trading on the TASE, thereby enhancing the attractiveness of the Israeli capital market as a source of fundraising for local corporations.