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Software Company Municipal Property Tax (Arnona)

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Municipality Property Tax (Arnona) in Israel
Reduced Tariff for Software Companies
?Who is Entitled to a "Software Company" Classification
?Why is receiving Software Company Classification complicated
?When can a Motion be Filed for Classification of Municipal Property Tax for a Business
Emphasis Regarding the Motion for Change in Arnona Classification
Buyer Beware
Our Advantage at Your Service


Municipality Property Tax (Arnona) in Israel

In most of the western world Municipal Property Tax charges are computed based on the real estate value, regardless of the use made therewith or of their possessor's identity. In contrast to such states, the municipal property tax (aka as Arnona) tariffs in Israel are set in accordance with a complex and archaic framework of laws which were designed to act as a temporary solution during the 1980s inflation period, and have not been replaced by modern, relevant legislation since.

One of the two most material factors in municipal property tax charges in Israel is the use of the property (the other factor being the size of the charged unit's size). For instance, a building in which an industrial factory operates will not pay a similar tariff to that of a warehouse; and a theater will not pay a tariff similar to that of a nursing home (even if the properties are of the same charged unit's size and are located in the same area).

One should know that each municipality in Israel has its own municipal property tax decree in which various tariffs are set, according to the uses of the property. That means that beyond the effect of the use of the property, the rate of the municipal property tax charges will also be affected by the city in which the property is located.

Additionally, the municipality may amend its municipal property tax decree each fiscal year. In most cases the tariffs will change only by the percentage allowed by law, but often more material amendments will take place. It is therefore important to get updated at the beginning of each fiscal year, whether amendments to the municipal property tax decree of the relevant city had been introduced.

Reduced Tariff for Software Companies

The municipal property tax decree acts in part as a tool for the municipality in order to incentivize or de-incentivize the running of various types of businesses within its limits.

Many municipalities court high-tech companies and are interested in such companies moving their offices into their jurisdiction in order to offer work places and attract strong population into the area. One of the main vehicles used thereby in order to attract high-tech companies is through entering a municipality tax classification of "Software Company" into their decree.

A company found entitled to receive a software company municipal property tax discount will pay a very low municipal property tax, less than half the payment of a company classified as "offices and services".

It is important to know that even when the municipal property tax decree has no "software company" classification, the software company may still be entitled to a general "industry" classification, which also has the benefit of a reduced tariff.

?Who is Entitled to a "Software Company" Classification

The reduced tariffs can reach as much as 50% discount in comparison to the maximum municipal property tax charges, therefore it is advised to carefully review the municipal property tax decree. Businesses with municipal property tax classifications such as software companies, high-tech industry and factories, clean-tech, green technologies, new industry and the likes will enjoy the benefit of exceptionally low municipal property tax charges.

Each municipality may define differently what a software company is, and the tariffs it chooses to offer to such classification. For instance, the municipal property tax decree in Tel Aviv divides the city into 3 business municipal property tax zones, in which the per-sqm tariff varies. Most of the high-tech companies and software companies are in the center of Tel-Aviv, defined as Area 1, and delimited between Rokach and Salameh Streets, where the general municipal property tax tariff is NIS 391.92/sqm.
Businesses classified as a software company will pay only NIS 171.23/sqm; a discount exceeding 57%.

One should know that although the municipal property tax decrees are issued by the municipalities themselves, that does not guarantee grant of the discounted tariffs in an easy and prompt manner. On the contrary, the motions for reduction of municipal property tax shall be examined rigorously, and the municipalities shall even conduct an audit at the property prior to awarding such classification.

?Why is receiving Software Company Classification complicated

Receipt of a software company classification is not automatic. Software companies interested in receipt of such classification have to file a motion for change of municipal property tax classification as software company when they move into the new offices.

The municipality conditions the grant of a software company classification on the share of the software production out of the business revenue being principal, and on the unit's size dedicated to the software production constituting the principal part of the business. When examining the motion for change of the municipal property tax classification the data voluntarily provided by the company are examined, as are data collectable with respect thereto through its internet website, annual reports and so forth, which can attest to the company's organizational structure and the proportion of the software development out of its entire operation.

A wrong presentation of the data or a mismatch between the data on the various media might result in denial of the motion and non-receipt of the desired classification, and it can also be used against the company in an appeal committee or if the case reaches the Administrative Municipal Court.

It is important to note that a software company municipal property tax discount is often awarded only for the programmers' development areas, so that a low tariff is being paid for them, whereas the regular office tariff is paid for the administrative area. However, it is still a material saving over time.

When can a Motion be Filed for Classification of Municipal Property Tax for a Business

It is worth-while knowing that the municipal property tax field is limited by an exceptionally rigid time frame. The tax payer must meet short time frames set forth in law, only within their framework can a municipal property tax charge be appealed. He will be required to go through a proceeding of a motion for classification, an appeal to the appeal committee, and if necessary – an appeal to the Administrative Municipal Court.

It is therefore advisable to consult a law firm which engages in municipal property tax as early as at the first stage, when the motion for change of municipal property tax classification is filed, in order to avoid mistakes, which shall result in an expensive, high classification.

Filing a motion for change of classification of municipal property tax to be considered a software company, or as referred to in the legal argot, Objection Regarding Municipal Property Tax, is possible when the annual notice for municipal property tax is sent to the business, or when an amended assessment is received from City Hall. A motion for classification of the municipal property tax as software company may also be filed when the business relocates to a new address.

From the date of receiving the first municipal property tax bill (after a business relocates) or the annual municipal property tax bill, the charge may only be disputed within 3 months, and thereafter it becomes conclusive until the following fiscal year.

One should take advantage of this window of opportunities in an attempt to reduce the municipal property tax charge, since if successful the saving may reach hundreds of thousands of Shekels per year, depending on the size of the property.

Emphasis Regarding the Motion for Change in Arnona Classification of Software Company Municipal Property Tax

The definition of a software company for purposes of receipt of municipal property tax classification is quite specific, and therefore it is well advised to consult with an attorney engaged in municipal property tax matters prior to entering the proceeding, in order to see whether the company meets the black letter law of such definition.

So, for instance, a company which had developed software in the past and currently engages mainly in the marketing thereof or in sale of subscriptions no longer meets the definition of a software company and is no longer entitled to the discount; court rulings make the distinction between software production activity and rendering of software services or customer service. Instead of going through a tedious proceeding, an initial consultation with an attorney can save the company costs and time.

יזהר הקונה Buyer Beware

Reduction of business municipal property tax takes place through legal proceedings, which are unique to the field. The attorney representing you must absolutely master such proceedings, or else the goal cannot be reached, and might even be compromised. Our firm received cases after wrong handling of the municipal property tax case, which ironically caused an increase of the municipal property tax charges.

Software company municipal property tax is a legally complex field, to which surprisingly rigid statutes and procedure apply. We must not forget that we are dealing with the municipality's main source of income, and it will not easily allow tax payers to reduce their monthly charges.

One should be aware of potential representing parties who purport to present the reduction of municipal property tax as a light-weight matter, and even promise positive results. Experience teaches us that in the legal world in general, and in the municipal property tax field in particular, results cannot be guaranteed.

Change-of-classification proceedings can be renewed and re-examined on a yearly basis, and therefore even if a file exists in the process for change of municipal property tax classification for a software company for a given year, an additional independent motion can be filed the following year for the municipal property tax change of classification.

Our Advantage at Your Service

Noa Talbi & Co. Law Firm is well experienced in representing software companies in motions for municipal property tax discounts and in proceedings for change of municipal property tax classification. Our firm helps many software companies in the classification motion proceedings and in appeal to the appeal committee against municipal property tax classification motions, and we witness the fact that it is a proceeding in which any mistake derived from lack of experience and lack of accuracy can result in payment of tens of thousands of Shekels more expensive municipal property tax.

The Firm staff's great experience in the software companies' municipal property tax field gives it the ability to identify the motions' success prospects, neutralize the landmines that lead to denial of the motions, and highly increase the client's success prospects, and produces actual results. The firm offers its clients a tour of the building and advice regarding the division of the space in a manner which supports the motion for change of software companies' municipal property tax classification in the best possible manner, as well as accompanies its clients in the process.


In order for us to respond to your address in the most professional manner, we'd appreciate it if a sample of the existing municipal property tax bill, a notice of municipal property tax charge or the notice letter from the municipality which you wish to appeal is attached thereto.

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