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

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

Accelerated depreciation supplements: (a) coronavirus subsidies paid to companies and major shareholders and (b) isolation allowances reimbursed to employers who continued to pay salaries to employees quarantined due to the coronavirus.

Here are the highlights.

Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)
The description

According to the ITA circular, the purpose 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.

Regular depreciation rates are on long lists in tax regulations. The accelerated depreciation regulations apply to equipment purchased between September 1, 2020 and June 30, 2021 and used in Israel.

As a general rule, the annual depreciation rates before doubling 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 appears that after doubling under the above regulations, a new laptop purchased and put into service on January 1, 2021, can be depreciated at the rate of 66% in 2021 and 34% in 2022. For other computers, such as a new server, the double depreciation would be 50% in the first year and 50% in the second year, when the applicable conditions are met.

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

Commissioned within three months of purchase or June 30, 2021 – whichever is later;

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

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

If the equipment is used outside of Israel, double depreciation cannot be claimed for time spent abroad.

The equipment does not include motor vehicles as defined in the highway code, with the exception of a “work vehicle” which is not a truck. A work vehicle is defined in the Traffic Ordinance (new version) 1961 as “a vehicle on which equipment is permanently installed, or whose structure is designed to perform work and is not intended for transport. loads or passengers ”- for example a vehicle with a crane on it.

In view of the above, the ITA circular specifies that the double depreciation will not apply to vehicles which are not work vehicles: passenger cars, load transport vehicles such as trucks, vehicles transporting people such as buses, taxis, driving instruction vehicles, etc.

Rental improvements

For the purposes of the accelerated depreciation regulation, equipment generally does not cover improvements made to the leasehold property by the landlord or lessee.

Nonetheless, a taxpayer is entitled to claim double depreciation for equipment installed in the property, such as an air conditioner, provided that the equipment can be separated and the other conditions are met.


In countries like the US and UK, accelerated depreciation regulations have apparently helped jumpstart investment, so let’s hope the same is true in Israel. Note that depreciation does not mean that more than 100% of the cost of the equipment can be depreciated, it means that the cost can be depreciated as an expense more quickly, over fewer years. This is a temporary difference and not an overall difference in the amount of depreciation.

A gray area concerns intangible assets, i.e. intellectual property. The regulations expressly exclude intangible assets from the definition of “equipment” eligible for accelerated depreciation.

Presumably, this means that computer hardware qualifies for accelerated depreciation, but software does not. It’s unclear what will happen to computers with software wired into hardware memory – will the cost of the computer still qualify for double depreciation?

Presumably purchase invoices might state the hardware more clearly than the software component

As always, consult upfront with experienced tax advisers in each country in specific cases.

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The author is a Chartered Accountant and Tax Expert at Harris Horoviz Consulting & Tax Ltd.

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