Connect with us

Investment

Taxation of investment funds – Lexology

Published

 on


Introduction

Israel – known as the ‘start-up nation’ – has encouraged and attracted inbound foreign investments for many years. Investors looking to invest in Israeli companies may do so by:

  • investing directly;
  • investing in investment funds managed by others; or
  • establishing a private investment fund.

Recent years have shown an increased interest and investment activity in Israeli companies by foreign investors, several of which have formed an Israeli corporate venture capital (CVC) fund for this purpose.

Among the primary tools for encouraging inbound investments is the special tax regime for private investment funds. Over the years, the Tax Authority has issued substantial guidance and numerous private rulings under the Income Tax Ordinance, providing significant tax benefits to foreign investors and private investment funds operating in Israel.

This article outlines the income tax arrangements applicable to private investment funds operating in Israel. These arrangements are predominantly based on Income Tax Circulars 9/2018 and 10/2018, which govern the taxation of venture capital funds and private equity funds, respectively.

The special tax regime applicable to private investment funds is currently under review by the Tax Authority and the Ministry of Finance. As such, tax benefits that are available under the existing regime may be adjusted and further criteria for entitlement may be added. However, such changes are not expected to affect the existing arrangements for non-Israeli limited partners.

Criteria for beneficial tax treatment

The principal conditions for beneficial tax treatment for non-Israeli investors regarding their investments in private equity and venture capital funds are as follows:(1)

  • The fund must have at least 10 unrelated (directly or indirectly) investors.
  • Investors may not hold more than 20% of the capital of the fund, with the anchor investor able to hold up to 35% of the capital of the fund.
  • At least 30% of the investors in the fund must be non-Israeli investors.
  • Total investment commitments must be at least $10 million, of which at least $5 million must come from non-Israeli investors.
  • The fund may not invest more than 25% of its total commitments (net of management fees) in any single company.
  • The fund may not invest more than 20% of its total funds raised (after deduction of management fees) in companies whose securities are publicly traded.
  • The fund may not hold short-term cash deposits or publicly traded securities, unless they originate from:
    • monies which investors transferred in accordance with their investment commitments in the fund; or
    • the realisation of profits prior to their distribution or reinvestment.
  • The fund must invest in ‘qualifying investments’ (as defined below) in Israel in accordance with the lesser of the following alternatives:
    • at least $10 million in qualifying investments of which at least $6 million must be invested, directly or indirectly, in Israeli resident companies whose intellectual property is owned by them and/or in their non-Israeli parent companies; or
    • at least 50% of the fund’s total commitments in qualifying investments, of which at least 30% of total commitments must be invested, directly or indirectly, in Israeli resident companies whose intellectual property is owned by them and/or in their non-Israeli parent companies.
  • The fund must be managed by the general partner or by a person on its behalf. The limited partners may not take any role in identifying targets or managing the portfolio companies or in the day-to-day management of the fund and will have no voting rights in the investment committee of the fund.
  • The fund may be required to provide certain financial information to the Tax Authority.
  • Investors in the fund may be required to provide certain information to the fund or the Tax Authority in order to establish their right to enjoy the benefits of a Tax Authority ruling issued with respect to the fund.

Definitions

For purposes hereof:

  • a ‘qualifying investment’ is an investment in shares of an Israeli resident company or an Israel affiliated company whose principal activity is a qualifying activity, including venture capital investments. Investments in securities traded on the stock exchange will not be considered qualifying investments, unless the fund’s holding period of a publicly traded portfolio company is at least one year from the time of the fund’s first investment therein;
  • a ‘qualifying activity’ is the establishment or expansion of enterprises engaged in activities in Israel in the areas of industry, agriculture, tourism, transport, construction (excluding real estate), water, energy, technology, communications, computing, security, medicine, biotechnology or nanotechnology or research and development in these areas;
  • an ‘Israel affiliated company’ is a foreign company whose principal assets and/or activities, directly or indirectly, are in Israel;
  • ‘shares’ include stock options and warrants, convertible notes and convertible bridge loans which are not secured by assets other than the technology or the assets which the target company owns; and
  • ‘venture capital investments’ are qualifying investments in the high-tech sector, where at least 75% of the total investment is in consideration for the issuance of shares.

Beneficial tax arrangement

If all of the above criteria are met, the following will apply to the non-Israeli investors in the fund and in the general partner.

Tax arrangement for non-Israeli limited partners

Income derived from non-Israeli investments (ie, non-Israeli companies or non-Israeli affiliated companies) will be exempt from tax in Israel.

Income derived from venture capital investments (ie, capital gains, dividends and interest) will be exempt from tax in Israel.

Income derived from qualified investments that are not venture capital investments will be taxed as follows:

  • Income from the realisation of qualified investments will be exempt.
  • Dividend income received from the qualified investments will be taxed as follows:
    • Dividend income attributed to individual investors (including if held through a transparent entity for tax purposes in the country of residency of the individual) will be subject to tax at the rate of 15%.
    • Dividend income attributed to corporate investors will be subject to tax at the corporate income tax rate (currently 23%).
    • Notwithstanding the foregoing, foreign investors from a treaty jurisdiction may be eligible for the tax rates set out under the applicable treaty (15%),(2) subject to confirmation of tax residency and beneficial ownership by the Tax Authority
  • Interest income received from the qualified investments will be taxed as follows:
    • Interest income will be subject to tax at the regular applicable tax rates set out in the Income Tax Ordinance (individuals will be taxed at a rate of 15% to 50% depending on the nature of the interest; corporates will be taxed at 23%).
    • Notwithstanding the foregoing, non-Israeli investors from a treaty jurisdiction may be eligible for the tax rates set out under the applicable treaty (10%), subject to confirmation of tax residency and beneficial ownership by the Tax Authority.
  • Any other income (not covered above), including income from management fees received from portfolio companies, will be subject to the regular tax rates set out in the Income Tax Ordinance (up to 50% for individuals and 23% for corporates).
  • Foreign investors in the fund will not be considered tax residents of Israel and will not have filing obligations in Israel as a result of their investments in the fund.

Tax arrangement for non-Israeli fund managers

Based on the foregoing, and once the fund qualifies for tax benefits, the general partner and the managers of the fund may also be entitled to certain tax benefits. As stated above, the special tax regime applicable to private investment funds is currently under review by the Tax Authority and the Ministry of Finance. As such, tax benefits that are available under the existing regime may be adjusted and further criteria for entitlement may be added.

Taxation of carried interest

Carried interest income attributable to Israeli investments will be subject to tax at the rate of 15% in the hands of non-Israeli fund managers.

Carried interest income attributable to investments in foreign entities will not be subject to tax in Israel.

Notwithstanding the foregoing, non-Israeli general partners and fund managers from a treaty jurisdiction may be eligible for the tax rates set out under the applicable treaty, subject to confirmation of tax residency and beneficial ownership by the Tax Authority.

Taxation of management fees

Income derived from management fees will generally be subject to the regular tax rates set out in the Income Tax Ordinance (up to 50% for individuals and 23% for corporates).

Alternative tax arrangements if conditions are not met

Over the years, the Tax Authority has issued alternative tax arrangements for funds that do not meet the criteria described above, including funds:

  • that have fewer than 10 investors;
  • with commitments of less than $10 million;
  • in which the limited partners are involved in the management of the fund; and
  • in which the general partner is a substantial investor.

The following is a short description of the beneficial tax treatment available in some of these situations.

Funds that have fewer than 10 investors

Income from realisations of qualifying investments will be subject to 15% income tax in Israel.

Income from interest and dividend payments that are derived from qualifying investments will be subject to tax at the lesser of:

  • 15%; and
  • the tax rates under an applicable tax treaty.

Other income that is not derived or accrued from qualified investments will be subject to the tax rates established in the Income Tax Ordinance.

Income derived from non-Israeli companies (ie, non-Israeli or non-Israeli affiliated companies) will be exempt.

Funds with less than $10 million in commitments

A beneficial tax arrangement will be available to funds that are focused on making venture capital investments.

Income from realisations of venture capital investments will be exempt from tax in Israel.

Income from interest and dividend payments will be subject to tax at the lesser of:

  • the tax rates established in the Income Tax Ordinance; and
  • the tax rates under an applicable tax treaty.

Non-Israeli funds investing in Israel without representation in israel

Generally, such a fund will enjoy the same tax benefits as described under “Tax Arrangement for Non-Israeli Limited Partners” above.

Non-Israeli managers of the fund will be entitled to exemption from Israeli tax on their carried interest (as opposed to 15% tax on carry sourced from investments in Israel, for a fund with Israeli representation) and on their management fees.

Endnotes

(1) Limited partners holding more than 4% of the interests in a fund may not control the entities managing the fund and may not hold more than 10% of the general partner, if they wish to enjoy the tax benefits.

(2) For a percentage holding lower than 25%.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

Is Twilio Still A Good Investment After Smashing Earnings? – CMC Markets

Published

 on


Twilio (NYSE: TWLO) is an American cloud-based platform-as-a-service business that enables software developers to use digital communication such as calls, texts, and emails to enhance the user experience. After reporting blowout Q4 2020 earnings, and the stock sitting close to all-time highs, is it still a good investment?

This article was originally written by MyWallSt. Read more market-beating insights from the MyWallSt team here.

 

Bull Case

Twilo has been one of the beneficiaries of the “shift to digital”, where companies would adapt to the internet and mobile in ways that could often take years in the past. Since COVID-19 hit, this timeline has been compressed to weeks and months and has acted as a secular tailwind for the company. This is demonstrated in a report published by Twilio last year surveying over 2,500 companies which found that 97% of companies found that the pandemic sped up this acceleration. Furthermore, companies’ digital acceleration strategy was accelerated by an average of six years. This acceleration has benefitted Twilio to date but looks set to continue in the coming years. 

Twilio reported $548.1 million in revenue, an increase of 65% year-over-year, and full-year revenue growth of 55% to $1.76 billion in Q4 2020. It has a diversified revenue base with 27% of sales generated outside of North America and spread across different business types and sizes. 

Whether you are aware of it or not, you have likely come across Twilio’s software in everyday life, whether to verify your number via Whatsapp or getting messages from Lyft or Airbnb.  Along with several high-profile customers, Twilio reported 221,000 active customer accounts as of December 2020, compared to 179,000 a year prior. Twilio has suffered from losing the business of large customers, such as Uber, which accounted for roughly 12% of revenue. However, despite a short-term fall in the stock price, Twilio continued to grow revenue and decrease its customer concentration levels. Today, its top 10 customers account for 13% of revenue, a 1% decrease YoY. The stickiness of its business and increasing spend by customers is demonstrated in its dollar-based net expansion of 139% in Q4. 

A passionate founding CEO is also a positive indicator. Twilio head, Jeff Lawson, has an impressive 95% approval rating on Glassdoor and still owns a large stake in the company. Twilio also has one of the most diverse leadership teams of any publicly-traded company, with women making up 6 out of 13 of its upper management.

Finally, Twilio has acquired SendGrid and Segment over the past 3 years, and while a strategy of growth by acquisition can be risky, it has demonstrated its ability to do so successfully.

 

Bear Case

Twilio’s valuation may be a cause for concern for investors as it is currently trading at roughly 37x price-to-sales ratio. This high multiple will mean that management will need to continue to execute on its forecasts. Twilio is also not the only player in the space, with Microsoft’s Azure Communication Services providing stiff competition. 

Twilio is also still unprofitable despite a great year of revenue growth, reporting a net loss of $490.9 million in fiscal 2020 compared to $307 million a year prior. On an adjusted basis, this loss is lessened due to excluding items such as stock-based compensation. Nevertheless, it is clear that Twilio has some way to go.

Twilio’s gross margins are not as high as other SaaS companies either, coming in at 56% for Q4, a slight decrease YoY. Although management expects 60-65% margins over the long term, this is yet to materialize, and investors should keep an eye on it. 

 

So, Should I Buy Twilio Stock?

Twilio is well-positioned to benefit from a shift to digital during COVID-19 and in a post-pandemic world and the visionary Jeff Lawson at the helm. Twilio has the numbers to back it up and could be a great addition to a portfolio. The stock is likely to be volatile due to the run-up in recent times, but investors should take advantage of any weakness in the stock as it is likely to continue to keep performing.

MyWallSt gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team posts daily insights, subscriber-only podcasts, and the headlines that move the market. Start your free trial now!

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

Investment Firm for the Ultra-Rich Opens Office in Hong Kong – BNN

Published

 on


(Bloomberg) — Investment firm Cambridge Associates is opening a Hong Kong office, ramping up its focus on Asia amid a surge in wealth in the region.

The Boston-based company that serves clients such as endowments, family offices and pension funds already has offices in Singapore and Beijing. It hired Edwina Ho in February as senior director of business development for Asia and relocated its head of the global private client practice, Mary Pang, to Singapore from San Francisco, according to a statement Monday.

“Asia has long been a key market for Cambridge Associates and we are very excited to be expanding in Hong Kong as the next stage in our mission to provide strong investment performance and excellent service to clients across the region,” said Aaron Costello, the firm’s regional head of Asia, in the statement.

Wealth growth has surged in the region in recent years and the number of people with more than $30 million is forecast to outpace the rest of the world through 2025, according to a Knight Frank report last month. The richest Asia Pacific billionaires are worth a combined $2.5 trillion, almost triple the amount at the end of 2016, data compiled by Bloomberg show.

Cambridge Associates, which has more than $38 billion under management, serves over 230 wealthy individuals and families globally. The company’s owners include the Hall family behind Hallmark greeting cards, the Rothschilds and the Boels of Belgian investment firm Sofina SA.

The rapid wealth growth in Asia has pushed financial firms to turn their focus to the region. HSBC Holdings Plc said it would shift billions of dollars of capital from its investment bank in Europe and the U.S. to fund the expansion of its Asian businesses. Singapore’s DBS Group Holdings Ltd. has seen a rise in accounts for family offices.

The world’s ultra-rich have also flocked to the region to establish their wealth-management shops. Google co-founder Sergey Brin set up a branch of his family office in Singapore, while Bridgewater Associates’ Ray Dalio said in November it would open one there. Vacuum-cleaner mogul James Dyson is another who has his firm in the city-state.

©2021 Bloomberg L.P.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

5 best investment options for women – Yahoo Movies Canada

Published

 on


Investing your hard-earned money can be a daunting task, especially if you are a novice. A quick internet search can overwhelm you with numerous schemes and products and leave you confused.

To help fix your problem, we have listed five safe investment options. Scroll down to learn more:

Fixed deposits

Easily the safest and simplest, you can start here. Fixed deposits offer much higher interest rates than regular savings accounts. They have a lock-in period ranging from 7 days to 10 years. Withdrawing funds before maturity, will result in a certain amount of penalty – usually 0.5 percent to 1 percent – being charged by the bank. Some banks, however, allow premature withdrawals with zero penalty.

All banks and NBFC’s offer FDs and to invest in one, all you need to do is quickly compare the latest interest rates offered by the leading banks and then simply go to the bank’s website and open an FD account.

If you are a senior citizen, you can enjoy a slightly higher rate. There’s also a tax-saver FD covered under section 80C of the Income Tax Act that lets you invest up to Rs.150000 a year and enjoy tax savings. It has a lock-in period of 5 years.

Public provident fund

Backed by the government, it’s the second-best option for you. Returns are guaranteed and the amount invested is also deducted from taxable income of up to Re.1 lakh. But the icing on the cake is tax free returns. Can it get any better?

Annually, you can invest Rs500 to Rs.1.50 lakh. You can either invest the whole amount at one go or in over 12 instalments in a year. This makes it an ideal choice for those without a fixed source of income. The rate of interest on your investment is reset every quarter by the government in line with market rates. The current interest rate is 7.10 percent.

The lock-in period of 15 years is a bit of a dampener but the idea is to let you create a corpus for your retirement. Besides, you can always partially withdraw the funds after completion of 6 years. You can also take out a loan against your PPF account between the 3rd and 5th year.

You can open a PPF account in any Post Office in India and also in public banks and designated private banks.

Mutual funds

Stock markets are notoriously volatile. You bet right, you multiply your money. Yet, sometimes, even your best bet can go wrong wiping out every penny you invested. Overall, it’s a risky proposition and the pandemic has made it even more so.

But that shouldn’t stop you from trying it out. Mutual funds allow you to reap the benefits of the market while avoiding the downsides. They do so by reducing risk through diversification – a process in which your money is invested in various proportions between stocks, bonds and fixed deposits of different companies. When stock prices rise, you make a profit. When the market corrects itself, the bonds and fixed deposits in your portfolio will you get some fixed returns.

Experienced fund managers take care of your money, which means you needn’t have a finger on the pulse of the market. They charge a brokerage fee for it and you also have to pay capital gains tax on your profits.

There are a range of funds available in the market today. Depending upon your risk appetite, you just have to pick one. The stock heavy ones are risky but can almost double your money. The less risky ones are more into bonds and fixed deposits but guarantee you a certain return. There are also purely equity funds and debt funds.

Some funds, such as ELSS (Equity Linked Saving Schemes) allow you to save on tax.

SIPs

Systematic investment funds or SIPs offer an easier way of investing in the markets. A type of mutual fund, it lets you invest a small amount every month – it could be as less Rs.500 though most funds require a minimum of Rs.1000 investment.

This has many advantages. First, you don’t need to have a substantial saving (when you invest in mutual funds, you put in a lump sum at once). A fixed amount is debited from your bank account at regular intervals to be invested in SIPs.

Investment in SIPs is for one year minimum. If you wish to discontinue at any point, you simply need to inform 15 days prior to the payout. Your SIP will be discontinued and you can withdraw the money whenever you want. This flexibility, enables you to stem losses whenever the market is going down.

National pension scheme

Saving for retirement starts from the moment you start earning. Every month you not just set aside a certain amount but also invest it in various schemes to build a corpus for your retirement.

The government-backed national pension scheme, as the name suggests, is meant just for that. It offers various pension solutions and you can choose one to suit your requirement. For instance, you can choose to invest in equity, bonds, government securities and others, depending upon your preference. You can also let your funds be invested automatically in different assets.

Since it’s a pension scheme, the sum matures only when you reach your retirement age of 60. The accumulated interest is tax free. If you choose to withdraw the whole of it, then 40 percent of the maturity proceeds are tax free. If you opt to get it in the form of a pension post maturity, the amount will be taxed like regular income.

More stories on Women & Health and Women & Wealth — Yahoo India’s special on International Women’s Day 2021, here.

in.yahoo.com

Women’s Day 2021 | Yahoo India

Women’s Day 2021 | Yahoo India

Let’s block ads! (Why?)



Source link

Continue Reading

Trending