Swords of Iron: Compensation Outline for Businesses Law
The Knesset has approved the Compensation Outline for Businesses Law after several amendments, and the law has come into effect.
The outline prescribed in the temporary order applies to indirect economic damages caused to businesses during the period from October 7 through November 30. The legislature may extend this period until December 31, 2023 (at this stage). The outline classifies the volumes of compensation according to annual operating turnovers reported by businesses to the VAT authorities. The temporary order does not include some businesses, such as financial institutions, insurance companies, etc.
Operating Turnover between ILS 12,000 and ILS 300,000
Businesses whose annual operating turnover in 2022 was between ILS 12,000 and ILS 300,000 are eligible for monthly compensation. The outline prescribes determining eligibility according to the magnitude of the decrease in the business’s operating turnover. For example, if a business’s annual operating turnover is ILS 300,000 and its turnover decreased by 25%, it will receive a monthly grant of ILS 4,675. The monthly compensation gradually increases and can reach up to ILS 14,025 if the turnover plummeted by more than 80%.
Operating Turnover between ILS 300,000 and ILS 400 million
Businesses whose annual operating turnover in 2022 was between ILS 300,000 and ILS 400 million are eligible to receive compensation in the form of reimbursement for their fixed expenses and wage expenses during the qualifying period. This applies if their monthly operating turnover decreased by more than 25%, or if their bi-monthly turnover decreased by more than 12.5%. (This is generally determined by comparing October and/or November 2023 with the corresponding months in 2022.) Calculation of the compensation will be as follows:
Reimbursement for fixed expenses paid by a business
The fixed expenses coefficient will range between 7% and 22% in respect of the business’s average current inputs reported to the VAT authorities during the period from September 2022 through August 2023. In other words, this reimbursement can range between 7% and 22% of the business’s total fixed expenses during the qualifying period, depending on the magnitude of the adverse impact on the business’s operating turnover.
Reimbursement for wage expenses paid by a business
The reimbursement for a business’s wage expenses during the qualifying period will be calculated according to the rate of decrease in the business’s operating turnover X the lower of:
- Wages paid to the business’s employees during the qualifying period × 75% × 1.25.
- The average monthly wage in the economy × the number of employees in the business × 1.25.
Maximum Compensation
The law also prescribes maximum sums of compensation. Businesses whose annual operating turnover in 2022 was between ILS 300,000 and ILS 100 million will be eligible for a grant that can reach a maximum of ILS 600,000 in respect of the relevant period (depending upon the height of the annual turnover). Alternatively, businesses whose annual operating turnover in 2022 was between ILS 100 million and ILS 400 million will be eligible for a grant that can reach a maximum of ILS 1.2 million (depending upon the height of the annual turnover).
Businesses’ Year of Incorporation
The calculation for businesses founded after January 1, 2022, their operating turnovers, rates of decrease, the current inputs they reported to the VAT authorities, etc. – will differ from the calculation for businesses established at an earlier date. For example, for the purpose of determining the maximum compensation to a business founded after January 1, 2022, its transaction turnover will be examined based on its operating turnover in 2023.
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Barnea Jaffa Lande’s Tax Department is at your service to advise you on maximizing your rights to receive wartime compensation.
Adv. Hanna Daher is a partner and Adv. Alon Davidovich is an associate in the firm’s Tax Department. Adv. Amos A. Rosenzweig is an of Counsel in the form and heads its National Insurance Institute practice.