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Accelerate Depreciation Regulations – Approved

19 November 2020

Dear Friends, clients and colleagues,

Following our August update regarding the publication of draft accelerated depreciation regulations to public comments, we are happy to update that the Income Tax Regulations (Accelerated Depreciation During the Coronavirus Period) (Temporary Provision), 5780-2020 (the “Accelerated Depreciation Regulations”) have been approved by the Minister of Finance on November 10, 2020.

The final Accelerated Depreciation Regulations are different in several respects from the draft regulations published for public comments. The regulations are meant to induce economic activity in Israel during this difficult economic period due to the Coronavirus crisis. However, the Accelerated Depreciation Regulations are not limited to businesses that suffered losses, and the benefit is available to any business that satisfies the conditions in the regulations. The Accelerated Depreciation Regulations represent an important opportunity to businesses that want to expand their activity to cover for losses during this time or otherwise.

This update will review the main provisions of the Accelerated Depreciation Regulations, as approved. We recommend to our clients that believe this matter is relevant to them to be in touch with our firm to receive consultation relevant to their specific circumstances in a manner that will allow them to maximize their benefit under the new regulations.

The Main Provisions of the Accelerated Depreciation Regulations

The Accelerated Depreciation Regulations provide for a double depreciation rate than otherwise allowed under any applicable law for equipment purchased by taxpayers, subject to certain conditions. We note in this context that the double depreciation rate applies with respect to any depreciation rate set up in law or regulations. I.e., taxpayers are presumably eligible to double the depreciation rate even if they are entitled to, and applied, the accelerated depreciation rates available under the Law for the Encouragement of Capital Investments, 5719-1959 (the “Encouragement Law”) or the Income Tax Regulations (Adjustments for Inflation) (Depreciation Rates), 5746-1986. As a result, in certain cases, the Accelerated Depreciation Regulations may lead to a deduction of all, or mostly all, of the equipment acquisition price in the tax year in which it was acquired.

Unlike the draft previously published – the final Accelerated Depreciation Regulations are not limited to taxpayers operating in certain economic fields. This means that any taxpayer, regardless of its field of operations, is entitled to accelerated depreciation for eligible equipment.

The main conditions set out in the Accelerated Depreciation Regulations are with respect to the the equipment that is eligible to the benefit. In this context, we note that the Accelerated Depreciation Regulations do not explicitly define “equipment,” but instead only determine that the term shall include machinery and certain work vehicles other than trucks, but excluding nontangible property, if all the following conditions are satisfied:

  1. The equipment was acquired during the “determining period,” which is the period beginning on September 1, 2020 and ending on June 30, 2021;
  2. The equipment was put into use in the production of income in Israel until the later of within three months from the date in which it was acquired, or June 30, 2021, but with respect to equipment that cannot be put into use within three months or equipment that was used by an Industrial Enterprise, as this terms is defined in the Encouragement Law, this period will be extended to nine months;
  3. The equipment is used in Israel.


In addition, the Accelerated Depreciation Regulations do not apply with respect to equipment acquired from a related party, equipment acquired for no consideration, equipment that was previously used as stock of inventory at the hands of the taxpayer or equipment acquired through a tax-free reorganization. The Accelerated Depreciation Regulations will also not apply with respect to equipment used by a taxpayer with respect to a petroleum right, a franchise or a sub-franchise that the taxpayer received from the State of Israel.

Furthermore, the regulations provide that if a taxpayer sells equipment, for which it deducted accelerated depreciation under the Accelerated Depreciation Regulations, to a related party within four years after such equipment was acquired, the tax basis of the equipment at the hands of such related party shall be zero. A related party for the purposes of the Accelerated Depreciation Regulations includes certain relatives and certain related entities.

We note that the taxpayer may elect whether to apply the Accelerated Depreciation Regulations, but if the taxpayer made such an election – the regulations shall apply to all equipment acquired during the determining period. In certain cases, especially with respect to taxpayers that expect to have no taxable income in the tax years of 2020 – 2021, it may be advisable not to elect for the Accelerated Depreciation Regulations to apply.

We recommend to our clients to seek specific advice with respect to their eligibility to double depreciation rates under the Accelerated Depreciation Regulations for property acquired during the relevant period, and with respect to the desirability of electing the application of these regulations. These decisions should be made based on the specific facts and circumstances applicable to each business.


Our tax department will be happy to advise on these matters.


The Tax Department

Herzog Fox & Neeman


Meir Linzen | Managing Partner
Head of Tax Department
Guy Katz | Partner
Tax Department
Yuval Navot | Partner
Tax Department
Eldad Chamam | Partner
Tax Department
Amir Cooper | Associate
Tax Department


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