Dear clients and colleagues,

On November 20, 2023, came into force the Property Tax and Compensation Fund Regulations (Damages Payments) (War Damages and Indirect Damages) (Iron Swords) (Temporary Order), 5784-2023 (the “Temporary Order”), which regulates the compensation outline for indirect damage in various areas and communities defined as a “Special Area“. For the Temporary Order >> Click here

The Temporary Order is an addition to the broad compensation framework that recently came into effect under the Financial Assistance Program Law (Temporary Order – Operation Iron Swords), 5774-2023 (the “Financial Assistance Program Law“) – which applies to all businesses throughout Israel (for further information- please refer to our recent update from November 9, 2023). Moreover, it expands the existing compensation for communities defined as “frontier localities” under the Property Tax and Compensation Fund Regulations (Damages Payments) (War Damages and Indirect Damages), 5733-1973 (the “Main Regulations“).

We emphasize that the route under which each business can submit its claim for compensation is determined according to the location of the business and its branches. There are special provisions relating to businesses that do not operate in frontier localities or the Special Area and employ evacuated employees or employees who live in the Special Area and meet the conditions outlined in the Temporary Order.

For further information regarding the compensation framework in the green route, please refer to our update dated November 9, 2023. Moreover, please note Execution Order No. 2/2023, published by the Tax Authority to execute this framework.

In summary, this is a framework for compensation that applies to all Israeli businesses that were damaged by the ongoing hostilities. The Financial Assistance Program Law distinguishes between small businesses with an annual turnover of up to NIS 300,000 and larger businesses with a turnover of up to NIS 400 million. Those with a turnover of more than NIS 400 million are not entitled to compensation under the Financial Assistance Program Law. Similar to other routes, claims under this green route will be submitted online.

 

The Orange Route

Below are detailed principles of the framework for compensation for businesses in the orange route, which was set out in the Temporary Order published on November 20, 2023, followed by an Execution Order no. 3/2023, published by the Tax Authority.

It is important to note that the following outline provides a general description of the proposed compensation. However, the detailed and binding information is found in the wording of the Temporary Order publish in Israel’s “Official Gazette”.

The purpose of the orange route is to provide increased compensation for indirect damages to businesses located in the Special Area. In other words, this category includes areas and communities in which the guidelines of the Home Front Command were stricter, followed by more significant restrictions upon their activity (in general, up to 40 km from the Gaza Strip border, Golan Heights settlements, and communities located up to 5 km from the Lebanese border). For the list of communities included in the Special Area, please see the second and fourth addendums of the Temporary Order. In addition, all Israeli businesses might be entitled to special compensation by virtue of the Temporary Order, based on their employees’ identity and place of residence (see further details below).

Today, the prescribed period for this route is October 7, 2023, until October 31, 2023. This route might be extended, yet it is not clear what will be the final scope and whether it will apply to all communities currently considered a Special Area. We note that as of this date, there is a pending amendment proposal to add more communities to the category of Special Area and to extend until the end of the year the compensation arrangement for employers who paid salary to an evacuated employee (and was evacuated according to a government decision), and who is absent from work due to the war.

There are three alternative compensation tracks in the orange route:
(1) salary expenses track;

(2) turnover track;

(3) agriculture track;

We note that in all three tracks, the compensation is conditioned in salary payment to all employees who were absent due to the war (according to the conditions of the Temporary Order).

 

(1) Salary Expenses Track

• In this track, an employer whose business is in the Special Area will be paid compensation in the amount of NIS 520 for each day of absence of an employee due to the war in each of the following cases:

• The employee resides in a community that was evacuated according to government decisions during the prescribed period;
• The employee is absent from work due to an order to close the educational institution where the employee is employed or due to a prohibition on gatherings (of the Home Front Command);
• The employee is a person with a disability who lives in the Special Area, or is a relative of a person with a disability who lives in the Special Area and is absent from work to supervise or care for his relative. Provided that the disability is known to the employer or that he has provided the employer with a certificate or documentation attesting to his disability or the disability of his relative, and that he cannot attend the workplace since his disability prevents him from following the instructions of the Home Front Command during the prescribed period;
• The employee is absent from work to supervise his children (up to 14-year-old), due to an order to close educational institutions in his place of residence, which is located in the Special Area, or due to the closure of the educational institution in which his child studies or resides provided that it is located in the Special Area, and subject to one of the following: (a) the child is in the sole custody of the employee, or; (b) The employee’s spouse is not absent from work.

• An employer whose business is located outside the Special Area

An employer whose business is located outside the Special Area – and therefore his “default route” is the green route – will also be entitled to file a claim for compensation under the salary expenses track in one of the following cases:

(a) His employee resides in a community that was evacuated according to government decisions during the prescribed period.

(b) His employee is a person with a disability residing in the Special Area or a relative of such person, under the conditions set forth above, or;

(c) His employee is absent from work due to the closure of educational institutions to supervise a child up to 14-year-old who is with him and lives in the Special Area, or the educational institution is in the Special Area, all subject to the conditions detailed above.

We note that if the same employer filed a claim for compensation in the green route, the compensation with respect to its employees paid under the salary expenses track will be offset by the compensation paid for the employees under the green route.

Please find below some significant emphases regarding the compensation in the salary expenses track:

• There is no compensation cap for the total compensation amount (i.e., the number of employees for whom the employer is entitled for compensation of NIS 520);
• Only an employer who paid salaries to his employee will be entitled to compensation for the employee’s absence;
• No compensation shall be given for days when the employee is absent due to illness, accident, vacation, maternity leave, reserve duty, or on Saturdays, holidays and Fridays, except for those who are usually employed on those days;
• Subsidized entities (under the Israeli law) or healthcare corporations, health funds, and a public institution that is not an eligible public institution are not entitled to compensation under this track. In addition, a dealer who was not active before September 30, 2023, or did not submit Form 102 to the Assessment Officer due to October 2023, will also not be entitled to compensation under this track.

 

​(2) Turnover Track

The framework of compensation in this track is based on a comparison of transaction turnover between two parallel periods (the base period and the prescribed period – currently, October 2022 versus October 2023), offsetting the expenses saved while the business did not operate or partly operated due to the conflict (product of the difference in turnovers in the supplementary expenditure saved as defined in the regulations).

Following are some significant emphases regarding compensation in the turnover track:

• Subsidized entities or healthcare entities, government companies, health funds, statutory corporations, financial institutions, and those whose inventory consists of rights in real estate, among others, are not entitled to compensation.
• The compensation cap is NIS 2,500,000;
• Funds paid to the employer by the National Insurance Institute to reimburse reserve benefits paid to the employee will be reduced from the salary expenses during the base period and the prescribed period. In addition, the salary saved in relation to employees who were sent on unpaid leave or who were dismissed/resigned will be calculated within the framework of the expenses saved.

 

(3) Agriculture track:

The purpose of the track is to provide a solution for those engaged in the agricultural sector located in the Special Area, by means of the loss of productivity of employees who were supposed to work in the agricultural areas and whose work was prevented or interrupted due to the war. In general, this track offers a fixed compensation in the amount of NIS 12,844 for each day of absence due to the security situation, multiplied by the number of employees. The compensation cap for this track is NIS 3,000,000.

The Claim Process in the Orange Route
Claims will be submitted online from the 16th of the month following the end of the eligibility period and until the end of four months from this date through the website of the Tax Authority. To enter the claims submission website >> Click here

Choosing between the various compensation frameworks – we clarify that businesses that are entitled to file a claim for compensation in the red route (businesses located in frontier localities) will be entitled, alternatively, to claim compensation under the orange route or the green route, and businesses that are entitled to claim compensation under the orange route will be entitled, alternatively, to their choice, to claim compensation in the green route. However, it is not possible to claim simultaneously under two tracks. An exception is compensation for employees’ salaries (as stated above regarding the salary expenses track for an employer outside the Special Area), which can be parallel to other tracks while performing offsetting to prevent double compensation.

 

 

 

You are invited to contact us for advice on all questions and issues that arise.
We will send further updates as this area develops.

Hoping for quiet days,
Tax Department     Labour Law Department
Herzog Fox & Neeman