Member Article

Dear Clients and Colleagues,

We write to inform you about amendments tothe "Angels Law" that were recently enacted with the aim ofencouraging private investment in new start-ups in the seed stage (the "Amendment").

The "Angels Law" refers to theprovisions of section 20 of the 2011-2012 Economic Policy Law, which was passedas a temporary order and was in force during 2011-2015 (the "Law").

The Law provided a number of incentives for investments in early-stagecompanies, including treating investments meeting certain criteria as adeductible expense for tax purposes, regardless of the source of the investor'sfunds (e.g., salary, capital gains etc.). The amount of the deduction was up toNIS 5 million over a period of three taxyears (the "Tax Benefit" and "Benefit Period,"respectively).

In practice, however, investors tookadvantage of the Law infrequently, in part, because of the uncertainty as to whetherthe investment would actually be entitled to the Tax Benefit (as this was indoubt until the end of the Benefit Period).

In light of this situation, theAmendment setsforth a series of conditions that, if satisfied, ensure the investor of his entitlementto the Tax Benefit at the time the investment is made. The Amendment will also extend the existing tax benefits track inthe Law until the end of 2019.

The Amendment is a temporary order andwill remain in force from January 1, 2016 until December 31, 2019.

The principal changes to the Law

• Accordingto the Amendment, an investment made by a partnership, in which all partnersare individuals, and whose purpose is to invest in one specific company, alsowill be eligible for the Tax Benefit (according to the previous version of theLaw, the Tax Benefit was available only for an individual's investment).

• Inorder to receive the Tax Benefit, an investment must be effected in cashonly. The Benefit Period of three tax years will start from the later ofthe date of the investment or the date of issuance of shares in considerationfor the investment.

• Anew, alternative tax track - investment in a "Start-up Company": A company will be a considered to be a "Start-upCompany" if it meets the following cumulative conditions (which will be testedat the date of the investment in order to provide certainty for investors in regardto their entitlement to the Tax Benefit):

1. The company is incorporated in Israel, andthe control and management of its business is conducted in Israel.

2. From the date of incorporation until thedate of the investment, no more than four years have passed (if the company islocated in Development Area A under the Encouragement of Capital InvestmentsLaw, 1959, no more than five years have passed), or if the company receivedsupport from the Office of the Chief Scientist ("OCS") no morethan 12 months have passed since the end of the period in which support wasreceived from the OCS, whichever is later.

3. The company's total sales between the dateof incorporation and the date of the investment did not exceed NIS 4.5 million,and the total sales in each of the tax years preceding the date of investmentdid not exceed NIS 2 million.^[1]

4. The total expenses of the company from thedate of its incorporation until the date of the investment did not exceed NIS12 million, and the total expenses for each of the tax years prior to the dateof investment did not exceed NIS 3 million.^[2]

5. Loans provided to, and investments madein, the company, from the date of its incorporation to the date of theinvestment do not exceed NIS 12 million.

6. The company's auditor certifies that theconditions outlined in items 2-5 above are satisfied at the date of theinvestment.

7. Prior to the date of investment, the OCSmust confirm that, for the current tax year, the following two conditions are satisfied:(a) at least 70% of the expenses of the company in the period from the date ofits incorporation until the investment related to a product under development(b) the company has owned the product under development, and all rights regardingthat product, since inception (or in certain conditions, the Tax Benefit willbe granted also if the company acquired/received the product from a researchinstitution, hospital or other governmental entity, as defined in the Amendment).

Please contact us inrelation to any questions or clarifications. We would be delighted to assistyou in any way.

Sincerely,

Tax Department

FischerBehar Chen Well Orion & Co.

[1] For these purposes, a portion of a tax year will beconsidered to be a tax year.

[2]For these purposes, a portion of a tax year will be considered tobe a tax year.