Israel Labor Concerns Communications Securities Compliance Securities Act Foreign Exchange Data Protection

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1 Israel Employee Stock Purchase Plans Employment Labor Concerns A claim for breach of contract could arise where a Plan is amended or discontinued. It is recommended that Plan provisions are drafted so as to preclude temporary employees and independent contractors from claiming entitlements under the Plan (absent a specific intention to include these workers). Plans should be drafted to permit unilateral amendment or termination of the Plan, and employees should be required to acknowledge the discretionary nature of the Plan. Employers may not, directly or indirectly, deny employees the opportunity to participate in the Plan based on any prohibited grounds of discrimination, including, among others, race, color, religion, sex, national origin, citizenship, age, disability, uniformed service or any other status protected by federal, state or local law. Communications Generally, the electronic execution of agreements may be acceptable under certain conditions. Regulatory Securities Compliance Foreign Exchange Data Protection Israeli securities laws govern the grant of securities under employee benefit plans, including employee stock purchase plans. Under the Securities Law of (the Securities Act ), unless an exemption is available, any offer or sale of a security must be published in a prospectus approved by the Israeli Securities Authority. The relevant exemption for offers and sales of securities in connection with employee benefit plans is for offers made to less than 35 employees over a 12 year period. There are no exchange controls in Israel. Israel does not have well-developed data protection law that encapsulates all personal data. It is best practice for employers to obtain the employees express written consent as to the use and disclosure of their personal data. Such consent must be broad enough to cover any use or disclosure that will be made of the data. Further, any use or disclosure of the data should conform to any stated internal policies of the employer regarding the use and disclosure of the personal data of employees.

2 Tax Employee Tax Treatment It is unclear how an employee stock purchase plan is treated under section 102 of the Israeli Income Tax Ordinance (the Ordinance ). The right to participate in the Plan could be characterized as the grant of a non-tradable right not listed on an exchange under section 102(c)(2), pursuant to which the tax event is deferred to the sale of the Stock. Alternatively, it could be characterised as the award of shares not via a trustee under section 102(c)(1), where the discount is taxed at the purchase date, and where any additional gain is taxed upon sale. In either event, no tax is payable upon grant of the right. Due to the unclear treatment of employee stock purchase plan participation under the Ordinance, there are several fast track taxpayer specific rulings available that allow companies to elect the treatment and clarify their withholding obligations under the Plan. The rulings include several options: (1) a trustee capital gains track treatment, where the taxable event is deferred to sale of the underlying Stock and the gain is bifurcated between an ordinary income component and a capital gain component and (2) non-trustee treatment, which accelerates the tax event on the discount to the purchase date, and imposes the withholding obligation on the employer only on the purchase date. The employee s favorable tax treatment upon exercise of the purchase right under the trustee capital gains track can be lost if the employee sells the Stock received upon the exercise of the right within two years after the date the right was granted. Social Insurance Contributions The ordinary income portion of the gain (either upon disposition of Stock or exercise of the purchase right, depending on the elective tax track) is subject to social security contributions, which may be levied on the employee at a rate of 7%, up to the wage base limit (518,880 NIS for 2016). A Health tax is also levied on the employee on his ordinary income portion of the gain at a rate of 5%, up to the wage base limit. Note that the Social Security and Health taxes are imposed at lower rates for annual income less than 68,136 NIS, and that the Social Security and Health taxes are computed on a monthly basis, with a look back period for extraordinary payments. Where Social Security tax arises for the employer, this is levied at a rate of 7.5% of the amount recognized as ordinary income, up to the wage base limit for each employee (518,880 NIS for 2016). Tax Favored Program Withholding and Reporting Employer Tax Treatment Many employee stock purchase programs are structured to comply with the requirements of the capital gains trustee track, and afforded the tax treatment described above. This track requires the engagement of an Israeli trustee, the adoption of an Israeli sub-plan to the global employee stock purchase plan, and the deposit of the employee stock purchase plan shares with or under the supervision of the Trustee for the duration of a two year holding period. The employer s and trustee s withholding obligations are provided under the conditions of the relevant tax ruling the employer and trustee will either be required to withhold upon purchase or sale of the Stock. The employer s right to a tax deduction relating to the employee s participation in the Plan is stipulated by the terms of the particular ruling. Tax Rates Income tax is charged at rates of up to 48%. The capital gains rate under section 102 is 25%.

3 Restricted Stock and RSUs Employment Labor Concerns A claim for breach of contract could arise where an equity incentive plan is amended or discontinued. It is recommended that Plan provisions are drafted so as to preclude temporary employees and independent contractors from claiming entitlements under the Plan (absent a specific intention to include these workers). Plans should be drafted to permit unilateral amendment or termination of the Plan, and employees should be required to acknowledge the discretionary nature of the Plan. Employers may not, directly or indirectly, deny employees the opportunity to participate in the Plan based on any prohibited grounds of discrimination, including, among others, race, color, religion, sex, national origin, citizenship, age, disability, uniformed service or any other status protected by federal, state or local law. Communications Generally, the electronic execution agreements may be acceptable under certain conditions. Regulatory Securities Compliance Foreign Exchange Data Protection Israeli securities laws govern the grant of securities under employee benefit plans, including stock incentive plans. Under the Securities Law of (the Securities Law ), unless an exemption is available, any offer or sale of a security must be published in a prospectus approved by the Israeli Securities Authority. The relevant exemption for offers and sales of securities in connection with employee benefit plans is for offers made to less than 35 employees in a 12 year period. There are no exchange controls in Israel. Israel does not have well-developed data protection law that encapsulates all personal data. It is best practice, in administering equity/benefit plans, to build into Plan enrollment forms a written consent. Plan participants should expressly authorize the use and disclosure of their data for all Plan purposes. Also, Plan administrators must comply with any privacy policy of a sponsor employer, and with document-retention laws that mandate retaining tax-related information for certain periods. Tax Employee Tax Treatment The granting and vesting of RSUs does not result in taxable income to the employee who receives the RSUs. So long as the RSUs are settled in shares, they may be granted under two distinct tax tracks under section 102 of the Israeli Income Tax Ordinance: an ordinary income track and a trustee capital gains track. Under the ordinary income track, upon sale of the underlying Stock, all of the gain from sale is taxed at the ordinary income rate. Alternatively, under the trustee capital gains track, the income is bifurcated into an ordinary income component and a capital gains component: the average value of the Stock for the 30 trading days preceding the settlement of the RSUs is taxable to the employee as ordinary income and the difference between the sale price of that Stock and the ordinary income portion will be taxed as capital gains.

4 Social Insurance Contributions Upon sale of the Stock underlying the RSUs, the ordinary income portion of the gain is subject to social security contributions to the extent the employee has not exceeded the applicable wage base. The employer is required to withhold the employee s portion of the social security taxes. The employer must then pay the employee s withholdings and the employer s contributions at the time the employee receives the earnings. Tax Favored Program Withholding and Reporting Employer Tax Treatment The trustee capital gains track allows for a deferral of the tax event to the sale of the Stock underlying the RSU and a bifurcation of the gain into ordinary income and capital gains components as explained above. Compliance with the trustee capital gains track requires the engagement of a trustee in Israel, the assumption of an Israeli sub-plan, conforming the global plan to the provisions of section 102, and the deposit of the RSUs with the trustee, or under its supervision, for a two year holding period. Amounts taxable on sale of the Stock underlying the RSUs are subject to income tax withholding and reporting by the employer, or the trustee, as applicable. Also, the amount of dividends received with respect to RSUs is subject to income tax withholding and reporting by the employer or the trustee, as applicable. Assuming compliance with the applicable income tax withholding and reporting requirements, the employer will be entitled to a tax deduction equal to the amount of ordinary income recognized by an employee in connection with his or her restricted stock award in the employer s taxable year in which that employee recognizes that ordinary income, but only for RSUs granted under the trustee track. The granting of RSUs does not result in a tax deduction for the employer. Tax Rates Income tax is charged at rates of up to 48%. Social Security taxes may be levied on the employee at a rate of 7% on the amount recognized as ordinary income, up to the wage base limit (518,880 NIS for 2016). A Health tax is also levied on the employee on his ordinary income portion of the gain at a rate of 5%, up to the wage base limit. Note that the Social Security and Health taxes are imposed at lower rates for annual income less than 68,136 NIS, and that the Social Security and Health taxes are computed on a monthly basis, with a look back period for extraordinary payments. Where Social Security tax arises for the employer, this is levied at a rate of 7.5% of the amount recognized as ordinary income, up to the wage base limit for each employee (518,880 NIS for 2016).

5 Stock Option Plans Employment Labor Concerns A claim for breach of contract could arise where an equity incentive plan is amended or discontinued. It is recommended that Plan provisions are drafted so as to preclude temporary employees and independent contractors from claiming entitlements under the Plan (absent a specific intention to include these workers). Plans should be drafted to permit unilateral amendment or termination of the Plan, and employees should be required to acknowledge the discretionary nature of the Plan. Employers may not, directly or indirectly, deny employees the opportunity to participate in the Plan based on any prohibited grounds of discrimination, including, among others, race, color, religion, sex, national origin, citizenship, age, disability, uniformed service or any other status protected by federal, state or local law. Communications Generally, the electronic execution of agreements may be acceptable under certain conditions. Regulatory Securities Compliance Foreign Exchange Data Protection Israeli securities laws govern the grant of securities under employee benefit plans, including stock incentive plans. Under the Securities Law of 5728 (the Law ), unless an exemption is available, any offer or sale of a security must be published in a prospectus approved by the Israeli Securities Authority. The relevant exemption for offers and sales of securities in connection with employee benefit plans is for offers made to less than 35 employees in a 12 year period. There are no exchange controls in Israel. Israel does not have well-developed data protection law that encapsulates all personal data. It is best practice, in administering equity/benefit plans, to build into Plan enrollment forms a written consent. Plan participants should expressly authorize the use and disclosure of their data for all Plan purposes. Also, Plan administrators must comply with any privacy policy of a sponsor employer, and with document-retention laws that mandate retaining tax-related information for certain periods. Tax Employee Tax Treatment Employee stock option are classified as either trustee track or non-trustee track options. The grant and exercise of an option under either track is not a taxable event. However, the sale of the Stock underlying the options will give rise to taxable income to the employee, regardless of whether the option is a trustee track option or a non-trustee track option. Under the non-trustee track, the sale of Stock underlying an option results in immediate recognition of taxable ordinary income by the employee in the amount by which the purchase price exceeds the aggregate exercise price paid. Under the trustee capital gains track, the sale of publicly traded Stock underlying an option will result in two components of gain: (i) an ordinary income component computed as the excess of the 30-day trading average of the Stock at the date of grant over the exercise price, and (ii) a capital gains component on the difference between the sale price and the exercise price.

6 Social Insurance Contributions Tax Favored Program Withholding and Reporting Employer Tax Treatment Amounts taxable as ordinary income upon the sale of Stock underlying the options are subject to social security contributions to the extent the employee has not exceeded the applicable wage base. The employer is required to withhold the employee s portion of the social security taxes. The employer must then pay the employee s withholdings and the employer s contributions at the time the employee receives the earnings. The capital gain component of the gain is not subject to social security contributions. Many employee stock option plans are structured to comply with the requirements of the capital gains trustee track, and afforded the tax treatment described above. This track requires the engagement of an Israeli trustee, the adoption of an Israeli sub-plan to the global stock option plan, and the deposit of the stock option plan awards with, or under the supervision of, the Trustee for a two year holding period. Amounts taxable upon the sale of Stock underlying the options are subject to income tax withholding and reporting by the employer or the trustee, as applicable. The sale of Stock underlying an option by an employee results in a tax deduction for the employer equal to the amount of ordinary income reported by the employee, but only for options granted under the trustee track. Tax Rates Income tax is charged at rates of up to 48%. Social Security taxes may be levied on the employee at a rate of 7% on the amount recognized as ordinary income, up to the wage base limit (518,880 NIS for 2016). A Health tax is also levied on the employee on his ordinary income portion of the gain at a rate of 5%, up to the wage base limit. Note that the Social Security and Health taxes are imposed at lower rates for annual income less than 68,136 NIS, and that the Social Security and Health taxes are computed on a monthly basis, with a look back period for extraordinary payments. Where Social Security Tax arises for the employer, this is levied at a rate of 7.5% of the amount recognized as ordinary income, up to the wage base limit for each employee (518,880 NIS for 2016). whitecase.com In this publication, White & Case means the international legal practice comprising White & Case llp, a New York State registered limited liability partnership, White & Case llp, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities. This publication is prepared for the general information of our clients and other interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice. This summary is intended to reflect local law and practice as at 1 September Please note, however, that recent amendments and legal interpretations of the local law may not be included in these summaries. In addition, corporate governance, administration, and plan design facts that are specific to your company may impact how the local laws affect the company s equity based compensation plans. With these matters in mind, companies should not rely on the information provided in this summary when implementing their stock plans. Capitalised terms used in this report which are not otherwise defined shall have the meanings assigned to them in the Glossary, which can be accessed from the Countries at a Glance page on the White & Case llp website. Attorney Advertising. Prior results do not guarantee a similar outcome. NY1016/ECBEL/M/314460_01