NOTE 10:-

TAXES ON INCOME

Corporate tax rates:

The Israeli corporate tax rate was 25% in 2010, 24% in 2011 and 25% in 2012.

A company is taxable on its real (non-inflationary) capital gains at the corporate tax rate of 25% in the year of sale.

On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Law") which, among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate. The Law also increases the corporate tax rate to 25% in 2012. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate were also increased accordingly.

Taxable income of the Company's subsidiary in Luxemburg, Switzerland and the United States is subject to the following tax rates:

	Year ended December 31,
	2012			2011			2010

Luxemburg		29	%		29	%		29	%
Switzerland		24	%		24	%		25	%
United States		35	%		34	%		35	%

Tax assessments:

The Company has final tax assessments through the tax year 2008.

Deferred tax assets and liabilities:

Deferred tax assets and liabilities deriving from the acquisition of a building complex in Geneva in 2011 (see details in Note 1(b)2). The deferred taxes are computed at the average tax rate of 24%, based on the corporate income tax in Switzerland, which is the tax rate that will be in effect when the differences are expected to reverse.

	December 31,
	2012			2011
Deferred tax assets:
Lease provision	$	1,749		$	1,722
Swap instrument		682			854
Mortgage loan		245			243

Deferred tax assets		2,676			2,819

Deferred tax liabilities:
Land	$	(5,770	)	$	(5,620	)
Building		(11,834	)		(11,640	)
Other assets, net		(334	)		(264	)

Deferred tax liabilities		(17,938	)		(17,524	)

Deferred tax liabilities, net	$	(15,262	)	$	(14,705	)

Net operating losses carry-forward:

Through December 31, 2012, Optibase Ltd. had net operating losses carry-forward for tax purposes in Israel of approximately $ 67.5 millions which may be carried forward and offset against taxable income in the future, for an indefinite period.

As of December 31, 2012, Optibase Inc. had U.S. federal net operating loss carry-forward of approximately $ 28.5 millions that can be carried forward and offset against taxable income for 20 years, no later than 2013 to 2033. Utilization of U.S. net operating losses may be subject to the substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. Based upon the weight of available evidence, which includes the Company's historical operating performance and the recorded cumulative net losses in all prior fiscal periods, the Company has provided a full valuation allowance against it Israeli and U.S deferred tax

assets.

Reconciliation of the theoretical tax expenses to the actual tax expenses:

A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to the income of the Company and the actual tax expense as reported in the statements of operations is as follows:

	Year ended December 31,
	2012			2011			2010

Income (loss) before taxes as reported	$	5,698		$	2,331		$	(902	)

Theoretical tax benefit computed at the statutory rate (25%, 24% and 25% for the years 2010, 2011 and 2012, respectively)	$	1,424		$	560		$	(226	)
Differences in tax rates on income deriving from foreign subsidiaries		(54	)		42			(89	)
Gain derived from bargain purchase		-			(1,059	)		-
Tax adjustments in respect of currency translation		(305	)		154			643
Deferred taxes on losses and other temporary differences for which valuation allowance was provided		324			626			(339	)
Settlement of prior years tax assessments		-			41			-
Other non-deductible expenses		254			117			54

Income tax expense	$	1,643		$	481		$	43

Income (loss) before taxes on income consists of the following:

	Year ended December 31,
	2012			2011			2010

Domestic	$	(810	)	$	(3,138	)	$	(1,343	)
Foreign		6,508			5,469			441

	$	5,698		$	2,331		$	(902	)

Income tax expenses are comprised as follows:

	Year ended December 31,
	2012		2011			2010

Current	$	1,537	$	863		$	7
Deferred		106		(382	)		36

	$	1,643	$	481		$	43

Domestic	$	-	$	-		$	-
Foreign		1,643		481			43

	$	1,643	$	481		$	43

As of December 31, 2011 and 2012 the Company has no liability for unrecognized income tax benefits, and there was no change in its liability for unrecognized income tax benefits during all years presented.