Taxes on Income

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Taxes on Income

NOTE 11 - TAXES ON INCOME:

a. Tax laws applicable to the Company and its subsidiaries

Taxation in the United States

InspireMD, Inc. is taxed under U.S. tax laws. Accordingly, the applicable federal corporate tax rate in 2018 is 21%. State tax may also apply.

Taxation in Israel

In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate in 2016 and thereafter, from 26.5% to 25%.

In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also included a temporary provision setting the corporate tax rate in 2017 at 24%. The corporate tax rate was 23% in 2018 and will be 23% thereafter.

Taxation in Germany

InspireMD GmbH is taxed according to the tax laws in Germany. Accordingly, the applicable tax rates are corporate tax rate of 15.825% and trade tax rate of 17.15%.

b. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Law”):

InspireMD Ltd. has been granted a “Beneficiary Enterprises” status under the Investment Law including Amendment No. 60 thereof, which became effective in April 2005. The tax benefits derived from any such Beneficiary Enterprise relate only to taxable profits attributable to the specific program of investment to which the status was granted.

The main benefit, to which InspireMD Ltd. is entitled, conditional upon the fulfilling of certain conditions stipulated by the above law, is a two-year exemption and five to eight years of a reduced tax rate of 10% to 23% from tax on income derived from beneficiary activities in facilities in Israel. The two-year exemption starts only when the Company starts to pay taxes after using all tax offsetting losses. The tax benefit period is twelve years from the year of election, which means that after a year of election, the two-year exemption and eight years of reduced tax rate can only be used within the next twelve years. The Company elected the year 2007, as a year of election and 2011 as an additional year of election.

In the event of a distribution of tax-exempt income attributable to “Beneficiary Enterprises” as a cash dividend, the Company will be required to pay tax at a rate of 10% to 23% on the amount distributed, subject to certain conditions. In addition, dividends originating from income attributable to the “Beneficiary Enterprises” will be subject to a 20% withholding tax.

Should InspireMD Ltd. derive income from sources other than the “Beneficiary Enterprises” during the period of benefits, such income shall be taxable at the regular corporate tax rate.

1) Conditions for entitlement to the benefits

The entitlement to the above benefits is conditional upon InspireMD Ltd. fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in approved assets. In the event of failure to comply with these conditions, the benefits may be cancelled, and InspireMD Ltd. may be required to refund the amount of the benefits, in whole or in part, with the addition of interest and linkage.

The Company opted not to apply for Preferred Enterprise status (as defined in the Amendment of the Law for the Encouragement of Capital Investments, 1959).

c. Carry forward tax losses

As of December 31, 2018, the Company had a net carry forward tax loss of approximately $40 million, of which approximately $36 million (arising before January 1, 2018), expires until 2037, and approximately $4 million, which does not expire, but is limited to offset 80% of the net income in the year it is utilized.

Under the U.S. tax laws, for net operating losses (NOLs) arising after December 31, 2017, the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “2017 Act”) limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income.

In addition, NOLs arising after 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018, will not be subject to the foregoing taxable income limitation and will continue to have a two-year carryback and twenty-year carryforward period.

As of December 31, 2018, InspireMD Ltd. had a net carry forward tax loss of approximately $71 million. Under Israeli tax laws, the carry forward tax losses can be utilized indefinitely.

d. Loss before income taxes

The components of loss before income taxes are as follows:

	Year ended December 31
	2018			2017
	($ in thousands)
Loss before taxes on income:
InspireMD, Inc.	$	(2,884	)	$	(3,673	)
Subsidiaries		(4,356	)		(4,738	)
	$	(7,240	)	$	(8,411	)

e. Current taxes on income

The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the change in subsidiary tax rates and the change in valuation allowance in respect of tax benefits from carried forward tax losses due to uncertainty of the realization of such tax benefits and changes in tax rates following the 2017 Act.

The changes in the valuation allowance for the year ended December 31, 2018 and 2017 were as follows:

	Year ended December 31
	2018		2017
	($ in thousands)
Balance at the beginning of the year	$	27,240	$	29,682
Changes during the year:
Changes following enactment of the Act				(5,879	)
Losses during the year (including foreign exchange rate effect)		400		3,437
Balance at the end of the year	$	27,640	$	27,240

f. Accounting for Uncertain Tax position

Following is a reconciliation of the total amounts of the Company’s uncertain tax positions during the year ended December 31, 2018:

	Year ended December 31,
	2018		2017
	($ in thousands)
Balance at beginning of period	$	28	$	-
Increase in uncertain tax positions because of tax positions taken during the year		-		28
Balance at end of period	$	28	$	28

A summary of open tax years by major jurisdiction is presented below:

Jurisdiction	Years
U.S.	2015-2018
Israel	2014-2018
Germany	2013-2018
United Kingdom	2014-2015

g. Deferred income tax:

	December 31,
	2018			2017
	($ in thousands)
Long-term:
Allowance for doubtful accounts		3			3
Allowance for bonus		-			54
Provision for vacation and recreation pay		38			37
R&D expenses		339			289
Share-based compensation		2,581			2,577
Carry forward tax losses		24,643			24,245
Accrued severance pay, net		36			35
		27,640			27,240
Less-valuation allowance		(27,640	)		(27,240	)
	$	-		$	-