We set down with Israel Eliahu, Partner, Real Estate and Banking, KPMG Israel and Guy Anavi, Technology Partner, KPMG Israel for a Short interview about the hot topics in the industry.
Tell us about yourself and your role at KPMG?
Israel Eliahu, Partner, Real Estate and Banking sectors. Although most of my clients are established real estate corporates and banks, I am very passionate about innovation and technology, and the ways in which their connection disrupts traditional business models. I have been accompanying Prop-Tech and Fintech companies over the last few years and am always happy to contribute my in-depth industry knowledge to start-ups.
Guy Anavi, Audit Partner, Technology. In the past 15 years, I have been servicing startups in the most exciting sectors, including SaaS, Cannabis, and Cybersecurity. I worked in the KPMG NY office for 3 years and had the chance to take part in global engagements such as Pfizer, EMI Music, and many others.
Disruption, new services and products, and younger companies mean that the auditors must keep innovating as well, which makes the technology sector the most interesting and challenging sector to audit.
From your point of view, how do you see the Prop-tech scene in 2021?
The year 2020 brought a massive boost for digital and technological solutions. Over the past 3-4 years, the Israeli Prop-Tech scene has been growing rapidly and we would expect to see this growth accelerating even further in 2021.
For early-stage startups, what are the most important financial aspects they need to follow when opening new markets?
Couple of key points to consider when opening new markets:
a. Discuss the tax implication of working in new geographies with your accountants and have them review your contracts (before you sign them…) to ensure no tax leakages, mainly in the form of tax withholding, which--especially for early stage companies – is likely to be unrecoverable. Also, sales tax and VAT can have significant influence on the net cash you receive and the reporting requirements in each territory. Proper planning is critical when opening new markets and as professionals who work for a global firm that has regional offices and experts; we see this all the time.
b. When using a local subsidiary (for example a U.S. subsidiary which engages in marketing of your solution) - ensure you are working under a valid transfer pricing model.
One of the points every Founder and CEO face is the options plan and equity. What are the critical points to pay attention to?
Talk to your board members and options trustee and get benchmarks. There are some very practical market rules of thumb with respect to options, the following are worth mentioning now due to the soar of IPOs:
1. Options with vesting that is conditional upon an exit event (including an IPO) will not be subject to capital gain but rather to income tax.
2. Note that when surpassing the 10% holdings threshold, section 102 does not apply.
3. Section 102 applies only to individuals and requires the nomination of a trustee and submitting the option plan to the Israeli Tax Authority.
Many of our community members were required to switch to different accountants when they went globally, especially in the US market. Can you share with us how KPMG solves this problem with your service package?
KPMG Somekh Chaikin offers unique packages for Israeli group companies with U.S. subsidiaries or U.S. parent companies. Our tax-technology U.S. desk provides all relevant services from our Tel-Aviv, Haifa, and Jerusalem offices using local professionals, majority of which are U.S. experts who made Aliyah. The tax-technology team provides a holistic approach whereby one focal point is leading all global tax aspects, to include tax advice/structuring, transfer pricing modeling and implementation, tax returns preparation in all jurisdictions and more. KPMG network spreads over 146 countries which makes life easy when a location-specific question arises.