Finance Committee okays R&D plan

Aim of incentive program is to encourage large companies to establish research and development centers in periphery and create new jobs.

March 16, 2010 21:56
2 minute read.
Finance Minister Yuval Steinitz.

steinitz 311. (photo credit: Ariel Jerozolimski)

The Knesset Finance Committee on Tuesday approved a government incentive program to encourage large companies to establish research and development centers in the periphery and create new jobs.

“The aim of the new program is to create hi-tech jobs in the periphery,” Eli Opper, chief scientist at the Industry, Trade and Labor Ministry, said Tuesday. “We believe that the support of Israeli hi-tech companies will enable them to compete with the low salaries paid to R&D workers in countries in the Far East. As a result, they will prefer to transfer their R&D activities to the periphery in Israel rather than to countries in East Asia and Eastern Europe.”

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The new incentive program will be operated through the Chief Scientist’s Office at the Industry, Trade and Labor Ministry, which is responsible for implementing the government’s policy of encouraging and supporting industrial research and development in Israel through the Law for the Encouragement of Industrial Research and Development.

The new program is part of an assistance plan signed between the Finance Ministry and the Industry, Trade and Labor Ministry last July for the establishment of R&D centers in the periphery and the hiring of new workers.

“The new program will serve as a tool for the encouragement of innovative R&D in Israel and help narrow gaps between the periphery and the center of the country, as well as in education and salary levels,” Finance Minister Yuval Steinitz said Tuesday.

The establishment of R&D centers in the periphery by large companies is expected to boost economic activity in the areas surrounding them, Industry, Trade and Labor Minister Binyamin Ben-Eliezer said Tuesday.

The new program will be operated to assist projects of large companies for a period of three years. Grants will be offered at a rate of 65 percent to 75% of the approved budget of the project. The Chief Scientist’s Office budget for the subsidy of R&D centers by large companies in the periphery will be limited to NIS 100 million. In addition, large companies that win a grant will need to pay 3% in royalty payments calculated as a percentage of the revenues derived from the project, and smaller companies will have to pay 1.3% in royalty payments.

When a government-assisted R&D project results in a commercially successful product, the developers are obligated to pay royalties. The royalties received will, in turn, be used to fund future grants to encourage and support industrial R&D.

Companies that generate more than $100m. in revenues from sales in Israel in the year prior to their application will be eligible for the assistance program.

Under the terms of the incentive program, more than 50% of the production of the project will be manufactured in Israel.

In the first year of the assistance program, companies that win a grant will need to hire at least 40% of workers living in the periphery, in the second year at least 50% and in the third year at least 60%.

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