Israel ranked as the 28th friendliest environment for investors by Forbes magazine in its first ever Capital Hospitality Index, published this week.
The index, which surveyed 135 countries, measured macroeconomic indicators including gross domestic product (GDP) growth and unemployment, along with societal factors affecting investment such as poverty, the level of bureaucracy, technological advancement and corruption.
"For a country with Israel's standing, the rating was below average," said Jonathan Lipow, chief economist at Forum Consulting & Business Development Ltd. "There are, however, aspects in which Israel is very strong and attractive for foreign investors."
Yet, Lipow agreed with the Forbes assessment of Israel's environment in the various categories offered.
Forbes rated Israel high in its wages and prices stability index, scoring better than 99 percent of the countries surveyed. Israel also scored high (better than over 90% of the rest) in its levels of investor protection, foreign restrictions and technology. Israel rated better than 80% to 86% of the countries in its levels of regulation, competitiveness, and corruption, and received low marks for its bureaucracy, personal freedom and especially corporate tax rate (better than just 26% of the 135 countries graded).
"Two core barriers in the tax system discourage foreigners from investing in Israel," Lipow said. "The government gives benefits or subsidies for certain types of investments, which puts those who know how to play the system at an advantage."
Secondly, he added, there is a lack of consistency in the system where the tax rules change at random and are often not well defined.
On the positive side, Lipow agreed that there is a relatively low level of corruption in Israel and that investors have a reliable legal recourse for doing business there.
On the list, Israel is found in the company of Lithuania and Belgium below it in 29th and 30th places, respectively, and above France at 26th and Austria at 27th.
Topping the list was Denmark, followed by Finland, Iceland, the US and the United Kingdom completing the top five in that order.
Superpowers Russia and China ranked surprisingly low at 92 and 108, respectively, due mainly to poor showings in the corruption and personal freedom indexes.
The index was based on data and analysis provided by The Heritage Foundation, World Economic Forum, World Bank, Transparency International, Freedom House, Deloitte Tax, the US Chamber of Commerce and Central Intelligence Agency.