Grants for exporters to China and India

Your Taxes: The China-India program is a useful form of finance for Israeli exporters to China and India.

By LEON HARRIS
Better Place Chinese signing ceremony 311 (photo credit: Courtesy)
Better Place Chinese signing ceremony 311
(photo credit: Courtesy)
Exporting can be a daunting task, and you usually need to spend money before you can make money. This is in order to study the foreign-markets concern, develop a marketing strategy and then go and sell to the local customers. After that, there’s the tax side (see this column on July 13: Tax tips for exporters to and from Israel).
Fortunately, last Monday, the Treasury and the Industry, Trade and Labor Ministry launched a targeted program of grants for Israeli firms that set up representative offices in China and India.
The China and India program aims to assist Israeli firms extend their commercial activity in those countries. The budget for this is NIS 100 million spread over three years, and a firm may receive up to NIS 2.1m. over that period. The China-India program is a useful form of finance for Israeli exporters to China and India. But you have to hurry because the current deadline for filing applications in a prescribed format is this coming September 15.
Basic conditions
The China and India program is aimed at Israeli companies that meet all the following conditions:
• sales of NIS 20m.-NIS 200m. in the previous calendar year
• exports represent at least 10 percent of sales
• sales to the target country (China or India) are less than 30% of exports or NIS 20m., whichever is less.
How much are the grants?
The grants are administered by a committee with authority to disburse grants as follows:
• participation not exceeding the lower of NIS 480,000 or 50% of the cost of locating an employee in the target country, per year for three years
• participation not exceeding the lower of NIS 160,000 or 50% of the cost of a local adviser, per year for three years. A local adviser is an adviser unrelated to the company who specializes in the activity of the company in the target country and is hired to help it penetrate the market there
• participation not exceeding the lower of NIS 60,000 or 50% of logistical costs of opening an office, per year for three years
• participation not exceeding the lower of NIS 400,000 or 50% of the “beta site” costs. This is to finance expenses necessary for the success of the project based on the unique characteristics of the target country.
If there are too many applications, the grants may be scaled back. The company must commence the relevant activity within 12 months after approval of an application.
The application
Detailed requirements govern the grant application. Among other things, the following must be filed:
• business plan
• certificate of incorporation
• financial statements
• certificate regarding compliant bookkeeping and tax reporting
• social-responsibility declaration
• lawyer’s certificate that the company does not have a restricted bank account and is not in the process of bankruptcy, is not receiving other government support for the same expenses and does not have outstanding tax debts.
What will the grant committee look for?
The grant committee will be concerned with various factors including:
• financial stability of the company
• technological and marketing capability
• management quality
• readiness of the company to commit itself for three years, including the location of an employee of the company or a subsidiary company in the target country
• suitability of the product or service to the target country
• potential for higher sales in the target country
• potential contribution to the Israeli economy.
Royalties The grants are not entirely free. A company that receives a grant must pay a royalty at the rate of 3% of the increase in its sales to the target country, up to the amount of the grant, based on a report to be filed annually. The grant obligation lasts for a period of seven years.
Concluding remarks The China-India fund will help Israeli exporters gain a foothold in the enormous Chinese and Indian markets. A great deal of effort is still needed, but the financial risk will be reduced.
For more details: www.moital.gov.il.
As always, consult experienced professional advisers in each country at an early stage in specific cases.

leon@hcat.co
Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.