Finance Ministry unveils plan to help hi-tech sector

Plan offers tax breaks on capital gains to encourage firm growth.

By SHARON WROBEL
June 8, 2010 23:18
3 minute read.
hi tech conference

311_ Steinitz. (photo credit: Courtesy)

Finance Minister Yuval Steinitz on Tuesday unveiled a multiyear plan to support Israel’s hi-tech industry and encourage the growth of large companies

“During the past 10 years, we have not seen the emergence of any giant companies,” he said at the High-Tech Industry Association conference in Jerusalem. “We are interested in seeing more companies like Checkpoint, Teva and Amdocs. We want to ensure the necessary conditions for an Israeli Nokia.” The Finance Ministry, in cooperation with the Industry, Trade and Labor Ministry, the Chief Scientist’s Office and industry, wants to expand the country’s hi-tech sector, especially biotechnology and technology for financial services, Steinitz said

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“Our aim is to preserve our leadership in technology, to increase and widen our advantages, and to spread them to additional areas,” he said

The Finance Ministry reported a decline in the volume of venture-capital investment in advanced industries by local and foreign institutional investors, while at the same time emerging-market economies were increasing investment into R&D

In addition, there are fewer science and engineering graduates in the country and an increase in the number of Israeli students going abroad, especially for postgraduate studies. The plan gives Israeli academics, scientists and entrepreneurs living abroad tax breaks to lure them back

“There is a risk of a significant threat to the growth rate of advanced industries in Israel, while at the same time competition in the sector from other countries is increasing,” Finance Ministry director-general Haim Shani said

The plan includes tax benefits to encourage the growth of medium- and large-sized Israeli companies through acquisitions of smaller companies

Companies that buy smaller firms or merge will enjoy tax benefits for five years

The plan offers tax breaks on capital gains to encourage local hi-tech companies to grow into multinationals rather than be sold early, and so that their shareholders will hold onto their shares

“The problem is that many companies are forced to sell at an early stage, leading to a loss of added value to the Israeli economy,” Steinitz said

“We are not planning to fight early exits. But we will introduce measures in the form of benefits that will enable the growth of these companies for a longer period of time.” The plan offers local institutional investors a safety net through state guarantees in the event of losses. Currently, much of the investment and VC money in Israeli hi-tech companies comes from abroad

To help start-ups survive, the plan gives tax incentives for investing in fledgling R&D companies. Last year, Israeli hi-tech firms raised $1.12 billion in venture capital, down 46 percent from 2008, according to Israel Venture Capital Research Center

Shani, a former CEO of Nice Systems, said Israeli industry had not yet tapped into the potential of technology for financial services

“The global financial industry is one of the largest consumers of technology in the world, a market that generates more than $200 billion,” he said. “Israel, which is considered a global leader in information, technology and innovation, is not part of this market. In an effort to boost R&D activity for the financial market, the government will offer incentives to international financial-services companies that want to establish R&D centers in Israel.” The plan also encourages haredim and Arabs to work in hi-tech companies by subsidizing their salaries

“There are good examples of haredi work participation in Modi’in and other places, but the haredim and Arab populations still are underrepresented in the technology industry,” Steinitz said

“We want to expand work participation of these populations to the periphery – that is, to the Negev, Galilee and Jerusalem.” The plan helps science and technology education through training teachers. It encourages retirees of technology companies to become teachers, and employees in technology companies to teach at schools for four or five hours a week

Bloomberg contributed to this report.


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