Many Israelis still look to US to expand their businesses

‘Globes’ asks for tips from experts who help entrepreneurs and companies set up ventures in the "land of opportunity."

By ANAT COHEN
April 9, 2011 23:01
The Jerusalem Post

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Despite the economic difficulties still being faced by the United States, and its uncertain future role in the global economy, many Israeli entrepreneurs still consider it a destination for expanding their businesses.

Globes spoke with several people who are involved in that area, and they all agreed with the expression: “If you fail to prepare, prepare to fail.” Here they give their insights:

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Philip Stein, CPA: “There is competition between the various states in the US, as each state makes its effort to attract outside investors to it. Israeli businesspeople tend to run as a default to Brooklyn, Los Angeles or Silicon Valley because there are many Israelis there. However, it is much smarter to shop between the various states.

“My recommendation is to look at the headlines and find the states that suffered, and continue to suffer, the most from the economic crisis, because those are the ones that will make more of an effort for a business owner through lowered corporate taxes and other benefits.

“For example, New Jersey is a state worth looking into in terms of investment because it is suffering a very big deficit. Recently, a new governor was voted in, and he is making a super effort to grant incentives to overseas businesses and investments.

“Texas is another state that an Israeli businessperson should consider seriously, because it is a state that has always wanted to be different and to stand out, and it is sometimes viewed in the US as a country of its own. Texans have a special pride and a competitive nature. Their mind-set is essentially, ‘We won’t wait for Obama to give incentives, we’ll do it ourselves.’ For example, in Texas there are various tax benefits, such as no individual income tax. That means only federal, not state, taxes are paid.

“The idea of shopping between states can also be extended to shopping between specific cities. Here, too, my recommendation is to look for the cities whose economic situation is lower. For example, Newark [in New Jersey] is today in that situation and offers wonderful opportunities for outside investors.”



Michael Ben-Sheetrit of Akerman and Senterfitt law firm: “Real-estate prices in Israel have gone up very steeply in recent years, and there are Israelis who are going around with the feeling that they know how to make money in real estate. Today, they are running to invest in US real estate, because today there are opportunities of cheap assets.

“One of the business mistakes is that they make a passive investment by buying incomeyielding real estate, when from a business perspective it is smarter to build on the investment and make it active. Active investment in real estate means not only buying property, but also turning it into a business, under a company name, with a business plan that lays out what you plan to do with it, how you will develop it, what are you going to improve in it, and how much you intend to invest in it.

“Active investment in real estate gives you significant benefits. In addition, it also gives the investor the option of a work visa or business visa, and one can get tax rebates, as a function of the location.”

Stein: “The trend of Israelis jumping at real-estate opportunities in the US is growing stronger. They see cheap prices and straight away jump on the wagon. For example, I see the typical Israeli investor buying real estate only because on paper there is a high return. In effect, the Israeli arrives with the thinking, ‘In Israel the return is low both in real estate and on money. In the US, real-estate prices are so low, what can I lose?’

“In reality, the US market has not yet awakened, and there is a great dissonance between the Israeli and American views on the crisis. From an American’s point of view, the economy is still in a dark tunnel and the light at the end is not seen. In contrast, the Israeli is convinced that the crisis is behind us, and through that misconception he gets into misguided real-estate investments.

“For example, I see many Israelis who rush to invest in properties in Florida, where prices have fallen drastically. But they don’t take into account that there is a tremendous inventory of empty properties in that state and that it is hard to find stable long-term tenants.

“Even if you find a tenant, there is a good chance they will leave after two months to move to a cheaper place. So the Israeli finds himself with an empty property and a struggling market, and his investment was made through loans and interest rates that may get out of hand when the inflation rate in the US rises.”

Sherwin Pomerantz, Atid EDI president and founder: “For Israeli companies or entrepreneurs that want to incorporate a company in the US, it pays to file in Delaware, regardless of where the physical location of the company will be. The formal incorporation should be in Delaware for several reasons.

“First, the taxes there are about 20 to 25 percent lower than other states. Second, there is the Delaware Court of Chancery, a court with specific jurisdiction on equity cases. That is, if legal issues arise with the company in the future, they can be brought to this special court, where there are judges who are also businesspeople.

“The advantage of such a court is obvious: These judges understand the business environment, the language and the problems – and not just the legal aspects. As a result, the whole process is faster and reduces the dangers to the company of legal liability. The incorporation process can be done over the Internet.”

Gerry Stoch, director of New York State representative office in Israel: “I recommend that Israeli entrepreneurs who are set to begin business operations in the US should approach the government authorities and clarify, before they even lift a finger, what incentives and benefits are offered.

“I know it sounds trivial, but my experience in the field shows that it is one of the most common problems that I come across with Israelis, because in Israel almost everyone has a brother or cousin or friend in the US, and the tendency is to jump straight into the water and set up a company, while missing the benefits that have major financial significance.

“For example, if an entrepreneur or businessperson would approach me about opening a business in New York State, he would be able to get from me, under certain terms, benefits such as employee training for six months, funding for renovating buildings and site preparation.

“In Israel, there are 10 state representatives operating – from Connecticut, Pennsylvania, Wisconsin, Ohio, Virginia, Delaware, Florida, Maryland and New York. From the point of view of Israeli businesspeople, the state representatives need to be the first stop before they hop overseas.

“Many times, as representatives of US states in Israel, we discover these people after the fact, when they have already bought, sold, invested in and upgraded a US company. And it’s a pity because they are passing up dollars that could have gone straight to their pockets.

“From the government’s perspective, the outlook towards an international entrepreneur is: ‘If you didn’t consult with/turn to/ask, and you set up a business by yourself and on your independent knowledge, why should I give you any financing at all?’

“It pays to know that in high tech or R&D projects, where industry is linked with academia [university research], the Israeli company can receive 20 to 50 percent of the whole project into its pocket if it works correctly, because in specific places the government assumes a significant part of the risk. For the Israeli company that deals with R&D it can very much pay from the business perspective, so why pass it up?”

Moshe Kahn, attorney: “Americans won’t hang around to educate the Israeli businessperson about his failures, they will simply get up and leave.”

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