Israel offers substantial tax breaks to angel investors in Israeli start-up tech companies.Foreign and Israeli resident individuals may deduct from total taxable income a “qualifying investment” of up to NIS 5 million in shares of “target companies” over a “benefit period” of three tax years commencing with the tax year in which the investment is made. The investment must be made in the years 2011-2015. The individual must hold the shares allocated to him throughout the three-year benefit period. In addition, tax avoidance or improper tax reduction must not be one of the main aims for the investment.As always, consult experienced tax advisers in each country at an early stage in specific email@example.com Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.A “qualifying investment” is an investment by an individual in a tax year in consideration for shares allocated to him in that year. This rules out buying shares from another shareholder. A “target company” is a company incorporated in Israel whose business is controlled and managed in Israel, which meets a number of conditions with regard to the qualifying investment:• First, no securities may be listed on any stock exchange in the benefit period.• Second, at least 75 percent of the amount invested by the individual, in consideration for the shares allocated, is used for research and development (R&D) expenditure approved by the Chief Scientist’s Office by the end of the benefit period.• Third, until the preceding condition is met, in each year of the benefit period and in the tax year that condition is met, such R&D must represent at least 70% of the expenses of the company (the term “expenses” is not defined).• Fourth at least 75% of the R&D expenditure of the company in the benefit period is incurred in Israel.• Fifth, in the year in which the qualifying investment is paid and the following year, revenues of the company should not exceed 50% of R&D expenditure.• Sixth, throughout the benefit period, R&D expenditure is spent on promoting or development of an enterprise owned by the company.It is interesting to note that foreign-resident investors apparently can enjoy a double whammy. It seems they can claim the investment deduction against other Israeli-source income (e.g., dividends) AND an exemption from Israeli capital-gains tax when they sell their shares (assuming they are not doing business in Israel). Nevertheless, the tax position in the investor’s country of residence must also be considered.In addition, if any angel, foreign or Israeli, invests under these rules at the end of the tax year (December 31), it seems they can still deduct one-third of their investment in that year against other Israeli-source income.To sum up, an angel investor and the target company must each jump through a few hoops.Wishing all our readers a happy Pessah.