The Knesset passed into law on Tuesday evening a bill to promote investment in Israel’s hi-tech and innovation industry. The law seeks to address a major problem that exists in the country’s hi-tech sector: that companies grow and leave, and that major corporations are often turned off by opening offices here.Hi-tech has been the driving factor of growth in Israel’s economy over the last few decades, now consisting of 15% of GDP and 50% in total exports. Amid the first legislation of the judicial reform passed on Monday, a new study was published that showed increasing fears of companies shifting their bases abroad. While troubling, the case of companies relocating is nothing new; the United States is already home to 88 Israeli-founded unicorns (companies valued at more than $1 billion).This is in addition to global tech slowdowns and layoffs that have also plagued the country. For this reason, lawmakers and government hi-tech offices have made it a top priority to remove some of the burdens stifling growth, and to work to encourage internal corporate maturity in the country – particularly in companies whose intellectual property and main business activity is happening in Israel.As such, the bill just passed seeks to solve these issues.The bill itself, which had initially been proposed by the previous government, in some ways shows a level of bipartisanship in today’s fractured political environment, is divided into three sections, discussing individual and corporate investors and companies. The first part postpones the payment of tax on capital gains, assuming the funds are invested in start-up companies. It will also provide a tax credit to those who make investments in start-ups.The second aspect allows for investments to be considered as expenses for large international corporations who buy controlling shares of hi-tech companies in the country, while also allowing for the cost to spread over five years, thereby reducing their tax burden. This makes Israeli start-ups more attractive for would-be buyers.
Financing key to business success
The final component of the new law discusses financing, which gives a tax exemption on interest accumulated from foreign financial entities, and a discount for Israel-based financing.In theory, the bill aims to respond to continuing global trends that have negatively impacted Israel’s financing and business environment. As outlined, the law intends to assist in Israel’s continued place as a global innovation leader and a hub for industry.Ofir Akunis, who heads the Innovation, Science, and Technology Ministry, applauded the laws passing, saying that “the approval of the law is huge news for Israeli hi-tech.” He added that “the purpose of the law is to remove barriers and encourage the establishment and growth of Israeli hi-tech companies... I believe this law can herald the beginning of a turning point in the hi-tech industry.”