New law gives grants, tax breaks to companies investing in Israel

Israel is the Start-Up Nation with an innovative can-do spirit for Israeli and foreign entrepreneurs especially in the tech, bio, AI and cyber sectors.

By LEON HARRIS, ALEX GAMARNIK
Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)
For companies that are undecided about whether they should set up shop in Israel, the Law for the Encouragement of Capital Investments might tip the scales. Its goal is to create a supportive environment for companies seeking to invest in Israel. To that end, the law has designated assistance in the form of grants and tax breaks.
What is it?
The law has two main objectives: namely, to encourage capital investment in national priority areas, and to promote economic initiatives through prioritizing innovative industries and strengthening development areas.
Who is it for?
Israel is the Start-Up Nation with an innovative can-do spirit for Israeli and foreign entrepreneurs especially in the tech, bio, AI and cyber sectors.
The designation as Priority Enterprise or Priority Plant is available to companies that meet these criteria:
• Company or subsidiary established in Israel
• At least 25% of company earnings come from exports
• Must be located in a designated national priority area
• Must not be part of the services, agricultural or the mineral and natural gas industries
• Must not have simultaneously applied or been approved for an employment grant
Special Priority Enterprises are companies that meet the same criteria. In addition, they need to have annual preferred income of NIS 1 billion (around $294 million) or more in Israel, or consolidated (global) revenue of NIS 10b. (around $2.94b.) or more.
In reviewing applications, the Investment Authority also takes into consideration things like total annual income, business plan, investment in productive equipment, investment in R&D and technological innovation, employment and wages, socioeconomic rating, financial stability and more.
For companies that meet these requirements, the law offers two main incentive paths.
Grant programs
Grants are available of up to 30% of the amount of investment in fixed assets, production equipment or facilities for areas of national priority, such as the Negev area in southern Israel.
Tax benefits
Priority income derived by Priority Enterprises is liable to company tax of 7.5% in development area A, 16% elsewhere in Israel. They are also entitled to reduced dividend tax rate of 20% and accelerated depreciation for the productive assets that the Priority Plant uses, for instance machinery and equipment. Special Priority Enterprises enjoy a company tax rate of 5% in development area A and 8% in other areas of the country. Dividends are taxed at rates of 5% – 20%, subject to any tax treaty. Special priority enterprises also enjoy accelerated depreciation.
Invest in Israel: foreign investment agency
Navigating through bureaucracy in an effort to collect grants and tax benefits can be challenging for newcomers. Foreign investors and enterprises looking to benefit from this law need to submit their request to different authorities, meet all the criteria and overcome logistical issues.
The Invest in Israel team helps mitigate these challenges. The agency was established as an integrative body within the Economy Ministry, and forms a one-stop shop for a wide range of potential and existing investors. It offers a road-map to investing in Israel and serves as a friendly point of contact. The agency assists in overcoming regulatory and other barriers that might hinder substantial deals and informs investors of the opportunities available to them.
A good case study is PCMR.
Case study –  PCMR
The story begins with a group of Israeli innovators who developed a patent for the Dollar Shave Club. Wishing to leverage Israel’s razor manufacturing expertise, the founders wanted to set up a factory in the country. The US investors, however, had some concerns and were set on Arizona. 
Invest in Israel served as a liaison point, brokering meetings and personally welcoming the US investors at the airport. Throughout the three-month negotiations, the agency walked both PCMR and the foreign investors through the steps necessary to claim grants and tax benefits. On top of the standard 20% grant for the expenditure needed to establish a factory, “Invest in Israel” was able to procure a further 10% grant, as it would be situated in the Priority Area of Beit She'an, in northern Israel.
Invest in Israel continued to offer support in overcoming land allocation challenges and mediating between various government authorities, resulting in a successful venture.
PCMR now employs more than 150 personnel.
As always, consult experienced advisers at an early stage in specific cases.
Leon Harris is a CPA at Harris Horoviz Consulting & Tax Ltd. Alex Gamarnik is a government relations director at Invest in Israel. leon@h2cat.com, Alex.Gamarnik@economy.gov.il, InvestInIsrael@economy.gov.il


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