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Investor-Friendly
Israeli Economy
Inspires Intense
Business Activity
The
Israeli economy
is highly competitive
and Investor-friendly.
Reform-oriented
and liberal the
government's policies
have over the
years soured intense
entrepreneurial
activity that
has become the
hallmark of the
business environment,
attracting the
attention of foreign
and local investors.
Israel's
Foreign Trade
Policy
International
trade plays a
vital role in
Israel's economy.
Indeed, the Israeli
economy has integrated
into the global
trading system
in a rapid and
efficient manner,
by implementing
multilateral and
bilateral trade
agreements, as
well as by pursuing
a unilateral process
of trade liberalization
and structural
reforms. In harmony
with the policy
steps, aiming
at the full integration
of the Israeli
economy into global
trade trends,
the Israeli economy
has undergone
a substantial
process of structural
reforms. In a
relatively short
time the Israeli
economy has developed
into a liberalized
marketplace trading
in a wide range
of manufactured
goods and services
worldwide.
Throughout the
1990's, mass immigration
from the former
Soviet Union,
proactive economic
policies, fiscal
and monetary reforms
pursued by the
Israeli government,
initiated a period
of innovation
and growth. The
Israeli economy
became open to
competition from
within and without,
driven by the
private sector.
Intense entrepreneurial
activity became
the hallmark of
the business environment,
attracting the
attention of foreign
and local investors.
The Israeli technological,
research and knowledge
based industries
have gained world
wide recognition
and have served
as an engine for
economic growth.
Objectives
Israel's trade
policy objectives
are as follows:
• Continued
integration of
the Israeli economy
into the global
trading system,
through the use
of policy instruments
that relate to
trade in goods,
services, investments,
competition, environment,
intellectual property,
development and
others.
• Promoting
and maintaining
Israel's export
competitiveness
by expanding and
updating the network
of international
agreements designed
to promote trade,
facilitate market
access, eliminate
non-tariff barriers
and achieve sustainable
economic growth.
• Increasing
the efficiency
of resource allocation,
by enhancing reforms
that aim at the
introduction of
greater competition
and increased
transparency in
the domestic market.
• Creating
an attractive
climate for investors,
businesspeople,
consumers and
the public as
a whole.
Israel's trade
policy is enhanced
by a wide range
of international
agreements and
commercial arrangements
with countries
and international
bodies. In recent
years, the Government
of Israel has
been pursuing
its international
trade policies
in a well coordinated
effort, along
three paths in
parallel: multilateral,
bilateral and
unilateral.
Bilateral Trade
Agreements
Israel's bilateral
trade agreements
cover a substantial
portion of Israel's
international
trade. Israel
has had free trade
agreements with
its major trading
partners for many
years - with the
European Union
since 1975, with
the United States
since 1985, as
well as with the
EFTA states since
1993. In November
1995, Israel and
the European Union
concluded a more
comprehensive
agreement to cover
wide aspects of
economic relations
beyond trade in
goods, enabling
Israel's participation
in the European
Union's Research
and Development
Framework Programs
In recent years
Israel and the
EU have signed
several agreements
and protocols
to further liberalize
trade in agricultural
goods, to include
Israel in the
Pan-European system
of cumulation
of origin, and
the participation
of Israel in the
European space
project of Galileo.
During the last
two years Israel
and the EU have
been involved
in a wide ranging
dialogue within
the framework
of the European
Neighborhood Policy.
This includes
issues such as
negotiations on
standardization,
services and dispute
settlement procedures.
As part of its
policy to further
open markets,
and to maintain
Israel's exports
competitiveness
in European and
North-American
markets, free
trade agreements
have also been
signed with Canada
(1996), Turkey
(1997), and Mexico
(2000). Israel
continues to explore
new initiatives
to expand its
market access
to other countries
through either
multilateral or
regional agreements.
Recently, Israel
has been focusing
its attention
on Asia and Latin
America, in the
light of the growing
importance of
these regions
in world trade.
Israel and the
MERCOSUR (Argentina,
Brazil, Paraguay,
and Uruguay) have
concluded a Free
Trade Area agreement.
The Agreement
awaits ratification.
When entered into
force, this Agreement
will gradually
eliminate most
customs duties
on trade in goods
from both sides.
Economic relations
with its neighbors
in the Middle
East are of particular
importance to
Israel. Israel
has also initiated
and signed regional
trade arrangements;
Qualified Industrial
Zone (QIZ) Agreements,
operating under
the framework
of the Israel-US
free trade area
agreement, have
been concluded
with Jordan (1997)
and Egypt (2004).
The QIZ Agreements
have contributed
enormously to
the bilateral
growth of trade
between Israel
and Jordan on
the one hand and
Israel and Egypt
on the other hand.
Israel is confident
that regional
economic cooperation
will contribute
to the peace process
and to the well-being
of all people
in the region.
Unilateral trade
liberalization
Israel has a liberal
and open trade
policy. An Import
Policy Department
is active within
the Foreign Trade
Administration.
Its mandate is
to explore ways
to further facilitate
the flow of trade
into, and out
of, the Israeli
market as well
as to carry out
liberalization
steps.
The Free Import
Order was last
updated in 2008,
and will be updated
again towards
the end of 2009.
This order deals
with free imports
of goods into
Israel subject
to licensing requirements
and/or standards,
so as to ensure
the safety and
security of consumers
and the public
as a whole. As
a result, the
Government of
Israel has introduced
more transparency
into the import
licensing procedures,
thereby removing
bureaucratic barriers
to trade.
Investment Promotion
Center
Invest in Israel
is Israel's Investment
Promotion Center
at the Ministry
of Industry, Trade
and Labor. The
center promotes
foreign direct
investment into
Israel, and encourages
additional investment
by multinationals
already invested
in the country.
FDI plays an important
role in the economic
development of
Israel by enhancing
competitiveness
through tech transfer,
infrastructure
development, productivity
and increased
employment.
Invest
in Israel provides
the potential
and current investor
an array of professional
services during
the pre, present
and post stages
of the investment
process. These
include:
• Current
and accurate information
on incentives
available to the
investor.
• Coordination
of investor visits
and introductions
to relevant businesses.
• Maintaining
a liaison with
government and
non-government
agencies responsible
for investment
policy.
• Providing
comparative analysis
on services and
information on
costs of business
operations in
Israel.
• Business
reports of Israel's
leading target
sectors and implementation
of activities
to promote these
sectors.
Israel's Breakthroughs
Record
Israel has a proven
track record of
breakthroughs
owing to its talented
workforce, which
includes the world's
highest percentage
of engineers and
scientists and
is supported by
sophisticated
infrastructure.
Israel has the
highest investment
in R&D as
a percentage of
GDP per capita
and has continued
to attract foreign
investment, which
reached $10.5
billion in 2008,
despite the present
economic challenges.
A small country
with limited resources,
Israel is ranked
as the 23rd most
competitive economy
out of 134 countries
by the World Economic
Forum.
Investment Incentives
Investment incentives
are outlined in
the Law for the
Encouragement
of Capital Investment*
which was recently
revised. The new
Law differs from
the previous one
in that it adds
a new path for
incentives - an
automatic one.
The incentive
programs can be
divided into 2
main types: 1)
The Grants program
- administered
by the Israel
Investment Center
(IIC), a department
of the Ministry
of Industry, Trade
and Labor 2) The
Automatic Tax
Benefits program
administered by
the Tax Authorities.
To qualify, investment
projects must
meet certain criteria
including: international
competitiveness
(as described
in the law), minimal
designated investment,
high added value
and registration
of the company
in Israel.
Once these criteria
are met, the enterprise
gains Approved
Enterprise status
from the IIC if
it chooses the
grants program,
and Beneficiary
Enterprise status
by the Tax Authority
if it chooses
one of the tax
benefits programs.
It is the negligible
for incentives,
such as grants
of up to 24 percent
of tangible fixed
assets (grants
program only)
and/or reduced
tax rates, tax
exemptions and
other tax related
benefits.
Location
The government
grants scheme
is affected in
part by the location
of the company's
activities. Several
regions in Israel
have been declared
National Priority
Regions:
Priority Area
A includes: The
Galilee; Jordan
Valley; The Negev
Jerusalem (for
hi-tech enterprises).
Priority Area
B includes: Lower
Galilee; Northern
Negev; Area C
includes the rest
of the country.
Grant Program
The amount of
the government
grant is calculated
as a percentage
of the original
cost of land development
and investment
in buildings (except
in Area C), in
machinery and
equipment. This
cost includes
installation and
related expenses.
The percentages
are:
Time to
Completion
Under the provisions
of the grants
scheme, 20 percent
of the approved
program for industrial
projects should
be completed within
24 months of the
date of approval.
The investment
program must be
completed within
5 years from the
date of approval.
Tax Benefits
Grant Program:
Companies choosing
the grant program
also receive tax
benefits for a
period of 7 consecutive
years, starting
with the first
year in which
the company earns
taxable income
(grants are not
considered income).
Tax benefits are
determined by
the percentage
of foreign control:
the more foreign
control in the
enterprise, the
higher the benefits.
If at least 25%
of an Approved
Enterprise's owners
are foreign investors,
the enterprise
is eligible for
a 10 year period
of tax benefits,
as in the following
table: (All figures
are percentages).
b) Automatic
Tax Programs
There are 3 types
of automatic tax
programs:
1. Alternative
tax program. 2.
Priority area
program. 3. Strategic
program.
1. Alternative
tax program: A
company can choose
this program by
waiving the project's
rights to a grant
and will receive
complete exemption
from corporate
tax on its undistributed
income, as detailed
below.
Priority
Area A: Priority
Area B: Area C
/ Central Israel:
10 years
of complete tax
exemption 6 years
of complete tax
exemption and
1 year of tax
benefits, 4 years
for a foreign
investor 2 years
of complete tax
exemption and
5 years of tax
benefits, 8 years
for a foreign
investor.
Priority Area
Program
For companies
investing in Priority
Area A, benefits
include: a. Corporate
tax rate of 11.5%.
b. Dividend tax
rate of 15%, total
tax rate of 24.5%.
For a foreign
investor, the
dividend tax rate
is 4% and a total
tax rate of 15%.
The benefit period
is for 7 years.
If at least 25%
of the company
is foreign owned
then the benefit
period is 10 years.
Strategic program
This program is
intended mainly
for large multi-national
companies meeting
the following
criteria: an annual
turnover of at
least $3 billion
and a minimum
investment of
$130 million in
the project itself.
Location: Priority
Area A Benefits
include:
a. Corporate tax
0% (i.e. complete
tax exemption).
b. Dividend tax
0%. c. Benefit
period 10 years.
N.B. Recent amendments
to the law now
require adherence
to environmental
standards as a
prerequisite to
recognition as
an approved enterprise.
Source: Investment
Centre, Ministry
of Industry, Trade
and Labor.
Employment Grant
Program - Background
In order to complement
the revised Law
for the Encouragement
of Capital Investments
the government
established an
additional program
to increase employment
in the outlying
areas of Israel
as well as specific
centers with high
unemployment.
Support will be
granted for the
establishment
or expansion of
industrial plants,
telephone call
centers, computer
service support
centers or logistic
centers. Initially
the budget for
this program was
450 million NIS
(approximately
$100 million)
spread over 3
years -150 million
NIS per year,
for the period
2005-2007. The
program was then
aimed at specific
and mainly lower-earning
workers, by means
of a special bidding
system.
Recent Developments
However in the
wake of the global
economic recession
and its impact
on the Israeli
economy, specifically
the rise in unemployment
levels, this track
was expanded to
include new target
groups of workers.
The Ministry of
Trade, Industry
and Labor restructured
the special Employment
Track of the Investment
Centre in order
to encourage investments
as well as add
new workers to
the employment
force. In light
of the above the
Ministry singled
out the following
special needs
groups: Persons
with medically
recognized physical
restrictions.
Population groups
of low unemployment,
such as the ultra-orthodox,
minorities, single-parents.
Businesses in
the Sderot and
outer-Gazza region.
Incentives for
Industrial R&D
The Office of
the Chief Scientist
(OCS) at Israel's
Ministry of Industry,
Trade & Labor
is responsible
for the implementation
of governmental
policies regarding
the support and
encouragement
of industrial
research and development
in Israel.
A variety of ongoing
R&D support
programs developed
and offered by
the OCS, have
played a major
role in enabling
Israel to become
a key center for
hi-tech entrepreneurship.
This section highlights
the OCS's local
and international
support programs.
Technological
Incubators
Provides a framework
and support for
nascent companies
to develop their
innovative technological
ideas and form
new business ventures
in order to attract
private investors.
The program is
open to private
investors to become
owners of incubators
and to invest
in the nascent
companies at an
early stage, enabling
a greater return
on investment.
From 2002 to 2008,
22 of 24 technological
incubators have
been acquired
by private investors.
Establishment
of a designated
Bio-Technology
Incubator, open
to bio-tech projects,
provides professional
services with
larger funds and
extended incubation
term.
Establishment
of two new Industrialized
Incubators, open
to less innovative
projects provides
support and guidance
towards manufacturing,
commercialization
and initial sales.
The program supports
activities of
Young Entrepreneurs
Organization,
in high schools.
Grants are up
to 85 percent
of approved budget.
Competitive
R&D Fund
Supports industrial
competitive R&D
programs.
Approved R&D
program must last
at least one year,
and should lead
to the development
of a new product
or a significant
improvement to
an existing product.
The development
should also lead
to a new industrial
process or a significant
improvement in
an existing industrial
process.
Grants are up
to 50% of the
total approved
R&D expenditures.
The annual budget
of $230 million
is spent on 775
projects being
undertaken by
500 companies.
Proposals are
approved by the
OCS Research Committee
and grants are
awarded according
to the terms and
conditions set
by the OCS Research
Committee.
Grants are provided
as a percentage
(between 20% and
50% depending
on the circumstances
and the estimated
potential of individual
projects) of the
estimated R&D
expenditures approved
by the OCS Research
Committee.
The Beta-Site
Stage (interim
stage between
R&D and marketing)
is recognized
as an important
and integral part
of the R&D
project, with
the aim of testing
the product in
"real-life"
situations, by
being operated
by selected end-users
who give technical
feedback and suggestions
for product modifications.
Assistance for
this stage is
given as par tof
the R&D grant.
When a government
assisted R&D
project results
in a commercially
successful product,
the company is
obligated to pay
royalties, which
will be used to
fund future grants
to encourage and
support other
industrial R&D
programs. In general,
royalty payments
are 3% - 3.5%
of the total annual
revenues derived
from the sales
of a developed
product which
R&D was supported
by OCS grants.
Reports and payments
are made semiannually.
Support of Traditional
Industry
This support program,
launched in 2005,
offers separate
evaluation and
discussion for
projects from
traditional industries.
Private consultation
is offered to
traditional industry
companies applying
to the OCS for
the first time.
OCS acknowledges
traditional industry
as a preferred
sector and therefore,
its R&D programs
are supported
by 50 percent.
Pre Competitive
R&D Magnet
Consortium
Supports the formation
of consortia made
up of industrial
companies and
academic institutions,
in order to jointly
develop generic,
pre competitive
technologies.
The duration of
a Magnet Consortium
is 3-5 years.
Grants are up
to 66% of the
approved budget
for industry and
up to 80% for
the academic institution.-No
royalty payments.
Katamon
Promote water
technology projects
by triple cooperation
between industrial
company, academic
research group
and water infrastructure
company. Project's
budget is up to
US$1M, and its
duration is up
to 30 months.-
Grants are up
to 50%.- No royalty
payments.
International
Programs - Multinationals
Matimop
Promotes and assists
participation
of Israeli companies
in international
bilateral or multilateral
cooperation programs
for industrial
R&D. Promotes
joint industrial
development of
advanced technologies.
Maintains updated
database of projects
in many advanced
technologies and
database of profiles
of Israeli industrial
companies seeking
international
cooperation.
The Global
Enterprise R&D
Cooperation Framework
- GIRDF
This program attracts
prominent multinational
corporations (MNC)
to forge investment
cooperation deals
with Israeli startups.
The Framework's
main purpose is
to provide a friendly,
favorable approach
& supportive
work environment
("one-stop-shop")
for Israeli start-ups
looking to collaborate
with the MNC.
Within this framework,
both OCS and the
MNC commit to
invest in pre-selected
R&D projects,
conducted jointly
by the MNC and
the Israeli company.
The MNC is not
requested to invest
money; instead
it can provide
the startup with
facilities like:
technological
guidance, borrowing
equipment, lab
facilities, discounted
software licenses,
business mentoring,
etc.
The IP, created
from the joint
project, may be
owned jointly
by the startup
and the MNC.
OCS operates several
MNC R&D cooperation
agreements with
IBM, Oracle, Merck,
Coca Cola, Deutsche-Telecom.
Bi-national Funds
The programs enable
the participation
in joint R&D
projects with
foreign counterparts.
Grants are up
to 50 percent
of R&D expenses
of each company
from each state.
Fund Name Countries
BIRD Israel -
USA (www.birdf.com)
BRITECH Israel
- UK (www.britech.org)
CIIRDF Israel
- Canada (www.ciirdf.ca)
KORIL-RDF Israel
- Korea (www.koril-rdf.or.kr)
SIIRD Israel -
Singapore (www.siirdf.com)
Bilateral R&D
programs
The Government
of Israel through
the OCS has signed
agreements together
with other governments
to actively support
and encourage
industrial R&D
cooperation between
Israeli and overseas
industries.
International
industrial R&D
cooperation will
usually include
access to know-how
and technologies
that are not otherwise
readily available
to the participants
as well as access
to new markets.
Matimop, the Israeli
Industry Center
for R&D, operates
international
R&D agreements
on behalf of the
OCS with Italy,
Belgium, Ireland,
Germany, Holland,
Spain, Portugal,
Finland, France,
Sweden, Denmark,
India, Turkey,
Brazil, Argentina,
Uruguay, Greece,
China, Russia,
the Czech Republic,
Hungary, Ontario
(Canada), Maryland
(USA) and Victoria
(Australia).
The programs enable
access to sources
of national and
regional funding;
Israeli companies
taking part in
these programs
are entitled to
receive R&D
grants from the
OCS.
Industrial Cooperation
in Israel
The Industrial
Cooperation Authority
(ICA) is an Israeli
Government entity,
operating within
the Ministry of
Industry, Trade
and Labor. ICA
initiates, coordinates
and monitors industrial
and commercial
cooperation activities
following Government,
Government-owned
companies, public
institutes and
other State entities
procurement.
ICA also promotes
and monitors commercial
and industrial
cooperation activities
related to selected
areas of non-government
trade.
ICA is based in
Jerusalem and
in Tel Aviv, and
also has an office
at the Israel
Economic Mission
in New York, covering
activities in
North America.
First
Step in Long-Term
Relationship
Industrial Cooperation
with Israel may
be your company's
introduction to
one of the world's
most advanced
industries and
economies. ICA
is confident that
your industrial
Cooperation Program
will be the cornerstone
of a mutually
beneficial and
long-lasting business
relationship with
Israeli industry.
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