Investment Incentives

Investment Incentives

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גדול

​Introduction

​Enshrined into its legislation through laws designed to encourage economic growth, the State of Israel seeks to offer maximally supportive conditions for companies seeking to invest in Israel. Among the numerous incentives are conditional grants, reduced tax rates, tax exemption and other tax-related benefits under the Law for the Encouragement of Capital Investments and the Law for the Encouragement of Industrial R&D.


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The Law for the Encouragement of Capital Investment

Objective and Means

  The objective of the law is to attract capital to Israel and to encourage economic initiative and investments of foreign and local capital. There are two main programs established in order to attain the objective: The Grants Program and The Tax Benefits Program.

  History

  Since its legislation in 1959, the law has been amended many times, including during the recent decade, when it underwent two major changes: In 2005 amendment 60 to the law was enacted, and in 2010 amendment 68 was enacted. As a result of these amendments the criteria for eligibility were changed, as well as the procedures for receiving the benefits. Hence, any investor intending on benefiting from the law must make sure he or she follows the updated version

  Grants Program

  Grants

  Grants are accorded at up to 20% of the amount of investment in fixed assets, production equipment or facilities. For investments in the Negev area in south Israel, an addition of up to 10% may be applied.

  Eligibility Criteria

  •   Applying companies must meet the following criteria:

    • The company must be an industrial enterprise registered in Israel.
    • The company’s facility must have export capabilities (25% of its sales derive from export), except for biotechnology and nanotechnology companies.
    • The company’s facility must be located in designated National Priority Region. • The company must not be part of the services industry, the agricultural industry (including refrigeration facilities), and the mineral and natural gas industries.
    • The company must not have simultaneously applied or been approved for an employment grant.

Grants Approval

  The grants are approved by the Investments Center Administration of the Ministry of Economy. The applications are reviewed thoroughly by the Investments Center Administration and “Approved Enterprise” status is granted at the conclusion of a review procedure that includes submission of a detailed business plan, subject to various considerations. Applications are reviewed and scored based on a number of parameters that are periodically modified.

Tax Benefits Program

Eligibility Criteria and Approvals

A company is eligible for tax benefits if its enterprise were granted the “Priority Enterprise” or “Special Priority Enterprise” status. The eligibility criteria and approvals needed for each one of the categories are as follows:


Priority Enterprise:
• Eligibility - Exports amount to 25% of annual sales turnover.

• Approval - The tax benefits must be approved by the Israel Tax Authority for each one of the requested tax years.
Special Priority Enterprise:

• Eligibility-
• Total annual income in Israel meets or exceeds 1.5 billion NIS (approx. 375 million USD).

• Combined balance sheet meets or exceeds 20 billion NIS (approx. 5 billion USD).

• Business plan will include at least one of the following:

• Investment in productive equipment of at least 800 million NIS (approx. 200 million USD) in central Israel or 400 million NIS (approx. 100 million USD) in a National Priority Region over a three years period.

• Investment in R&D of at least 150 million NIS (approx. 37.5 million USD) in central Israel or 100 million NIS (approx. 25 million USD) in a National Priority Region.

• Employment of at least 500 employees in central Israel or 250 employees in a National Priority Region.

• Approval –
• Committee of senior administrators would verify, in writing, that upon review of the business plan submitted, it is convinced that the priority enterprise will offer a significant contribution to the Israeli economy and national objectives.

• Israel Tax Authority approval.

Benefits
Designations as “Priority Enterprise” or as “Special Priority Enterprise” entitle companies which own the enterprise to reduced corporate tax rates and reduced dividend tax rates for the enterprise’s income20 as follows:

Priority Enterprise:

• Companies established in National Priority Regions: 9% corporate tax rate. 

• Companies established in central Israel: 16% corporate tax rate. 

• Dividend tax rate: 20%. 

• Accelerated Depreciation.

 

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​Research and Development

 

Grant Programs

Industrial R&D
The R&D Fund

The R&D Fund is the main instrument of the R&D Law. The fund provides financial grants of 20%- 50% of approved R&D programs. In geographical areas designated as NPRs the benefit can reach 60%. A research committee headed by the Chief Scientist is assigned with awarding the funds according to a predetermined set of terms and conditions. Israeli companies from all industry sectors which wish to develop, or upgrade, products or manufacturing processes may apply. A company supported by this program is obligated to pay royalties when a government- assisted R&D project results in commercially successful product.

Large Companies’ R&D Centers in Israel’s Periphery
The target companies are Israeli companies that wish to set up an R&D center in Israel’s periphery, and have annual sales of more than 100 million USD in Israel. Qualified companies will receive multi-annual (24-36 months) support of 65%-75% for their R&D center’s approved expenses. If the project is profitable then royalty payments need to be paid.

Generic R&D Program (Long Term R&D Support)
The target companies are Israeli companies with annual sales of more than 100 million USD and over 200 R&D employees in Israel; or alternatively, with an R&D budget in Israel that exceeds 20 million USD. Qualified companies will receive financial support of up to 50% of their R&D approved expenses. No royalty payments are mandated.


International Cooperation in R&D

Global Enterprise R&D Collaboration Framework
This flagship program aims to encourage partnerships between multinational corporations (MNC) and startup companies in Israel, in order to maximize the synergy between the partners’ strengths.
Within this framework, both the OCS and the MNC commit to invest equally in pre- selected R&D projects, conducted jointly by the MNC and the Israeli company. The MNC can invest in cash and/or in kind, i.e. it can provide the startup with facilities such as technological guidance, loan of equipment, use of laboratories, discounted software licenses, regulatory advice, etc., instead of / or in addition to cash funding. Eligible MNCs must have annual revenues exceeding 2 billion USD, significant investment in R&D, and worldwide presence. To date, over 40 corporations have joined the program. The participating MNC is not required to pay royalties.

Multinational Corporations Project Centers in Traditional Industry
The target companies are Israeli companies and MNCs which collaborate on an R&D project. The MNC must have annual sales of more than 2.5 billion USD and must be from the traditional or the medium technology sector. The Israeli partner must be an Israeli company or academic institution unaffiliated with the MNC. The financial support for qualified companies will differ between the projects. No royalty payments are mandated for the MNC.
Cooperation with Countries and Regions

Israel has an extensive R&D cooperation network with different countries and regions.
Bi-national Funds

Israel has 4 bi-national funds with the U.S.A, Canada, Korea and Singapore. In this framework, two nations contribute a predetermined sum to a bi-national foundation intended to support cooperative projects.

International Industrial R&D Cooperation Programs
Israel has entered into more than 40 bilateral industrial R&D support programs all over the world. The programs encourage cooperation between Israeli and foreign companies by helping in finding a suitable partner and by financial support of up to 50% of the approved project budget. Most of the OCS industrial R&D cooperation programs are implemented by MATIMOP, an OCS executive agency.

European Union R&D Programs

Israel also participates actively in several multinational European R&D programs. The suggested programs in this framework are: Eco-Innovera, FetFlagships EraNets, M-ERA. NET, MANUNET II, ERA-NET TRANSPORT III, Era-Net RUS, ENIAC, Ambient Assisted Living (AAL), EUROSTARS. The programs are managed by ISERD (The Israeli R&D Directorate for the European Research Area (ERA)), which is responsible for the integration of Israel in the ERA and in other European Organizations.
MAGNET (Industry Academia R&D Cooperation)


A group of programs intended for industrial companies cooperating with academic institutions for a long term R&D process. Qualifiers can apply for grants covering up to 66% of the R&D project budget in an industrial company and up to 80% of the R&D budget in a research institution. A MAGNET project is usually approved for a 3-year period with extensions of 1 to 3 years possible. Main MAGNET programs include:
MAGNET Consortia

The program supports the formation of consortia made up of industrial companies and academic institutions in order to jointly develop generic, precompetitive technologies. Industrial companies are granted up to 66% of their approved budget and academic institutions are granted up to 100%. The duration of a MAGNET consortium is three to five years. No royalty payments are mandated for this program.

TMAGNEON

The program promotes technology transfer from academia to industry. The program is intended for Israeli industrial companies wishing to receive new technologies from academia and for approved academic research groups wishing to conduct new applied research in cooperation with a relevant company. Qualified participants will receive a grant of up to 66% of the approved budget. No royalty payments are mandated.
Nofar – Industrial Application of Academic Research


The program is designed to bridge the gap between know-how within academia and the needs of the industry. It does so by encouraging the support of applied academic research activity by an industrial company. It is intended for academic research groups wishing to perform applied research which is still in its early stage, hence, is not fit to receive support under the framework of other OCS programs. The participating companies benefit from the option to influence academic research that might be useful.
The research institution is entitled to a grant of up to 90% of the approved budget (maximum budget of 500,000 NIS, approx. 125,000 USD). The time frame for the support is 12 months (with a 3-month extension option). The company is required to finance 10% of the project cost.

Technological Incubators

The primary goal of this program is to transform innovative technological ideas in their early, high-risk stages into viable startup companies capable of raising money and operating on their own. For a period of 2 to 3 years, the program provides approved companies with full financial support (approx. 500,000 USD – 750,000 USD) to be repaid to the government only upon generation of sales. The Incubator is operated by a licensee who was elected and approved by the relevant OCS committee. The licensee invests only 15% of the project budget (the state invests the remaining), and receives in return 50% of the shares of the companies in the incubator.

Sectorial Programs


The OCS operates additional support programs in several high-potential sectors: Cyber, Renewable Energy, Life Sciences, Alternative Fuels, Space Technologies, Dual Use (Military and Commercial) Technologies and Agritech. These programs offer support for companies and investors operating in these fields.

Tax Benefits
R&D Expenses Deduction

Clause 20A of the Israeli Income Tax Ordinance enables companies to deduct their R&D expenses in the year they were paid from their current income. The deduction is contingent on the Chief Scientist’s confirmation that the expenses are indeed research and development expenses.
The Angel’s Law

The law, which was first enacted in 2010 and then amended in 2016, provides tax benefits to single investors who invest in Israeli companies in their initial R&D stage (seed). The law’s goal is to increase the available financing sources for Israeli early phase R&D-intensive companies.

The law enables single investors’ investments in eligible companies to be recognized as expenditures for tax purposes. Eligible companies are companies which fulfill certain criteria. For example, Israeli companies with R&D expenses that are at least 70% of the total company expenditures for the relevant tax year. Companies must receive approval from the OCS for their R&D expenditures.

The Office of the Chief Scientist (OCS) in the Ministry of Economy, empowered by the Law for the Encouragement of Industrial Research and Development (1984), oversees all government supported R&D in the Israeli industry. The OCS activates grant programs and also takes part in the approval of tax benefits for entitled companies.

 

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Employment Grant Programs

The Ministry of Economy operates several aid programs intended to encourage the integration of workers from minority populations, populations with low labor participation rates and populations from National Priority Regions. The aid is given in the form of subsidizing the wages of new employees for a specific time period. The employment programs include:
Special Populations

Objective

Facilitate integration of populations with low rates of participation in the labor force, namely: Ultra-Orthodox, ethnic minorities, individuals with disabilities and single parents.

Eligibility


Any person who wishes to start a business, or expands an existing one, in any location across Israel and who intends to hire employees from special populations. The special population could be characterized either by their social identity (Ultra-Orthodox, ethnic minorities, individuals with disabilities, single parents) or by their place of residency (NPRs).

In addition, the applying person must absorb a minimum number of new employees from special populations (2 to 5 employees, depending on the specific program), and also compensate the employees a minimum level specified by the program.

Form of Aid
A grant for at least 30 months given in the following format:
• Fixed participation as a percentage of employee wages, by particular group, up to a maximum monthly wage of 16,000 NIS (approx. 4000 USD). 

• The rate of participation varies between 10 to 37.5%. The rate is determined by the social identity of the employees and their geographic location, with preference to a combination of the two. 

• The rate of participation decreases over time. 

National Priority Regions 

Objective 

Facilitate the integration of highly skilled employees exclusively in manufacturing and IT enterprises located in National Priority Regions.

Eligibility

Companies interested in establishing, expanding, or relocating high-salary facilities to NPRs. 

The eligible company must be Israeli, with annual turnover of 100 million NIS (approx. 25 million USD) or more. At least 60% of the new employees in the facility will be residents of the NPR. The companies must hire a minimal number of new employees (between 15 to 80, depending on the specific program), and should pay a determined minimum wage (not below 150%-250% of the national average salary, depending on the specific program).

Form of Aid

Based on specific program, grants for each employee will be based on the percentage of his or her wage. The grant’s percentage decreases over a 4-year period:

High-Salary

Grant rate decreases from 35% to 10% of the employee salary. The monthly salary will be up to maximum of 30,000 NIS (approx. 7,500 USD).

Cyber

Grant rate decreases from 40% to 25% of the employee salary. The monthly salary will be up to 30,000 NIS (approx. 7,500 USD).

Anchor

Grant rate decreases from 35% to 10% of the employee salary. The monthly salary will be up to 20,000 NIS (approx. 5,000 USD).

Minorities in Knowledge-Based Industries

Objective

Facilitate integration of ethnic minorities into knowledge-based sectors, specifically: students, interns, and graduates from knowledge-based educational backgrounds (Chemistry, Physics, Computers, Engineering, etc.).

Eligibility

An employer recruits at least one new employee from the specified minority population. In addition, the recruited employee wage should be at least 30 NIS (approx. 7.5 USD) per hour for a minimum of 60 hours monthly, for a period of at least 12 months and no longer than 24 months.

Form of Aid

Grants for each employee are calculated as a percentage of his or her wage. The grant rate decreases over a time period of 2 years from 30% to 20% of the wage. The monthly wage will be up to 13,000 NIS (approx. 4,250 USD).

Grants Approvals

The different aid programs are approved by a special committee. The committee reviews the applications thoroughly and rates them according to several criteria including the average salary the employer will pay, the enterprise location and the duration of establishment period. For each program, the criteria may differ in accordance to the program characteristics. For a requested program, the applications with the highest rating will be granted the assistance.

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