Investing in Israel

In recent years, the Israeli Government has introduced major structural reforms to create an attractive environment for foreign investment. An extensive legal framework of incentives in the form of financial and tax breaks has been adopted. The investment incentive package first appeared in the Law for the Encouragement of Capital Investment (LECI), adopted in 1959 to attract private investment and foster business initiatives, employment, and exports.

Israel has a quite liberal investment regime, with most activities open to private investors, both foreign and domestic. There are no approval or registration requirements for investment in Israel nor any restrictions on repatriation of profits or capital. Both residents and non-residents can buy securities traded on the Israeli stock exchange as well as mutual fund certificates. Companies with foreign capital can buy or lease land with prior authorisation.

Israel encourages domestic and foreign investments by offering a wide range of incentives and advantages. Companies with foreign capital are also eligible for additional incentives. Investment incentives are outlined in the Law for the Encouragement of Capital Investment. They include grants, tax incentives (rebate of taxes on profits), support to research and development, financing of wages, and support to training. The incentives offered depend on the location of the company. Israel is divided into three zones: zone A = Galilee, the Jordan Valley, the Negev, and Jerusalem; zone B = lower Galilee and northern Negev; zone C = the remainder of the country. They also vary according to the amount invested or the degree of foreign participation as well as the type of activity. Preference is given to initiatives in industry, tourism, and agriculture. Special emphasis is put on high-tech companies and R&D activities.

More information on investment incentives is available on the Invest in Israel website.

While the corporate tax rate is 25 percent for a registered company owned by a local investor, the rate for foreign investors approved in the framework of the 1959 law’s grant programme varies between 10 percent and 20 percent, depending on the percentage of foreign ownership. The standard rate is 31 percent for a company whose investment initiative has not been approved. Tax breaks are granted for a period of seven years.

The Investment Authority (which functions under the authority of the Ministry of Finance provides assistance to investors in setting up their project and Invest in Israel is the investment promotion centre under Israel’s Ministry of Industry, Trade and Labour and Foreign Trade Administration, in charge of project approval and granting of incentives. The government has created a free trade zone and a free port in Eilat. Companies established at this port are entitled to a number of incentives, in particular exemption from income tax for seven years and taxation at a maximum rate of 30 percent. Legislation on industrial export parks is also in force but there is no zone of this kind at this time. The Ministry of Industry and Trade has also created a fund for assistance to exporters.

Next section (Finance and banking)