The Israeli Investments Incentives Overview
Written by: Admin Category: ETS's Cafe Published: 25/11/2018
Foreign investments are the key drive for countries economic rumbas and growth as such investments generates new working places, increase countries GDPs and income Tax which provides the foundations of new technologies and so on.
As its high impotency for countries local economic, foreign investments generates and ignite strong competitiveness environment between countries and governments by granting foreign companies, investors and entrepreneur and verities of incentives to those who are meet the governments certain criteria.
Following the above and in order to be attractive to foreign investors, the Israeli government establish several types of governmental incentives as below:
Grants for Capital Investments –
Capital investments grants which provided by the Israeli government are specified in the “Law for the Encouragement of Capital Investment” and are constants be evolved and amended by new provisions in order to maintained the competitiveness.
The main objective of the law is to attract capital to Israel and to encourage economic initiative and investments of foreign and local capital.
The incentives programs are lean on two programs:
- The Grants Program (deals with capital investments).
- The Tax benefit program.
Program #1 – Grants
Eligibility – Applying companies must meet the following criteria:
Industrial enterprise registered in Israel.
- The company’s facility must have export capabilities (25% of its sales are derived from export).
- The Company’s facility must be located in designated development region A.
- Must not be part of service industries, the agricultural industry (including refrigeration facilities), and the mineral and natural gas industries.
- Must not have simultaneously applied or been approved for an employment grant.
Benefit – Grants are accorded at up to 20% of the amount of investment in fixed assets, land development, production equipment or facilities and For investments in the Negev area (south of Israel) a grant addition of up to 10% percent.
** The grants are approved by the Investment Authority of the Ministry of Economy.
Program #2 Taxation Benefits-
There are two Taxation benefits as below:
- Taxation benefits which empowered by the law for the encouragement of capital investment and;
- Taxation benefits for research and development activity.
Herewith the Taxation benefits summary:
| Subject | No | Priority Enterprise | Preferred Priority Enterprise | Technological Enterprise | Preferred Technological Enterprise |
| Eligibility | 1 | Exports 25% of its annual sales turnover | Total annual preferred income or the company in Israel meets or exceeds 1billion NIS. | The enterprise exports more than 25% of its annual sales turnover. | The enterprise exports more than 25% of its annual sales turnover. |
| 2 | Defined as ‘Industrial Enterprise’: An enterprise which the majority of its activity is manufacturing. | Combined balance sheet of the company owning the Preferred Enterprise meets or exceeds 10 B ILS. | The total income of the company’s parent group in the tax year will not exceed 10 B ILS. | Total income will be 10 billion NIS or more. | |
| 3 | business plan will include at least one of the following: | The company who owns the enterprise have one or more of the following: | The company who owns the enterprise have one or more of the following: | ||
| 3.1. Investment in productive equipment of at least 800M ILS in central Israel or 400M ILS in a development region A over a three years period from benefit approval’s date million NIS |
3.1 20% or more of its employees are employees which their total salary is referred to in its financial reports as ‘R&D expenses or it employs more than 200 employees which have this characteristic (salary referred as R&D expense). | 3.1 20% or more of its employees are employees which their total salary is referred to in its financial reports as ‘R&D expenses or it employs more than 200 employees which have this characteristic (salary referred as R&D expense). | |||
| 3.2 Investment in R&D activity of at least 150 M ILS in a ‘Preferred Branch’ in development region which in not development region A | 3.2 A venture capital has invested in the company more than 8M NIS and the company did not change its field of occupation after the investment. |
3.2 A venture capital has invested in the company more than 8M NIS and the company did not change its field of occupation after the investment. |
|||
| 3.3 Investment in R&D activity of at least 100M ILS in development region A. | 3.3 Its income in the three years preceding the tax year has increased in 25% or more in average in relation to the tax year preceded it. As long as the scale of its sales in the tax year and in each one of the years preceded it exceeded 10M ILS or more. | 3.3 Its income in the three years preceding the tax year has increased in 25% or more in average in relation to the tax year preceded it. As long as the scale of its sales in the tax year and in each one of the years preceded it exceeded 10M ILS or more. | |||
| 3.4 Employment of at least 500 employees in a development region which is not A or 250 employees in development region A | 3.4 The number of employees in the three years preceding the tax year grew in 25% or more in average in relation to the tax year preceded it. As long as the company employed more than 50 employees in the tax year and in each one of the years preceded it. | 3.4 The number of employees in the three years preceding the tax year grew in 25% or more in average in relation to the tax year preceded it. As long as the company employed more than 50 employees in the tax year and in each one of the years preceded it. | |||
| 4 | The R&D expanses of the enterprise, in the three years preceding to the tax year, were in an average rate of at least 7% a year from the total amount of the company’s sales, or exceeded 75 M NIS a year. | The R&D expanses of the enterprise, in the three years preceding to the tax year, were in an average rate of at least 7% a year from the total amount of the company’s sales, or exceeded 75 M NIS a year. | |||
| 5 | The company received an approval from the Innovation Authority confirming it is an “Innovation Advancing Enterprise”. The conditions for this approval will be set in advance |
The company received an approval from the Innovation Authority confirming it is an “Innovation Advancing Enterprise”. The conditions for this approval will be set in advance |
|||
| Conditions 3 &4 Shell hold true together or condition 5 | Conditions 3 &4 Shell hold true together or condition 5 | ||||
| Benefits | |||||
| Income Tax | 7.5% for priority Enterprise which established in development region A. In all other regions 16% | 5% for priority Enterprise which established in development region A. In all other regions 8% | 7.5% for priority Enterprise which established in development region A. In all other regions 12% | 6% | |
| Dividend Tax Rate | 20% | Tax Rate of 5% for Dividends which are paid directly to foreign parent company | Tax Rate of 4% for Dividends which are paid directly to foreign parent company (conditioned upon – 90% or more of the shares are owned by the board of foreign residents and that the shares were purchased before the revenues were generated) – in all other cases 20% |
Tax Rate of 4% for Dividends which are paid directly to foreign parent company (conditioned upon – 90% or more of the shares are owned by the board of foreign residents and that the shares were purchased before the revenues were generated) – in all other cases 20% |
|
| Other Benefits | Accelerated Depreciation. | Accelerated Depreciation. | |||
| Capital Gain | The capital gains tax rate for a company which owns a technological enterprise for selling intangible asset to a foreign company will be 12% As long as the asset was purchased from a foreign company for 200M ILS or more. further to this, beneficial tax rate of 12% will be subject to the approval of the innovation authority and in accordance to the minister of finance provisions. |
The capital gains tax rate for selling intangible asset to a foreign company will be 6%. Capital gains – that are derived from R&D activity in Israel and in accordance to the minister of finance provisions. The company will be eligible to the tax rate as long as one of the following holds true: | |||
| 1. The enterprise is the first owner of the asset. | |||||
| 2. The enterprise purchased the asset from a foreign company. |
Approval of taxation benefits to ‘Priority Enterprise’ and ‘Technological Enterprise’ is made by the Tax Authority and is possible in two ways:
The Green Course or Pre-Ruling- Each enterprise may decide which one of the courses suits it best.The process for ‘Special Technological Enterprise’ benefits approval is the same as the process for Priority Enterprise (and Technological Enterprise). The process for ‘Special Priority Enterprise’ benefits approval.
Please note that the article is not a suitable alternative for professional insights and we will be happy to consults and provides you with all the requirement support for governmental incentives coverage, please contact us and we will be happy to assist.
ETS