Innovation puts Israel in the spotlight
Article 3 minute read

Innovation puts Israel in the spotlight

12 April 2016

Israel is a place where ideas are taken seriously and seeds of innovation are given the right conditions to grow.

With more than 1,000 new startups every year, Israel has established itself as a hub for new technologies, research and development. In fact, the Middle Eastern country of eight million people attracts more venture capital per person than any other country in the world, and it’s easy to see why.

Israel’s economy is robust, maintaining a growth rate higher than most developed economies. The nation’s workforce is highly educated (47% have tertiary education compared to the OECD average of 33%).

The country has fostered a pro-business environment, nurtured further by a comprehensive suite of government incentives in three main categories:

  • investments and manufacturing
  • research and development
  • employment.

Incentives include conditional grants, reduced tax rates, tax exemption and other tax-related benefits under the country’s Law for Encouragement of Capital Investments and the Law for the Encouragement of Industrial R&D. Companies looking to expand or invest do face some challenges however, and TMF Israel’s local experts are helping them with establishment and compliance:

  • A major retail chain is currently expanding into Israel and we are providing broad assistance, from finding a location, recruitment and banks, audit firms, law firms and establishing local accounting systems.
  • One of our global clients had neglected to consider a local tax requirement and risked penalties and inconvenience. Fortunately this was negated after we urged them to consult their VAT advisor.
  • Another client needed to understand the complexities of Israeli payroll processes. We designed a bespoke, three-day workshop and our payroll team flew to the client’s offices to train their internal department.

Companies often need assistance with incorporation and registration with Israeli institutions, including the tax authorities. Limited companies and branches are the most common entity types used by foreign investors. Other types include joint ventures and partnerships.

  • A limited company can be private or public and there are no requirements on the nationality or residence of shareholders. Shareholder liability is limited to their capital contributions, and there is no minimum capital requirement.
  • Branches must be registered with the Registrar of Companies and they’re subject to tax on their Israel-sourced income. Branch managers are personally liable for some of the obligations of the branch.

Understanding local laws and how to comply with local statutory bookkeeping and reporting requirements is fundamental to success in Israel. Bookkeeping, for example, should be managed on approved accounting software in ILS (local currency) and in Hebrew. There are different filing rules for private and public companies.

The standard corporate income tax rate is 25%, but Israeli companies that qualify as ‘approved industrial enterprises’ are eligible for reduced tax rates ranging between 0% and 25%. This is just one example of incentives offered by Israel’s government to stimulate economic growth and international investment.

Aside from attracting international investors, Israel is also a world leader when it comes to its own investment in R&D (4.2% of GDP compared to an OECD average of 2.4%). It has developed a network of international R&D cooperation with different countries and regions, developing links between local companies, multinationals and academic institutions.

As a result, Israel is now ranked fifth in the world when it comes to innovation, leading in various technology sectors such as life sciences, communication, water technologies, cyber and semiconductors – to name just a few.

Find out more

Register for our webinar with the Israeli Ministry of Economy: Tuesday 19 April at 3:00pm CEST to learn more about the current business environment, and investment opportunities in Israel.

Get in touch with our experts in Tel Aviv.

Written by

Gilad Levi

Financial Controller - Account Manager

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