For many years now Intel has been paying an especially low corporate tax rate in Israel, far below the official 23% rate in the country. Intel, which has pioneered chip technology worldwide, and which has been courted over the years by many countries, eager for them to build plants, has built its biggest plants in Kiryat Gat in southern Israel. The city is defined as a National Priority Area A, with corporation tax of 5% since 2011. Investment and Development Authority for Economic and Industrial Development, in the Ministry of Economy and Industry head Shlomo Attias is proud that as part of the construction and upgrade deal for the new fab in Kiryat Gat, which was announced on Tuesday with a budget of $25 billion, the corporate tax on the international giant's operations will rise to 7.5%.
Attias tells "Globes," "We made Intel equal to any other company, small or large, that would establish a company in development zones A, at a tax rate of 7.5%. Therefore it is an improvement on the current situation so far.
The Investment Authority under his leadership is responsible for deciding on grants to companies that request it and has sole responsibility, although in cases of huge grants such as the one promised to Intel, the Ministry of Finance is also involved in the decision.
Reciprocal procurement obligation
According to Intel's announcement, it will receive a $3.2 billion grant from the Israeli government until 2028, out of an overall investment of $25 billion for upgrading, construction and expansion of the Kiryat Gat chip fab. Corporate tax will be hiked to 7.5% of profits from 2026 until at least 2035.
Before 2011, when the Encouragement of Capital Investment Law was changed, Intel's plants in Israel paid a corporate tax of 12%. Intel's development centers in Haifa, Petah Tikva and Jerusalem also pay corporate tax at a similar rate. "The tax structure, as a collection of the company's profits using the 'Cost Plus' method (reporting of artificial profit created by each of the employees) dictates high taxes from the beginning, and also the average salary cost to which Intel has committed is NIS 35,300 per month - a higher than average cost, which dictates revenue higher than salary taxes. At the same time, Intel committed to a reciprocal procurement of a whopping NIS 60 billion, which could boost the Israeli economy."
12,000 employees
Intel has committed to investing billions but the state has also raised the proportion of the grant to an all-time record 12.8% of the investment.
"Indeed we are talking about a grant of NIS 11.5 billion out of a total investment of NIS 90 billion. But you have to remember that their tax benefit has been made equal to other companies. The economic benefit of setting up the new plant is NIS 33.5 billion, and after cutting the grant, we still see a benefit to the economy of NIS 22 billion by 2035 - not something to be underestimated. We will actually be able to examine if goals have been met and the contribution of Intel to the economy by 2035, and then we will be able to confirm that all the promises have indeed been fulfilled."
As part of the government grant, Intel committed to increasing its workforce. In practice, Intel Israel's number of employees has been stable at 12,000 people for years, without growth. Plans to build a new development center in Haifa with the addition of 1,000 employees have been shelved.
Attias says, "The grant is given only for production activity, and does not relate to the development centers. In examining the number of employees in this area, Intel has met its goals. As part of the grant it received in 2018, it promised to employ about 3,700 workers in Kiryat Gat, and it met this target. In 2020 an additional grant was approved, and Intel committed to increasing the number of employees to 5,000, but it decided not to take it and instead entered into a process of strategic and technological change. As part of the new agreement, it committed to increasing the number of employees in Kiryat Gat to 5,200 by 2035. In the meantime, it will make do with employing at least 4,500 until then."
The most advanced chips
Intel's announcement about the upgrading of the fab came in the midst of the war in Gaza. And six months after Israel's Ministry of Finance's announcement while the talks were still really only just started. Attias was not affected, he says, by the Ministry of Finance statement, which was made even before the work was completed by the authority he heads, which is part of the Ministry of Economy and Industry.
"This was a principled announcement by the government, not something we could have done at the time, but only after we finish all the checks we do ourselves and through the consulting companies we hire, and go through the process of checking the economic and economic viability as a whole according to the Encouragement of Capital Investment Law. Thus, that announcement was declarative - and now we are talking about a process that has undergone approval by the Investment Authority at the Ministry of Economy."
What countries were we competing with for Intel's next fab?
"Intel has declared that it would invest in Israel as well as Germany and the US but we know that there were checks with other countries that very much wanted this factory to be built in their country and I am delighted that in the end Intel chose to build it in Kiryat Gat. It was also important for it that its production activities would be close to the development and there is no shortage of both of these in Israel. We received a promise that production will include the most advanced chips in the company using its most innovative means."
We have been "Intel's" country for many years while no other company has decided to open a large plant here
"It is not alone. There is a large international company that is establishing a new operation in Israel, with a significant investment, which will be revealed next year. There are companies from the field of Intel Israel that want to expand here, I won't name names, but there are many companies that are already active here and out of belief in the results they achieve they understand that they want to expand. There are quite a few companies in Israel worth billions of dollars that have invested hundreds of millions of dollars here each, and some of them come to us and ask for grants. The demand for grants is greater than the supply we have."
Even during the war?
"We haven't seen any requests for grants that have fallen or been canceled following the war. In total in 2023, we have approved grants worth NIS 800 million, and we were forced to reject requests worth NIS 150 million that were not considered a priority."
Are you concerned about an initiative to raise corporate tax to fill the hole in the budget?
"I hope that won't happen. The law strengthens investments in Israel and even shekel invested results in private enterprises adding four shekels of their own. We need to bring here advanced industries in order to increase productivity."
Published by Globes, Israel business news - en.globes.co.il - on December 28, 2023.
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