Investment Incentives

On this page:

  1. Government Incentives - Overview
  2. Approved Enterprises
  3. Other Government Incentives
  4. Research and Development
  5. Incubators
  6. Free Trade Agreements
  7. International R&D Funds
  8. Free Trade and Free Processing Zones
  9. Further Information

1. Government Incentives - Overview

The Israeli government provides various incentives to encourage economic development, and overseas investors may benefit from these. Indeed, incentives are enhanced for projects in which there is foreign involvement. There are generally no restrictions on the extent of foreign ownership in an enterprise, except in the security sector.

Incentives take the form of cash grants, loan guarantees, and tax benefits. Research and development attracts special assistance. There is also an technology incubator scheme which nurtures new ideas, providing practical as well as financial aid to entrepreneurs.

2. Approved Enterprises

The main incentives are set out in the Law for the Encouragement of Capital Investments, 1959. Assistance provided under this law is administered by the Investment Center, which is part of the Ministry of Industry and Trade.

The Investment Center Ministry of Industry and Trade 30, Agron St. Jerusalem. Tel: 972-2-6220373/4/5 Fax: 972-2-6250442

Most assistance relates to projects awarded "approved enterprise" status by the Ministry of Industry and Trade. In general, projects that will help to develop the economy, generate employment, or improve the balance of payments, qualify for such status. An additional criterion is that projects must have paid-up capital amounting to 30% of the total investment required.

An approved enterprise may be owned by a foreign company.

Types of assistance available


  1. Enterprises must select an assistance track at the outset. It is not possible to change from one type of assistance to another.
  2. In some circumstances, assistance may be available to expand an existing enterprise as well as start a new one.

Cash grant

Grants are available for investment in tangible fixed assets. The rate of grant varies according to the enterprise's location. Outlying areas attract higher rates; the central area no grant at all. The current (1998) range is 10-20% for those areas that qualify for grants.

Loan guarantee

The State guarantees loans from Israeli banks at regulated interest rates covering up to two-thirds of project outlays.

Tax holiday

A total exemption from company tax on undistributed profits for between four and ten years, depending on location.

Composite assistance - grant and loan guarantee

Enterprises may elect to receive a reduced rate of grant topped up by State guaranteed loans. The total amount of grant plus loan may be up to two-thirds of the outlays on fixed assets and working capital.

Composite assistance - tax holiday and loan guarantee

A company that elects to take a tax holiday may also obtain a State guaranteed loan, but the period of tax exemption is then reduced.

Tax Benefits

Approved enterprises that do not choose a tax holiday nevertheless enjoy a reduced rate of company tax for a period of seven years. Approved enterprises may also claim accelerated depreciation rates on fixed assets and buildings for the first five years of their use.

Foreign Investors' Companies (at least 25% foreign owned) benefit from reduced company tax rates for a period of ten years. Moreover, the higher the level of foreign ownership, the greater the reduction in the rate.

Companies that do choose a tax holiday receive the general tax benefit between the end of the holiday and the end of the applicable tax benefit period if the tax holiday expires first.

3. Other Israel Government Incentives

"Industrial Enterprises"

A project that does not qualify for approved enterprise status may nevertheless come within the definition of an "industrial enterprise" for the purposes of the Law for the Encouragement of Industry (Taxes) 1969, in which case it can claim special depreciation and amortisation rates on tangible and intangible fixed assets.

Small Business Loan Fund

The fund provides loans and guarantees for the establishment or expansion of enterprises employing up to 75 people. Projects receiving other forms of government support are not eligible for assistance from the fund.


Exporters can obtain a range of benefits, including relief on import duties on materials incorporated into exported products, accelerated VAT refunds, support for offering credit to overseas customers, and insurance covering various kinds of overseas trading risk.

Special Incentive for Overseas Investors - "Capital Intensive Companies"

This incentive applies only to companies in which share ownership is restricted to non-residents.

Under the Law for the Encouragement of Investments (Capital Intensive Companies) 1990, companies awarded capital intensive company status by the Minister of Finance benefit from a 25% corporate tax rate on retained profit, and their shareholders are exempt from capital gains tax upon sale of their shares. These benefits apply for 30 years.

A company may benefit from capital intensive company and approved enterprise status at the same time.

Besides being foreign owned, to receive capital intensive company status a company must have paid-up capital of at least $30 million, 75% of which must be invested in qualifying activities. Qualifying activities include, inter alia, the establishment or expansion of an enterprise dealing in communications infrastructure or computers, or engaging in R&D in these fields.

4. Research and Development

Grant Aid

The Office of the Chief Scientist at the Ministry of Industry and Trade administers various forms of grant aid to encourage innovation all the way from pre-industrial academic research to beta-site testing of new products. Rates of grant range from 20% to 66%. The definition of approved expenditure attracting grant aid is reasonably wide.

If an R&D program results in a commercial product, the grant becomes repayable by way of a royalty payment. Other conditions include a stipulation that products resulting from government supported R&D be manufactured in Israel, and restrictions on the transfer of know-how to third parties.

R&D Tax Benefits

Accelerated amortisation rates apply to R&D expenditure.

5. Incubators

Incubators provide a supportive framework for entrepreneurs with ideas but without the necessary resources or business experience to develop them. The assistance goes beyond grants, and includes practical help - administrative back-up, business planning, finding sources of finance, and so on. In essence, the incubator scheme give enterprises two years in which to develop a marketable product and become self-sustaining.

An incubator may have backing from an established company or an investor, or it may be independent. Incubator projects attract especially high levels of grant aid from the Office of the Chief Scientist for two years. After that, they may obtain aid under the regular R&D grant system mentioned above.

The assistance available includes a market feasibility study carried out by the Office of the Chief Scientist, or a grant towards a privately conducted study. Projects in incubators with industrial or investor may obtain a grant of 66% of R&D costs. For projects in independent incubators, the grant available is 100% of labour costs and 75% of other approved costs. There is a grant ceiling in each case. Independent incubators themselves receive up to 100% grants towards establishment and operating costs.

In most cases, the same payback rules apply to incubator projects as apply to R&D assistance in general.

See also Technology Incubators

International Aspects

6. Free Trade Agreements

Israel enjoys the unique advantage of having free trade agreements with the US, the European Union, and EFTA. Apart from the direct benefits this confers, it also means that Israel can act as an efficient bridging country between these markets. For example, components may be imported into Israel from the US tariff-free, and incorporated into products sold, again tariff free, to EU countries.

Israel has General System of Preferences status for developing countries in Australia, Canada, and Japan, giving Israeli exports to those countries customs duty reductions. Israel also enjoys most-favoured-nation status in the Chinese market.

7. R&D Funds

R&D Funds are discussed here in terms of the State financing available through them. For a more complete guide to agencies promoting international R&D cooperation, see Research and Development.

Israel has agreements with several countries for joint R&D financing.

The Israel-United States Binational Industrial Research and Development Foundation (known as BIRD F) promotes partnerships between Israeli and US companies. This typically means a US company utilising or distributing an Israeli company's innovative technology. BIRD F is administered by the Chief Scientist in conjunction with the US Standards Institute. It will contribute up to 50% of the cost of R&D projects over one to three years. The grant becomes repayable if the project succeeds. Projects cannot obtain BIRD F funding and Office of the Chief Scientists support at the same time.

The Canada-Israel Industrial Research & Development Foundation (CIIRDF) operates on similar lines. Israel also operates bilateral funds with Germany (GICT) and Singapore (SIIRD).

In addition, Israel has signed memoranda of understanding on R&D co-operation with several countries. The Office of the Chief Scientist site provides a complete list.

R&D Co-operation with European Union

Israel is a member of the European Union's Fifth Framework Programme of scientific research and technical development. Israel also has a Public Procurement Agreement with the EU, which provides, among other things, that the EU will not apply preferences to EU companies against Israeli companies in telecommunications tenders, and that the Israeli government act similarly vis-a-vis EU companies.

For further information, see the Delegation of the European Commission to the State of Israel and CORDIS sites.

8. Free Trade and Free Processing Zones

The city of Eilat, on the Red Sea at the point where Israel, Jordan, Saudi Arabia, and Egypt meet, is a free port and free trade area. Enterprises in Eilat enjoy company tax concessions, and most goods imported into Eilat, and transactions within the Eilat free trade area, are exempt from import taxes and VAT. Most goods purchased from elsewhere in Israel are zero-rated for VAT.

Recent legislation provides for the setting up of Free Processing Zones. Enterprises in these zones will enjoy certain tax benefits, and most transactions within the zones will be zero-rated for VAT.

9. Further information

The Ministry of Finance site (International Division) gives up-to-date information on the investment incentives available.

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