In the first half of 2023, 44% of new Israeli startups were incorporated outside of the country compared with 20% over the corresponding period of 2022, reports a survey by Israel Advanced Technology Industries (IATI), the umbrella organization for high-tech and life sciences industries in Israel.
The survey collected data about the founding of new startups from 13 of Israel's biggest and best known law firms including Gornitzky, Herzog, Shibolet, and S. Horowitz. After the data was gathered comparisons were made with the first half of 2022.
The total number of startups founded by the firms participating in the survey and for which data were given was 490 in the first half of 2022 and 260 startups in the first half of 2023. Of these, during the first half of 2023, 118 new startups were founded outside of Israel.
In the first half of 2023, this trend did not change between the first and second quarters. 44% of new startups were founded outside of Israel in the first quarter and in the second quarter. The survey also found that during the first half of this year, the firms participating in the survey handled 52 deals in which Israeli companies de facto became US companies, of which 49 deals were reported in the first quarter alone.
A company's decision on its place of incorporation has many consequences, including on the location of its future activities, on the location of the company's main assets (including intellectual property), on the location and activity of the development centers, the country in which its revenue will be recognized and the taxes that will be paid for them, as well as on the identification of the company as related to Israel or not.
This is not a short-term phenomenon
Adv. Dan Shamgar, of the Meitar law firm and chairman of the IATI attorneys and accountants' committee, said, "In the first quarter of 2023, a dramatic change was detected in shifting to incorporation of new startups outside of Israel, contrary to the trend that dominated for many years. An examination of the data for the first six months of 2023 shows this is not a short-term phenomenon."
He added, "The change in the choice patterns of the place of incorporation, in which nearly half of the startups prefer to incorporate outside of Israel, is a significant phenomenon for business and economic volume. The choice of the place of incorporation is mainly a formal legal issue, after all, over time, a reality may arise at these companies in which a great deal of weight in their activities is biased towards abroad. The great bias in the direction of incorporation outside of Israel leads to a process of erosion in the basis of activity in Israel."
IATI CEO Karin Mayer Rubinstein told "Globes," "The interesting thing about this survey, compared with the previous survey we published in the first quarter of this year, is that we have an overview of the entire first half of 2023 and not of one quarter and we see that while there is no increase in the trend, neither is there a decrease, meaning we see the trend continues."
She added, "The current results are not encouraging and it is clear that we want to see the companies continue to incorporate here in Israel. However, it is important to remember that we are part of a global economic slowdown, and incorporation continues and will continue to work for the ongoing increase of certainty and business stability in the industry."
Published by Globes, Israel business news - en.globes.co.il - on August 31, 2023.
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