11 INTERNATIONAL TECH HUB | BDO LLP
The tight-knit nature of the tech community is another asset. Most of the local talent comes from just a handful of institutions and universities, and with that shared military experience, there is a strong sense in the tech community that everyone knows everyone. These powerful relationships and networks naturally support the sort of sophisticated collaboration and ideation that drives a true culture of innovation. TAX BREAKS, R&D GRANTS Because of the limited geographical footprint of the country, the state is keen to expand the scope of tech activity, and so offers a range of incentives to reward startups and tech companies, either homegrown or international, that establish themselves in areas beyond the traditional Tel Aviv area. There are a lot of tax advantages and government grants for businesses taking on new employees outside of the Tel Aviv area. The Israeli government has a very positive attitude to encouraging international investment and companies from overseas to expand in the tech space, and there are a range of tax breaks and R&D grants to incentivise that movement. For example, an overseas company that invests in an Israeli entity will pay zero tax on gains made in Israel. Once that entity starts to make money, it will only be liable for corporation tax. This arrangement, which has been in place now for over 15 years, really kickstarted the boom in international investment into Israel that continues to this day. In addition, there are numerous benefits for any business that sets up as an Israeli legal entity, whether homegrown or from overseas. Thanks to a generous Capital Grant, the state will match between 40-85% of any R&D investment made by a creative or tech business on a 1:1 basis. In other words, for every dollar you invest, you can claim a further dollar as an incentive. The grant does not have to be repaid either – the only condition is that the state will be entitled to 3.5-4.5% of any eventual revenues. The range of variance relates to where your entity or R&D centre is located – there is greater reward for businesses that look to extend beyond Tel Aviv and its environs. So if you set up in the north of the country, for example, your percentage will be higher. Also, if you join a specific incubator or increase your workforce for at least 7%, or if you employ people from a specific background, such as religious people or Arabs, the percentage of the benefit will be higher too. Support can also be available to help fund marketing and promotional activities too. In addition, every Israeli entity with at least 25% of revenues coming from overseas – and this will be a very significant proportion of them – pays a maximum 16% corporate tax instead of 23%, and that figure can go as low as 6% depending on various criteria such as the makeup of the shareholders. External shareholders and the right location can bring the percentage down. This makes Israel a very attractive proposition for overseas companies who are eyeing up international expansion.
INVESTMENT CAPITAL AND EQUITY All the big PE players from Europe and North America have a presence in Israel. If you have a good product or idea, you will be able to find a way to fund it. It’s still the case that Israeli companies tend to be under-valued compared to, say, the US. This can be a good advantage to investors because it’s often possible to find strong IP to invest in that you might have had to pay much more for elsewhere. Of course there is some nuance to the landscape, as with any unfamiliar terrain, but there are many strong sources of professional advice on hand to steer investors to the right fit for them. Investors are sometimes too easily put off Israel because of the perceived complexity or risk, but the presence of all the big payers looking to invest in the next big thing here shows that this is a market not to be overlooked. But the professional consulting firms are very adept at helping investors find their way through the market, and can save you a lot of time and effort in terms of research. Long before you consider taking the steps of establishing an operation on the ground, they can direct you to strong possible investments and opportunities that would not be easy to access otherwise. It’s just a question of finding the right partner. Most of the local investment resources come from angels and private equity. Over the last two decades there have been a significant number of exits, and entrepreneurs have channelled some of the significant money released by these into small funds that have provided seed capital and startup resources for a new generation of entrepreneurs. International investors have a strong presence in Israel too – especially the US, China, Indian and Japan. There is of course a natural affinity between Israel and Jewish investors, wherever they live in the world. Where non-Jewish investors may have concerns about the stability of the country because of negative media images, more knowledgeable investors are aware of Israel as a territory that offers great judicial, democratic and financial stability. Israel was one of the countries least affected by the global financial crisis of 2008, for example. A lot of international investors choose to build businesses in the Israeli market, and a lot of international companies perform IPOs on the Israeli Stock Exchange, because there’s a strong sense that their money will be safe here. ISRAEL AS A PLACE TO LIVE AND WORK Newcomers to Israel are often surprised to discover a highly developed economy with all the amenities and resources of European and North American countries. The cost of living could not be described as cheap, but the education system is very strong, crime levels are low, the nightlife is vibrant – Tel Aviv is known as ‘the city that never sleeps’ – and of course the country’s historical and cultural heritage is richly fascinating.
Made with FlippingBook HTML5