Since 1989, the high-tech area of Yokneam has been a "National Priority A Area", which entitles approved enterprises to the highest level of tax benefits and investment grants available. According to Ministry of Economy web site (in Hebrew) at http://www.moital.gov.il/CmsTamat/Ishuvim, this status will remain valid at least until Dec. 31, 2017 for both new facilities and expansion of existing ones.
According to the Ministry of Economy and Industry web site (http://www.investinisrael.gov.il/BusinessInIsrael/Pages/Investment_incentives.aspx) companies in a National Priority A Area are eligible for the the following Investment Grants and Tax Incentive programs, and the R&D Grant programs:
Investment Grants Program
Grants are accorded at up to 20% of the amount of investment in fixed assets, production equipment or facilities. For investments in the Negev area in south Israel, an addition of up to 10% may be applied.
Applying companies must meet the following criteria:
• The company must be an industrial enterprise registered in Israel.
• The company’s facility must have export capabilities (25% of its sales derive from export), except for biotechnology and nanotechnology companies.
• The company’s facility must be located in designated National Priority Region. • The company must not be part of the services industry, the agricultural industry (including refrigeration facilities), and the mineral and natural gas industries.
• The company must not have simultaneously applied or been approved for an employment grant.
The grants are approved by the Investments Center Administration of the Ministry of Economy. The applications are reviewed thoroughly by the Investments Center Administration and “Approved Enterprise” status is granted at the conclusion of a review procedure that includes submission of a detailed business plan, subject to various considerations. Applications are reviewed and scored based on a number of parameters that are periodically modified.
Investment Tax Benefits Program
Eligibility Criteria and Approvals
A company is eligible for tax benefits if its enterprise were granted the “Priority Enterprise” or “Special Priority Enterprise” status. The eligibility criteria and approvals needed for each one of the categories are as follows:
• Eligibility - Exports amount to 25% of annual sales turnover.
• Approval - The tax benefits must be approved by the Israel Tax Authority for each one of the requested tax years.
Special Priority Enterprise:
• Total annual income in Israel meets or exceeds 1.5 billion NIS (approx. 375 million USD).
• Combined balance sheet meets or exceeds 20 billion NIS (approx. 5 billion USD).
• Business plan will include at least one of the following:
• Investment in productive equipment of at least 800 million NIS (approx. 200 million USD) in central Israel or 400 million NIS (approx. 100 million USD) in a National Priority Region over a three years period.
• Investment in R&D of at least 150 million NIS (approx. 37.5 million USD) in central Israel or 100 million NIS (approx. 25 million USD) in a National Priority Region.
• Employment of at least 500 employees in central Israel or 250 employees in a National Priority Region.
• Approval –
• Committee of senior administrators would verify, in writing, that upon review of the business plan submitted, it is convinced that the priority enterprise will offer a significant contribution to the Israeli economy and national objectives.
• Israel Tax Authority approval.
Designations as “Priority Enterprise” or as “Special Priority Enterprise” entitle companies which own the enterprise to reduced corporate tax rates and reduced dividend tax rates for the enterprise’s income as follows:
• Companies established in National Priority Regions: 9% corporate tax rate.
• Companies established in central Israel: 16% corporate tax rate.
• Dividend tax rate: 20%.
• Accelerated Depreciation.
R&D Grant Programs
The R&D Fund
The R&D Fund is the main instrument of the R&D Law. The fund provides financial grants of 20%- 50% of approved R&D programs. In geographical areas designated as NPRs the benefit can reach 60%. A research committee headed by the Chief Scientist is assigned with awarding the funds according to a predetermined set of terms and conditions. Israeli companies from all industry sectors which wish to develop, or upgrade, products or manufacturing processes may apply. A company supported by this program is obligated to pay royalties when a government- assisted R&D project results in commercially successful product.
Large Companies’ R&D Centers in Israel’s PeripheryThe target companies are Israeli companies that wish to set up an R&D center in Israel’s periphery, and have annual sales of more than 100 million USD in Israel. Qualified companies will receive multi-annual (24-36 months) support of 65%-75% for their R&D center’s approved expenses. If the project is profitable then royalty payments need to be paid.
Generic R&D Program (Long Term R&D Support)The target companies are Israeli companies with annual sales of more than 100 million USD and over 200 R&D employees in Israel; or alternatively, with an R&D budget in Israel that exceeds 20 million USD. Qualified companies will receive financial support of up to 50% of their R&D approved expenses. No royalty payments are mandated.
International Cooperation in R&D
Global Enterprise R&D Collaboration FrameworkThis flagship program aims to encourage partnerships between multinational corporations (MNC) and startup companies in Israel, in order to maximize the synergy between the partners’ strengths.
Within this framework, both the OCS and the MNC commit to invest equally in pre- selected R&D projects, conducted jointly by the MNC and the Israeli company. The MNC can invest in cash and/or in kind, i.e. it can provide the startup with facilities such as technological guidance, loan of equipment, use of laboratories, discounted software licenses, regulatory advice, etc., instead of / or in addition to cash funding. Eligible MNCs must have annual revenues exceeding 2 billion USD, significant investment in R&D, and worldwide presence. To date, over 40 corporations have joined the program. The participating MNC is not required to pay royalties.
Multinational Corporations Project Centers in Traditional IndustryThe target companies are Israeli companies and MNCs which collaborate on an R&D project. The MNC must have annual sales of more than 2.5 billion USD and must be from the traditional or the medium technology sector. The Israeli partner must be an Israeli company or academic institution unaffiliated with the MNC. The financial support for qualified companies will differ between the projects. No royalty payments are mandated for the MNC.
Cooperation with Countries and Regions
Israel has an extensive R&D cooperation network with different countries and regions.
Israel has 4 bi-national funds with the U.S.A, Canada, Korea and Singapore. In this framework, two nations contribute a predetermined sum to a bi-national foundation intended to support cooperative projects.
International Industrial R&D Cooperation ProgramsIsrael has entered into more than 40 bilateral industrial R&D support programs all over the world. The programs encourage cooperation between Israeli and foreign companies by helping in finding a suitable partner and by financial support of up to 50% of the approved project budget. Most of the OCS industrial R&D cooperation programs are implemented by MATIMOP, an OCS executive agency.
European Union R&D Programs
Israel also participates actively in several multinational European R&D programs. The suggested programs in this framework are: Eco-Innovera, FetFlagships EraNets, M-ERA. NET, MANUNET II, ERA-NET TRANSPORT III, Era-Net RUS, ENIAC, Ambient Assisted Living (AAL), EUROSTARS. The programs are managed by ISERD (The Israeli R&D Directorate for the European Research Area (ERA)), which is responsible for the integration of Israel in the ERA and in other European Organizations.
MAGNET (Industry Academia R&D Cooperation)
A group of programs intended for industrial companies cooperating with academic institutions for a long term R&D process. Qualifiers can apply for grants covering up to 66% of the R&D project budget in an industrial company and up to 80% of the R&D budget in a research institution. A MAGNET project is usually approved for a 3-year period with extensions of 1 to 3 years possible. Main MAGNET programs include:
The program supports the formation of consortia made up of industrial companies and academic institutions in order to jointly develop generic, precompetitive technologies. Industrial companies are granted up to 66% of their approved budget and academic institutions are granted up to 100%. The duration of a MAGNET consortium is three to five years. No royalty payments are mandated for this program.
The program promotes technology transfer from academia to industry. The program is intended for Israeli industrial companies wishing to receive new technologies from academia and for approved academic research groups wishing to conduct new applied research in cooperation with a relevant company. Qualified participants will receive a grant of up to 66% of the approved budget. No royalty payments are mandated.
Nofar – Industrial Application of Academic Research
The program is designed to bridge the gap between know-how within academia and the needs of the industry. It does so by encouraging the support of applied academic research activity by an industrial company. It is intended for academic research groups wishing to perform applied research which is still in its early stage, hence, is not fit to receive support under the framework of other OCS programs. The participating companies benefit from the option to influence academic research that might be useful.
The research institution is entitled to a grant of up to 90% of the approved budget (maximum budget of 500,000 NIS, approx. 125,000 USD). The time frame for the support is 12 months (with a 3-month extension option). The company is required to finance 10% of the project cost.
The primary goal of this program is to transform innovative technological ideas in their early, high-risk stages into viable startup companies capable of raising money and operating on their own. For a period of 2 to 3 years, the program provides approved companies with full financial support (approx. 500,000 USD – 750,000 USD) to be repaid to the government only upon generation of sales. The Incubator is operated by a licensee who was elected and approved by the relevant OCS committee. The licensee invests only 15% of the project budget (the state invests the remaining), and receives in return 50% of the shares of the companies in the incubator.
The OCS operates additional support programs in several high-potential sectors: Cyber, Renewable Energy, Life Sciences, Alternative Fuels, Space Technologies, Dual Use (Military and Commercial) Technologies and Agritech. These programs offer support for companies and investors operating in these fields.
R&D Expenses Deduction
Clause 20A of the Israeli Income Tax Ordinance enables companies to deduct their R&D expenses in the year they were paid from their current income. The deduction is contingent on the Chief Scientist’s confirmation that the expenses are indeed research and development expenses.
The Angel’s Law
The law, which was first enacted in 2010 and then amended in 2016, provides tax benefits to single investors who invest in Israeli companies in their initial R&D stage (seed). The law’s goal is to increase the available financing sources for Israeli early phase R&D-intensive companies.
The law enables single investors’ investments in eligible companies to be recognized as expenditures for tax purposes. Eligible companies are companies which fulfill certain criteria. For example, Israeli companies with R&D expenses that are at least 70% of the total company expenditures for the relevant tax year. Companies must receive approval from the OCS for their R&D expenditures.
The Office of the Chief Scientist (OCS) in the Ministry of Economy, empowered by the Law for the Encouragement of Industrial Research and Development (1984), oversees all government supported R&D in the Israeli industry. The OCS activates grant programs and also takes part in the approval of tax benefits for entitled companies.