Dr. Avi Nov, Adv.
The Israel Law for the Encouragement of Capital Investments provides certain tax incentives to production facilities or other eligible facilities in Israel. The Law also serves as a major tax planning tool for companies.
The purpose of the Israeli Law for the Encouragement of Capital Investments is as follows:
1. To attract capital to Israel and to encourage economic initiative and investments of foreign and local capital, in order to –
(1) Develop the productive capacity of the national economy, to utilize its resources and economic potential efficiently, and to utilize fully the productive capacity of existing enterprises;
(2) Improve the States balance of payments, to reduce imports and to increase exports;
(3) Absorb immigration, to distribute the population over the area of the State according to plan and to create new sources of employment.
To qualify for benefits under the Law for the Encouragement of Capital Investments a company has to be an industrial company registered in Israel and has to be internationally competitive (i.e. have export capability). However, Biotechnology and Nanotechnology companies do not have to meet the "export" requirement to qualify.
"industrial enterprise" is defined in the Law for the Encouragement of Capital Investments as an enterprise in Israel, the main activity of which in the tax year is productive activity, other than an approved agricultural enterprise, as defined in section 4 of the Encouragement of Capital Investment in Agriculture Law 5741-1980;
"productive activity" is defined in the Law for the Encouragement of Capital Investments as including the production of computer software products and development, as well as industrial research and development for a foreign resident, on condition that approval therefor was given by the Director of the Industrial Research and Development Administration, and including other activity designated by the Ministers, but exclusive of the following activities:
(6) provision of communication services;
(7) provision of sanitation services;
(8) provision of personal services;
(9) other activity designated by the Ministers;
For the purposes of the Law for the Encouragement of Capital Investments the country will be divided into two areas.
1 - Priority Area (mainly the Galilee in the north, the Negev in the south and Jerusalem(.
2 - The Center of the country (i.e. everything not specified in item).
Companies that qualify will be entitled to company tax rates as detailed below.
There is no termination period regarding the tax benefit. As long as the company remains internationally competitive it is eligible for the tax benefit as prescribed by the law.
Center of the Country Priority Area
Company Tax rates
Years: 2011 & 2012 15% 10%
Years: 2013 & 2014 12.5% 7%
2015 onwards 12% 6%
Dividend Tax rate 15% 15%
See also: Israel's 2011 Investment Incentives