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Amid internal crisis, Israel fights to retain hi-tech industry with tax benefits

The Israeli government has issued a new law to encourage investment in tech startups as firms consider fleeing the country on the back of the judicial overhaul.
JACK GUEZ/AFP via Getty Images

Israel’s parliament approved the so-called "Angels Law" on Tuesday, granting tax benefits to investors in the local high-tech industry as well as incentives for purchasing other tech companies if the intellectual property is registered in Israel and their operations are based in the country. The new legislation comes on the backdrop of growing fears in Israel that startups will choose to relocate outside of the country. 

Past legislation already offered Israeli startups some tax benefits, such as tax reductions on startup investments in the period spanning 2012 to 2019. The new law offers the Israeli high-tech sector incentives in several domains. Private investors in startups will be eligible for considerable tax benefits. For instance, a tax credit will be available for investments of up to 4 million shekels ($1 million). Unlike under past legislation, the tax benefits take effect immediately upon investment. The idea is to encourage first investments in startups, which generally carry a high level of risk for investors.

Also, those who sell their companies and use the proceeds to invest in local startups could enjoy tax payment deferment. Large tech companies that purchase other Israeli-based companies can now spread out tax payments over five years. Investments of up to 5.5 million shekels ($1.5 million) will be eligible for tax reductions.

On the subject of credit, the new legislation encourages foreign financial institutions to lend money to Israeli startups. It exempts these institutions from paying Israeli taxes on the interest paid by Israeli high-tech companies on their business loans. There are currently very few Israeli financial resources specializing in loans to high-tech companies, so Israeli high-tech firms and startups often turn to foreign financial institutions for loans. The loans are often expensive because of the taxes the lending institutions must pay in Israel. 

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