Why should high tech companies move their operations to Israel?

Post date: Jul 19, 2016 7:53:35 AM

Why should high tech companies move their operations to Israel?

According to the proposal of Israel’s treasury minister Moshe Kachlon from July 2016 which was confirmed by the government (but which still needs to be approved by the Knesset). The biannual budget in Israel for the years 2017-2018 will include the following tax benefits:

The dividend tax currently in place in Israel is 25% for all companies and the company tax rates currently in place in Israel is:

What does the tax change in Israel mean?

A change in the company tax rates in Israel will lead to competition in other countries where the tax rates are higher:

The proposed effective tax rate (the combined company tax rate and dividend tax rate) will be lower than the current taxation in regards to most parameters and will be calculated differently, so that the type of company and its location will have no bearing and it will decline to a rate of 10-16% rather than the current 34-50% taxation rate.

Furthermore, new criteria will be set to quantify the rate of business investment in R&D (Research and Development), the extent of employees working in R&D, etc.

What does all this means in terms of the effective tax?

The tax change in Israel means that the effective tax in Israel will, as of 2017, be equal to the effective tax in the United Kingdom (10%) and will be competitive with that of Hungary (9.5%). However in the event that a company relocates its operations from Europe to Israel it will profit twice over: both by paying a low effective tax rate and by having access to high quality employees with salaries paid in a relatively low exchange currency comparison to Europe (In NIS rather than Pounds or Euros)

Therefore, whatever difference may yet exist in the effective tax rate will be effectively offset by lower salary costs, making it more profitable for companies to move to Israel even if the effective tax appears seemingly higher.

Furthermore, Israel, as part of its membership in the OECD, participates in the BEPS program (Base Erosion and Profit Sharing) which aims at eliminating European Tax Havens (Such as Luxembourg) so that tax benefits are provided only to such countries where R&D of that company occur in the country. In fact, it may very well be that these tax havens will be effectively cancelled since no R&D takes place in these countries whereas R&D in Israel will bring about considerable tax benefits. Furthermore, R&D costs in Israel may partially be covered by grants from Israel’s chief scientist.

In summary: relocating your operations to Israel is desirable for several reasons:

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