Government Activity – Easing the Conditions for Business and Advancing the Industry’s Human Capital

| 01.01.20

Several steps have been taken by the government in 2016 and 2017 that are expected to prove beneficial to Israeli high-tech. Among these steps are regulatory easing measures and actions to strengthen the infrastructures necessary for the industry.

Firstly, the government has updated the taxation environment of high-tech companies in Israel. This has been done in reaction to publication of the BEPS Regulations that are aimed at preventing the shifting of high-tech companies’ profits to countries with more attractive tax regimens and tax shelters around the world. Accordingly, at the end of 2016, an amendment was passed to the Law for Encouragement of Capital Investments which reduced corporate tax for high-tech companies from 25 percent to 6-12 percent, depending on the nature of the company. The Amendment also instituted additional tax benefits on dividends and capital gains tax. This development is presented in detail in the chapter dealing with multinational corporations’ R&D centers later in this report.
Secondly, in August 2017, the Knesset passed a bill aimed at removing bureaucratic obstacles and easing the completion of high-tech mergers and acquisitions in Israel. The objective of the proposed law is to adapt the regulation on companies’ structural changes to the needs of the high-tech industry which is characterized by frequent corporate changes and rapid growth. In this light, the law expands the application of tax benefits in cases of various structural changes such as company merger and acquisition and asset transfer. In addition, it removes bureaucratic obstacles such as the need for the Tax Authority’s authorization to execute a merger by means of exchange of shares, and in order to implement a vertical split. The proposed law is consequently expected to increase the attractiveness of merger and acquisition transactions for both investors and companies. Thirdly, at the beginning of 2016, the Knesset passed an amendment to the ‘Angels Law’ that expanded application of a tax benefit granted to individual investors (angels) on an investment in high-tech companies at initial stages of their operation.

Finally, at the beginning of 2017, in light of the shortage of engineers and programmers in the high-tech industry (as presented in detail in the 2016 Innovation Report), a government resolution was passed to implement a national program for increasing the number of skilled personnel in the high-tech industry. The program enlists all the relevant government bodies towards this objective and comprises several steps aimed at increasing the industry’s supply of human capital. Among others, it was decided that the Planning and Budgeting Committee at the Higher Education Council will act to increase the number of first degree students in high-tech professions by 40 percent. In addition, the Director of Employment will implement steps to integrate sectors of the population currently under-represented in the high-tech industry, primarily women, Charedim, and ethnic minorities. Likewise, the Innovation Authority will act to promote extra-academic training programs relevant to the high-tech industry (see about the ‘coding bootcamps’ below). Furthermore, a decision was made to implement different steps to increase the potential human capital for the high-tech industry by means of integrating personnel from overseas: returning Israelis, new immigrants and foreign citizens.

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