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  • Writer's pictureשוהם שאוליאן, רו״ח (עו״ד)

The Benefits for Preferred Technological Enterprises According to the Law for the Encouragement of Capital Investments in Israel

אילוסטרציה מינימליסטית רחבה המייצגת חדשנות טכנולוגית וצמיחה. התמונה מציגה נורת חשמל עם קווים מעגליים המסתעפים ממנה, המסמלים רעיונות וטכנולוגיה. הרקע בצבע אפור רך להדגשת המראה הנקי והמודרני.

The Law for the Encouragement of Capital Investments in Israel is a key tool designed to promote investments in the industrial sector, with a special emphasis on technology and innovation. The law grants significant tax benefits and grants to enterprises that meet defined criteria. Below is a detailed explanation of these benefits and the relevant criteria.

To be considered a "Preferred Technological Enterprise," a company must meet several cumulative conditions. The enterprise must spend at least 7% of its revenue on Research and Development (R&D) over the past three years or have annual R&D expenditures exceeding 75 million NIS. Additionally, the company must meet one of the following conditions: at least 20% of its employees are R&D staff, or the company employs at least 200 R&D employees; a venture capital fund has invested at least 8 million NIS in the company; the company's revenue has increased by an average of 25% over the past three years compared to the previous year, with an annual turnover of at least 10 million NIS; or the number of employees has grown by an average of 25% over the past three years, with at least 50 employees each year. Furthermore, the total revenue of the group of companies to which the company belongs must be less than 10 billion NIS per year.

A Competitive Enterprise must sell at least 25% of its output for export or generate at least 20 million dollars annually from international markets. The enterprise must demonstrate that it produces innovative technological products using advanced technologies, invests in productive assets like machinery and equipment, and contributes to the Israeli economy by creating new jobs and developing production infrastructure. The enterprise must comply with all legal and regulatory requirements related to production, sales, and export, including documentation and reporting requirements.

Tax benefits include reduced corporate tax rates: 7% for a preferred enterprise in Development Area A, 16% in other areas, 5% for a special preferred technological enterprise in Development Area A, and 8% in other areas. There is also a reduced dividend tax of 20%, except for dividends between Israeli companies which are tax-exempt. Additionally, there is accelerated depreciation on productive assets.

Preferred enterprises can receive grants or loans to partially finance their investments, after submitting an investment plan and obtaining prior approval from the relevant authority in the Ministry of Economy or Ministry of Tourism. Enterprises must meet detailed documentation requirements, and failure to meet these requirements may disqualify them from tax benefits. Enterprises struggling to meet the conditions can apply to the Innovation Authority for certification as a technological enterprise that promotes technological innovation and manufactures using advanced technologies.

The Law for the Encouragement of Capital Investments remains a key factor in promoting technological and innovative industries in Israel, providing significant incentives to enterprises that meet the criteria. It is an important tool for encouraging research and development, technological investments, and innovation, helping technology companies grow and develop.


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