Israel is promoting investment opportunities in advanced manufacturing. What special competencies does Israel have in this sector that make it attractive as a location for these types of projects?
One of the main reasons that multinational companies moved to Israel for advanced manufacturing is because Israel is a hub for many of the companies’ R&D centres. The big plus those companies could enjoy is an R&D-manufacturing proximity advantage, making the production process much more dynamic, enabling a far more efficient “learning by making” process.
In addition, the vibrant startup ecosystem is producing many technologies that enable next-generation manufacturing (aka Industry 4.0), such as the Internet of Things, Big Data and cybersecurity.
Furthermore, Israel holds a strategic geographical position in terms of market access, as we are geographically situated at the meeting point of Europe, Asia and Africa. Our country is situated close to the European market and benefits from an EU-Israel trade agreement that facilitates open trade. Our relative proximity to Asian markets, which are enjoying spectacular growth, speaks for itself, and the emerging African market is also an option.
In which other sectors is Israel competing strongly for investment?
Since Israel’s core competency is innovation, and nowadays we could see that innovation is pursued in all business sectors, Israel holds advantage in many sectors, such as health and life sciences, automotive, aerospace, cleantech and agritech, cybersecurity and financial technology, among many others.
Since we could not cover everything here, I’ll put a spotlight one of the more promising sectors to exemplify the point: medical devices.
Medical devices is a leading segment in the Israeli life sciences industry (70% of the sector), and is especially known for its diverse development activity and exports. The sector enjoys the combination of mature companies (40% of the companies in the sector at the marketing phase), alongside more than 1000 startups that enrich the pipeline of innovative products to perpetuate current growth.
The success of the medical devices segment is a result of Israel’s success as a hi-tech superpower and as an incubator for daring ideas, innovation, and advanced development capabilities. In addition, it enjoys the support of external contributors such as government and private organisations that provide monetary support and consulting for various companies in the field.
Israel is considered a leader in the development of medical devices. Research conducted in 2015 showed the number of Israeli patents in this field that were approved in the US has grown consistently from 135 in 2007 to 413 in 2013. In addition, an average of approximately 51 Israeli patents per million residents were approved in the US in this field. This was found to be a higher rate than other leading countries such as the US, Switzerland, Sweden, Denmark, Ireland and Japan. This is why many multinationals operating in the field has chosen to invest in Israel, such as Johnson and Johnson, GE, Philips, Medtronic and Fosun, to name a few.
It is also important to note that Israel is not only a leader in medical devices development, but also in manufacturing and exporting these devices, showing consistent growth in revenue each year. As proof of the industry’s development, 2015 life science exports reached $8bn, growing steadily since 2008. Exports in this field are expected to continue to increase in the coming years.
Tell us about the newly launched Innovation Box tax regime. How does it work and what are its benefits and implications for foreign investors?
The Innovation Box is a response for the BEPS (base erosion and profit-shifting) project, a G20-led initiative, that is designed to address government concerns about the potential for multinational companies to locate profits where they are subject to favorable tax treatment. The essence of guidelines on this issue states that intercompany remuneration of the intellectual property owner should be in line with the locations of its actual functions, assets and risk profile.
The Israeli government believes that this regime change is an important opportunity for multinationals operating in Israel, and is determined to take the necessary steps to facilitate this opportunity. With this is mind, Israel has launched a new IP tax regime as part of the 2017-2018 state budget. Under the proposed regime, 6% corporate income tax rate and 4% withholding tax on dividends are expected to apply to qualifying companies with consolidated revenues of more than NIS10bn (around $2.5bn). These companies will be guaranteed rate stability for at least 10 years, if certain conditions are met.
Other qualifying companies would be subject to 7.5%-12% corporate income tax (the lower rates for companies set up in development regions) and 4% dividend withholding tax.
We believe that the combination of the Innovation Box with the already thriving innovation ecosystem is a very strong value proposition for multinationals, both for those who already have a presence in Israel and those who don’t. The opportunity lies in increasing the value-creation footprint in Israel, alongside shifting IP registration to Israel. Global companies following this path will allow themselves both to include Israel’s innovation advantage within their enterprise, as well as to enjoy an attractive way of adhering to the new tax regime.
What are the key initiatives that Invest in Israel is focusing on at the moment, and what support can it provide to foreign companies interested in making an investment in Israel?
Invest in Israel offers end-to-end services for interested parties. We are a ‘one-stop-shop’ for foreign investment in Israel. If you are an investor or multinational company, we will engage with you on conferences abroad and Israel and supply information about the Israeli ecosystem, escort you during your visit, answer follow-up questions, help you navigate Israeli government regulations, and much more. In addition, we will be here to assist you even after you have made your investment to ensure that you have the best Invest in Israel experience.
Following a strategic analysis, we identified that the need for direct contact with the government is especially important in the realm of FDI in manufacturing (Israel’s merits in the field are detailed above), where approvals with regards incentives and regulation are especially important. As a result, we developed a specialty in this field last year and we will be happy to offer these services on 2017.
What are Israel’s unique selling points for investors?
First, innovation: more than 270 multinational companies including Microsoft, Motorola, Google, Apple, Facebook, Intel, HP, EMC, Siemens, GE, IBM, GM, Deutsche Telekom and Cisco have already established more than 300 R&D centres in Israel. These centres were established here mainly because our country is renowned for its world-class talent, whose innovative spirit and can-do never-take-no-for-an-answer attitude have helped many of these multinationals develop breakthrough innovations and, for some, even their flagship products. Israel’s extremely talented workforce – with the highest concentration of PhDs and engineers per capita in the world – is a foundation of our attractiveness to investors.
Second, robust economic performance: despite global economic volatility over the past decade, Israel’s economy shows one of the strongest performance levels since the 2008 crisis, boasting positive and steady growth for more than a decade, above the OECD average. Israel’s diverse open market economy has a proven record of resilience and sustained competitiveness in the face of global economic turmoil, and has only 5% unemployment, one of the lowest levels in the world.
Third, government support and openness: the government of Israel is keen on attracting international investment, offering attractive tax breaks and incentives helping offset expenses in capital, R&D and wages. The launching of the Innovation Box and the business-minded spirit imbued in Invest in Israel are examples of this openness.