The Israeli tech ecosystem is one of the main growth engines powering Israel’s business sector. The tech industry’s impact was a key driver for keeping Israel’s economy from feeling the full wrath of the pandemic crisis. This understanding is the exact reason that the Israeli government has announced three new legislative amendments designed to help strengthen and promote Israeli high-tech.

Angel investors will like this one

The first amendment promoted by the government deals with investments in small startups looking for Seed and Pre-Seed investments, rounds that won’t necessarily attract many venture capital funds - but are more likely to intrigue angel investors. The government’s "Angel Law" will allow a tax credit to be given to sole investors in startups.

The goal is to encourage those investors to be the ones who believe in the young startups and provide them financial support, and in return receive a tax cut from the state. According to the Israeli government, the law is intended to ensure that Israeli entrepreneurs continue to found startups, with the knowledge that capital is available at the early-stage.

"The purpose of the benefit is to encourage investment in the initial research and development stages of small companies, which have not benefited from the current tide in the industry in the same way as more experienced companies..." the announcement read. Another reason for promoting the tax benefit is the continuous jump in salaries in the field, which increases the investment amounts required for companies in the early stages.

The benefit under the law is expected to be expressed in several components, including eliminating the need for a preliminary approval, expanding the definition of investment through an allotment of shares, limiting the investor's investment to a little more than $1 million, and changing the reporting responsibility mechanism.

In addition, as an alternative to the credit track, it’s been proposed to allow the Angel investors to defer tax on capital gains on profits generated from the sale of technology shares against investing in the company in the early stages. This is done to encourage industry experts to add value to companies in which they invest.

Acquisitions offer additional benefits

An additional legislative amendment promoted by the government will give tax benefits to a high-tech company that acquires another high-tech company, in order to encourage Israeli companies considering M&As to keep the intellectual property in Israel. The amendment in the law will work to simplify the bureaucratic procedure in order to be entitled to a benefit. In addition, the government is considering expanding the tax benefit for Israeli companies also for the acquisition of foreign high-tech companies.

The government’s third suggested amendment will provide special tax exemptions for foreign financial institutions that offer loans to Israeli high-tech companies. The goal is to diversify the sources of financing available to high-tech companies, and to allow Israeli companies to raise local debt instead of raising debt abroad, or to raise capital while diluting the holdings of Israeli entities in companies, for the benefit of foreign investors.

With the announcement of the amendments to the legislation, Prime Minister Naftali Bennett, who was previously an entrepreneur and CEO in the field, said that “the new measures are intended to encourage the growth of Israeli high-tech companies by removing barriers and unnecessary regulation. The high-tech industry is the tip of the spear of the Israeli economy and as such has a strategic role. "