From 2011, Israel's Encouragement of Capital Investment incentives were significantly amended. Currently, enterprises established in Israel are eligible for reduced corporate tax rates and/or grants when certain conditions are met, including:
- The enterprise is controlled and managed in Israel
- The enterprise's income is generated or accrued from industrial activities carried out within Israel
- No more than 75% of total income is from sales in any one market, and at least 25% of total income is from exports to a market(s) with at least 12 million residents
Qualifying enterprises are eligible for reduced tax rates based on the region of Israel in which they are established.
Zone A, which includes the Galilee, the Jordan Valley, the Negev Desert and Jerusalem (high-tech only):
- 6% for 2011-2013
- 9% from 2014
- 5% for certain large enterprises
All other areas of the country:
- 12% for 2011-2013
- 16% from 2014
- 8% for certain large enterprises
Enterprises operating in Zone A are eligible for grants up to 20% of investment amounts in certain assets, including:
- Building, machinery and other equipment owned and used by the enterprise
- Expenses for land development
- Expenses for building renovation
Other financial assistance may also apply, including:
- Grants or loans for employee training
- Grants for employing personnel in outlying areas of Israel
- Grants of 30%-60% of R&D expenses from Israel and from binational funds between Israel and other countries
- Investment guarantees of up to 80% for investment in publicly traded R&D venture capital funds and cooperation arrangements with professionally managed funds
Accelerated depreciation is available for assets and buildings used in the production of income generated or accrued from activities carried on within Israel by qualifying enterprises. In the first 5 years of operation, equipment may be depreciated at a rate of 200% of the standard rate, and buildings may be depreciated at a rate of 400% of the standard rate. However, annual building depreciation is capped at 20% of its value.
Dividends distributed by qualifying enterprise are subject to withholding tax of 20%, whether distributed to resident or non-resident shareholders. The rate may be reduced by applicable tax treaties.
Prior to the 2011 amendments, qualifying companies were able to choose between reduced tax rates or grants, but not both. The number of years the benefits applied was also limited to 2 to 10 years depending on the zone the enterprise was established.
With the 2011 amendments, enterprises enjoying the incentives under the old regime could choose to change to the new regime, or continue to apply the old incentives up to November 2013.