Economic overview
Many sectors point to a positive balance sheet and the figures show this. In about 30 years, Israel has experienced a growth of 10% per year. It has undergone a slight slowdown in recent years, but still boasts a nice 6% that would make Western countries dream, touched by the global economic crisis. Other positive points: the unemployment rate is around 5% and inflation, which had reached record rates of 450%, has been reduced and maintained at around 2% to date.
These excellent results are directly dependent on a few key areas. A large number of intellectuals and massive immigration enabled rapid GDP growth. It is also necessary to take into account the great economic aid of the Americans and Jews residing abroad.
Recently, numerous universities and companies have been established in Israel. In addition, the United States has allocated significant military aid to the country.
The latter number in the billions and are indispensable for a country like Israel, which allocates up to 20% of its budget and almost 6% of its GDP to military spending. In the face of all these good results, it is appropriate to rebalance the situation, underlining the profound inequalities that mark the country. In fact, while 12 families share more than 30% of the entire economy, 20% of the population lives below the poverty line.
Main sectors of industry
Today Israel is an industrialized country whose manufacturing sector – and within it also many traditional production sectors – is based on an extensive and sophisticated system of R&D, processes, tools and high-tech machinery, as a result of rapid and intensive development. This is the result of very fast and very intensive development.
Today’s dynamic and widely diversified industrial sector has developed from artisan workshops set up a century ago to make agricultural tools and to process agricultural products. The transformation of existing activities into modern production was encouraged by two factors: the immigration of entrepreneurs and engineers from Germany in the 1930s, and the growing demand for industrial products, in the years of World War II (1939-45), a period during that the Allied Forces in the region required various consumer goods, especially clothing and canned foods, and the region itself needed products that could not be imported from Europe due to the war.
Until the 1970s, traditional industrial sectors, such as the food, textile and fashion industries, furniture, fertilizers, pesticides, pharmaceuticals, chemicals and rubber, plastic and metal products, provided the majority of industrial production. of the country. At that time, most of the resources were directed towards the development of agriculture, the food industry, infrastructure and the rapid creation of jobs for the many unskilled immigrants.
The next phase of industrialization focused on the development and production of weapons necessary for the defense of the country. The various embargoes on the purchase of arms that accompanied the formation of the state and threatened it, favored an acceleration of this process.
Massive investments in the aeronautics and armaments industries led to the creation of new technologies which then served as the basis for special Israeli high-tech industries in sectors such as medical equipment, electronics, software and hardware, telecommunications, etc. In the 1980s, Israelis who had worked in Silicon Valley returned to Israel and opened development centers for multinational companies such as Intel, Microsoft, IBM, and others. In the 1990s, a wave of highly skilled immigrants – scientists, engineers, technicians, doctors – from the former Soviet Union made it possible for the Israeli industry to move to its current level of sophistication, with its range of products from export. Due to its lack of natural resources and raw materials, Israel’s advantage is its highly skilled workforce, scientific institutes, R&D centers. Today’s Israeli industry, developing products based on scientific creativity and technological innovation, focuses mainly on the production of high value-added products.
Taxation for businesses in Israel
Israel’s economy has entered a phase of stability, after the sustained growth of 2016 which occurred under the impulse of strong domestic demand. In partial confirmation, at the beginning of 2017 the Report on the state of the economy drawn up by the Central Bank saw minor changes. At the same time, however, in the first months of the year, business confidence reached a record level, while consumer confidence decreased, as did the propensity to consume.
On December 15, 2016, the Knesset Finance Committee approved a tax reform that affects many aspects of the Israeli tax system. Among the purposes of the measures introduced, favor the classes that receive medium and medium-low incomes and increase the tax burden of income earners above 33 thousand ILS (shekels, or Israeli shekel). The reform, contained in the Budget Law, also provides for a gradual reduction of IRES and various types of subsidies for companies (national and multinational) operating in the State.
Taxable persons are resident companies for the income produced everywhere and non-resident companies for the income produced in the territory not necessarily through a fixed business base or a permanent establishment. A legal person is considered resident in the territory if it was established under Israeli law or if the management and control of the business are exercised in the Jewish state.
The 2003 tax reform introduced the legal structure of “transparent” companies which, although not partnerships, benefit from exclusive taxation by the shareholders.
The income deriving from the exercise of the activity net of deductions and deductions recognized by law constitutes the taxable base. Dividends paid are not deductible from income.
The favorable regime provided for some companies operating in some areas and sectors of the national territory was recently revised with the Budget law approved at the end of 2016.
In particular, the companies that manage to obtain a specific certification (which gives them the definition of “Preferred Enterprise”, “Special Preferred Enterprise), can benefit from significant concessions.
The government’s purpose is to promote and encourage economic initiative by national and foreign entities, especially in particular geographical areas.
The activities that are generally favored in the recognition of this status are industrial, construction, tourism, agricultural and those carried out by subjects operating in the High-tech sector. In the documentation to be produced in order to obtain the certificate, the purpose of the investment, the description of the product to be made, information relating to the personnel expected to be employed, financial data regarding the loans requested, sales forecasts and completion times of the entire project.
The specific size of the applicable reduced rates depends on the type of investment and the area in which it is made. For example, companies operating in zone A (Galilee, Jerusalem, Negev desert) are subject to a rate of 7.5%.
Companies that obtain the status of “preferred enterprises” operating in other areas of the country, on the other hand, are subject to the rate of 16%. If the “preferred enterprises” operate in the High tech sector, however, the rate drops to 12%.
Investing in Israel
The Israeli economy over the past 15 years has radically changed thanks to the intense development of high-tech industries that have become the driving force of the economy.
In parallel with this transformation, the country has gradually opened up to trade and capital movements. The image of the agricultural country founded on the Kibbutz has been supplanted by that of a new Silicon Valley on the shores of the Mediterranean, with a very high number of companies in the start-up phase, supported by a growing flow of direct foreign investments.
The new economic model that Israel presents is that of the so-called “knowledge economy”: a constant osmosis between university and industry.
In fact, given the small size of the internal market (7 million inhabitants), the limited availability of natural resources, and the constraints of a geopolitical nature, the Israeli economy is, by its very nature, devoted to innovation.
Israel is world famous for desalination, water saving and wastewater recycling technologies. Among the most important works carried out on a large scale, the development of technologies that have made it possible to desalinate the waters of the Mediterranean Sea making it drinkable, at the same time increasing the recycling of waste water, stands out; almost 90% of domestic ones are treated and recycled for agricultural needs and cover more than half of the needs of the sector.
Pending the start of tenders for the Sorek B desalination plant which will be the largest in the world and will cover ¼ of Israel’s annual needs, 5 desalination plants are active in Israel, in Ashkelon, Palmahim, Hadera, Soreq and Ashdod.
Israel is a global center, with a vibrant culture of innovation based on interdisciplinarity, entrepreneurial spirit and technical expertise, one of the most important tech hubs in the world in terms of the number of startups per capita and the percentage of GDP invested in research and innovation. . Israel is also a world leader in per capita venture capital investments with a high percentage of capital from foreign investors (85%) and a capital raising of over 9 billion dollars which highlights the attractiveness of the local market and the its excellent reputation worldwide. In recent decades, Israel has invested an average of 4.2% of GDP in R&D (of which 3.7% private investment, half of which are foreign companies), far exceeding the average public investment in research and development of the countries. OECD, which is around 2.3%. This policy contributes to the creation of fertile ground, encouraging and facilitating the birth and development of innovative ideas.