Israel: Investing

FDI in Figures

Israel has a liberal investment system and most activities are open to both private national and foreign investors, ranking the country 12th among the top 20 host countries. According to UNCTAD's World Investment Report 2022, Israel's investment flow increased by 22% in 2021, reaching USD 29.6 billion. In the same year, the stock of FDI stood at USD 235.6 billion, around 48.9% of the country’s GDP. Most of the FDIs to Israel are directed towards manufacturing (especially for electronics equipment, like computers), information and communication, professional, scientific and technical activities, and financial and insurance activities. In terms of countries, the United States and the Netherlands are the main partners (U.S. firms account for nearly two-thirds of the more than 300 research and development centers established by multinational companies in the country). Furthermore, Chinese investment in Israel has grown rapidly in recent years, particularly in software, IT services and consumer electronics. According to OECD data, FDI flows to Israel amounted to USD 11.6 billion in the first half of 2022, down by 24.1% from the level recorded in the same period one year earlier (USD 15.3 billion).

Israel has a number of assets appealing to foreign investors, including a high-skilled and multilingual workforce and a strong R&D sector (at 5.44% of GDP it has the world's highest R&D intensity, over twice the OECD average of 2.26% - World Bank), advanced procedures and industrial technologies, governmental incentives and grants to foreign investors, a lean bureaucracy and a diversified economy. The hi-tech sector, especially start-ups, has attracted a great deal of foreign investment. However, the country's geopolitical environment is particularly unstable because of tensions with the Palestinian territories and support for American policy by Israel (albeit improvements have been achieved in diplomatic and commercial relations with Arab countries such as the UAE, Morocco, and – to a lesser extent - Saudi Arabia). Moreover, trade barriers and monopolies have contributed significantly to the high cost of living and the lack of competition in key sectors (where an entity supplies more than 50% of the market, the government controls prices). Israel ranks 22nd out of 82 countries in the Economist Business Environment ranking and 25th out of 63 in the 2022 Global Competitiveness Index.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	23,109	21,486	27,760
FDI Stock (million USD)	184,312	226,590	235,151
Number of Greenfield Investments*	47	79	76
Value of Greenfield Investments (million USD)	1,524	2,816	1,706

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND INDUSTRY

Main Investing Countries	2019, in %
USA	19.3
Netherlands	7.8
Cayman Islands	7.5
Canada	3.2
Luxembourg	2.3
Singapore	1.9
United Kingdom	1.7

Main Invested Sectors	2019, in %
Manufacturing	24.3
Information and communication	22.4
Professional, scientific and technical activities	14.7
Financial and insurance activities	12.3
Administrative and support service activities	4.6
Real estate	4.1
Mining and quarrying	1.7
Wholesale and retail trade; repair of motor vehicles and motorcycles	1.5

Source: OECD's Statistics, Latest data available.

Form of Company Preferred By Foreign Investors: Public limited company
Form of Establishment Preferred By Foreign Investors: Subsidiary or branch.
Main Foreign Companies: Consult the "Success Stories" of foreign companies established in Israel, on the dedicated page on the website of Invest in Israel.
Sources of Statistics: Bank of Israel
Central Bureau Statistics

What to consider if you invest in Israel

Strong Points

Israel has many strong advantages for FDI:

Israel is the country that invests the most in research and development in the world (5.4% of GDP in 2020, CBS)
Highly skilled workforce, particularly in engineering and high technology
Strong and stable private consumption
Rising real wages
Strong political stability due, on the one hand, to its stable democratic system and on the other hand to the political and financial support of the United States
Israel discovered significant offshore reserves of natural gas, which would enable the country to reduce its energy dependence and create new development opportunities

Weak Points

Main obstacles to the country's economic development:

Chronic instability linked to the regional political context. In particular, peace negotiations between Israel and the Palestinians are at a standstill
The Israeli state has a very large public debt
Labour costs are higher than the region's standards and a relatively high corporate tax are obstacles to investment in Israel
Relatively small internal market

Government Measures to Motivate or Restrict FDI

Foreign investment is encouraged in Israel by the recently revised Investment Promotion Act. The recent amendment to this law adds a tax incentive program.
The government in place is also seeking to provide the necessary support to entrepreneurs and the entrepreneurial ecosystem: many start-ups are emerging in Israel, particularly in information and communication technologies (ICT).
The Law for the Encouragement of Capital Investments provides assistance in the form of grants and tax breaks to companies classified as “Priority Enterprise”
For further information consult the Invest in Israel website, which provides guidance on Israeli laws, regulation, taxes, incentives, and costs, and facilitation of business connections.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Israel: To see the list of investment treaties signed by Israel, consult UNCTAD's International Investment Agreements Navigator.
International Controversies Registered By UNCTAD: Refer to UNCTAD's Investment Dispute Settlement Navigator.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International Court of Arbitration, International Chamber of Commerce
ICSID , International Center for Settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: Israel is a signatory of the MIGA Convention.

Country Comparison For the Protection of Investors	Israel	Middle East & North Africa	United States	Germany
Index of Transaction Transparency*	7.0	6.4	7.0	5.0
Index of Manager’s Responsibility**	9.0	4.8	9.0	5.0
Index of Shareholders’ Power***	9.0	4.7	9.0	5.0

Source: The World Bank - Doing Business, Latest data available.

Procedures Relative to Foreign Investment

Freedom of Establishment: There are no restrictions on foreign investments except for sectors considered vital for national security, such as the defence and telecommunications sectors.
Acquisition of Holdings: Rules regarding mergers and acquisitions or takeovers are the same as for Israelis.
Obligation to Declare: Foreign investors are not under any obligation to receive prior authorisation from the Government, except for regulated industries (such as banking) or to register, except if the company wants to benefit from certain advantages. Investments in certain sectors may require a government license.
Competent Organisation For the Declaration: Invest in Israel
The Authority for Investments and Development of the Industry and Economy
Requests For Specific Authorisations: In October 2019, the Israeli government established a centralized investment screening mechanism for certain inbound foreign investments. Such mechanism applies to investments in regulated industries (like banking and insurance), which have to obtain approval by the relevant regulator.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Consult Instant Offices, CoWorker, Regus.
The Possibility of Buying Land and Industrial and Commercial Buildings: Purchase of buildings and land is open to foreign investors. However, registering or obtaining land rights is a cumbersome process (Israel ranks 75th in “Registering Property” according to the World Bank’s 2020 Doing Business Report).
Risk of Expropriation: There are very little risk of expropriation, as the Israeli judicial system recognizes and enforces secured interests in property. In case of expropriation, the company will benefit from complete and non-arbitrary compensations, with interest from the day of expropriation until final payment.

Investment Aid

Forms of Aid: Assistance is going to depend on the location of the investment and the nature of the project, amount of investment and the degree of foreign participation. This will be for financial assistance, financial incentives, grants, depreciation on diminishing values or loan guarantees, reduced tax rates, tax exemptions, and other tax-related benefits.
For detailed information, consult the dedicated page on the website of Invest in Israel.
Privileged Domains: Incentives are available for research and development, employment generation, jobs for emigrants and training. For further details, refer to the dedicated page on Invest in Israel's portal.
Privileged Geographical Zones: For a detailed description of sector-specific incentives, consult the dedicated page on Invest in Israel's website.
Free-trade zones: Grants are accorded at up to 20% of the amount of investment in fixed assets, production equipment or facilities. For investments in the Negev area in south Israel, an addition of up to 10% may be applied.
Furthermore, Israel has bilateral Qualifying Industrial Zone (QIZ) agreements with Egypt and Jordan.
Public aid and funding organisations: The Investment Authority is entrusted with capital grants, while the Tax Authority manages the tax benefits.

Investment Opportunities

The Key Sectors of the National Economy: Value added sectors: high-tech, aeronautics, electronics, telecommunications, information, biotechnologies, etc.
Security: biometry, surveillance and protection. Resources: treatment of raw water and desalination of water.
Furthermore, Israel is ranked 1st for medical device patents and 2nd for medical device solutions per capita.
High Potential Sectors: Chemical industry, agro-technologies, semi-conductor industry, communication, environment, biotechnologies, security, natural gas.
Privatization Programmes: The Government Companies Authority (GCA) is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes. After several years of stalled progress, the provatization program has been revived since 2020. Among the sectors concerned are defence (Israel Aerospace Industries), transport (Portof Haifa) and postal service (Israel Post).
Tenders, Projects and Public Procurement: Ministry of Economy and Industry, Mandatory Tenders Regulations
Tenders Info, Tenders in Israel
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: Electricity.
In the case of designated monopolies, defined as entities that supply more than 50% of the market, the government controls prices. For further information consult the website of the Israel Competition Authority.

Finding Assistance For Further Information

Investment Aid Agency: Ministry of Economy and Industry
Israel's Investment Promotion Centre
Other Useful Resources: Doing Business with Israel - Ministry of Foreign Affairs
Doing Business Guides: Doing Business in Israel (Thomson Reuters)
Doing Business in Israel - World Bank
Doing Business in Israel - UHY

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