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Amendments to the Encouragement of Capital Investments Law

Much has been written about regulation’s difficulty with keeping up and meeting the technological changes of the modern world. Globalization and quick, frequent changes create “holes” that are difficult for the legislature to fill in time. This is true not only for legislation that aims to adapt to a new technological product, but also for commerce and industry, which have undergone significant changes in the modern age. Now, though, the Ministry of Economy and Industry and the Investment and Development Authority for Industry and Economy are presenting a series of steps to bring the Encouragement of Capital Investments Law in line with the Israeli market of 2019. 

Currently, the law encourages capital investments by companies and factories through tax benefits and grants if they meet a set of criteria. These criteria include meeting export targets or performing activity in areas removed from the metropolitan centers of the country and in other regions of national priority. In its current form, the law prioritizes large companies that are rich in resources over burgeoning companies. Thus, the legislature’s intervention is a welcome step that will allow startups to also enjoy benefits and grants. 


Notable Changes

One of the notable changes is the expansion of the definition of biotechnology. It now refers to broader subjects than just activity in the production of medication from stem cells. Another change is the departure from a “classic” view of industry to also include companies involved in “hot” technologies like autonomous vehicles, virtual reality, and big data. Beyond the broad changes, even at the local level, the law is expected to provide solutions for areas that up until now were not eligible for benefits.

It seems the bureaucratic system now better understands the obstacles it often places on companies, factories, and entrepreneurs. The amendment to the law aspires to loosen some of its prior demands. These include extending the time period for executing an investment plan (which is currently five years with possible sanctions due to delays), if delays in the execution of the plan result from bureaucratic delays or delays in the granting of permits, or are due to a unique security situation that suspends the company’s activity.

Furthermore, if in the past a company’s income was measured for purposes of its eligibility for benefits in shekels, the amendment to the law is expected to allow measurement by the primary currency in which the company conducts its business. This will prevent the corrosion of the exchange rate. Moreover, companies who log their income in euros or dollars will be able to meet the eligibility test successfully as well. 


More Is Needed

This seems like a happy development, but one should put the confetti on hold. In order to succeed in expanding the number of benefitting companies, the budget of the Investment Authority must grow too. The latter has only grown gradually in recent years and is likely to remain the same for the foreseeable future. Though it is possible the Ministry of Economy will seek to expand the budget, and thus the number of beneficiaries and the scope of benefits, there is no guarantee of approval of such budget expansion. 

In addition, before their implementation, the amendments to the law must gain the Knesset’s approval. However, as we all know, the Knesset is currently gearing up for an election. We can only hope the reform is prioritized and is one of the first issues upon which the 22nd Knesset votes. That way, the one hundred companies the change is likely to impact can enjoy enhanced support shortly.


Source: barlaw.co.il

Tags: Biotechnology | Capital Investments Law | Startups | Tax