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Israeli High-Tech: “Angels Law” Grants Tax Benefits to Investors

The Israeli legislature promulgated a new Angels Law at the end of July, with the goal of preserving Israel as an attractive hub for investments in high-tech companies by granting various tax incentives. (This temporary order will remain in effect until the end of 2026.) The law is a continuation of the previous Angels Law that expired at the end of the 2019 tax year.


The tax benefits include, as follows:

  • Tax credit for investing in Israeli high-tech startups.
  • Deducting the sum of investment in an Israeli high-tech startup from the capital gain derived from the sale of shares of other high-tech company.
  • Recognizing an investment in shares of an Israeli high-tech company as a deductible expense in the current tax year.
  • Tax exemption on interest income of foreign financial institution in respect of loans granted by it to Israeli high-tech companies.

Tax Credit for Investors in Israeli High-Tech Startups

Under particular conditions, the law grants tax credit to investors in Israeli high-tech startups. The credit will be calculated as the sum of the investment multiplied by the Israeli capital gain tax rate that would have applied to the investor had it sold the shares allocated to it in the same tax year in which it executed the investment (the tax credit will be given for a maximum investment of ILS 4 million.) The investor will receive the tax credit in the same tax year in which it executed the investment. The investor may also carry forward non-utilized tax credit to subsequent tax years. The purpose of the benefit is to lower investment costs for anyone investing in Israeli high-tech startups.

Deduction of Investments in Israeli High-Tech Startups

Under particular conditions, the law enables individual which holds shares of an Israeli high-tech company to deduct its investment in Israeli high-tech startup from capital gain derived from selling its shares in the Israeli high-tech company. This tax benefit would be granted only if the individual’s investment was made close to the date of sale, i.e., within 12 months after the sale or 4 months before the sale (the maximum deduction allowed is ILS 5.5 million).


However, the investor’s investment in the relevant Israeli high-tech startup will not be included within the capital gain calculation, which would derived from selling its shares in that startup in the future. In other words, the law grants the investor an option to postpone tax payments concerning capital gain derived from selling shares of high-tech company until the investor sells its shares in the Israeli high-tech startup.


The purpose of this tax benefit is to incentivize experienced investors to invest in Israeli high-tech startups, based on the assumption that these investors will contribute their business and management experience, which is so critical for high-tech startups.


An investor which is entitled to both tax benefit (i.e., tax credit or deduction) for investing in an Israeli high-tech startup may only choose one of them (i.e., double benefits are not allowed).

Deducting Purchase Costs of Israeli High-Tech Company in the Current Year

Under particular conditions, an Israeli high-tech company that acquires control over an Israeli or foreign high-tech company owning a “beneficial intangible asset” (such as computer software, a patent, etc.) may deduct the purchase cost from its “preferred technological income” (i.e., that portion of the technological income deriving from research and development in Israel). The acquirer may deduct the purchase cost at equal annual rates for five years, as of the year after the year of the acquisition or from the year of making the payment of the consideration (whichever is later). This differs from the previous legal situation, whereby the acquirer could not deduct the acquisition cost from its current income, but could only deduct it when selling the acquired company.


Allowing high-tech company to deduct the acquisition costs of another high-tech company can help mitigate its expected decline of its profitability during the first few years after the acquisition, since it usually takes time for an investment to become profitable.

Tax Exemption on Interest Income of Foreign Financial Institutions

Large Israeli high-tech companies need considerable funding to continue growing. However, since their financing options in Israel are usually limited, they usually seek more expensive financing from foreign sources.


Under particular conditions, foreign financial institutions (such as banking corporations, institutional entities, etc.) granting loans to Israeli high-tech companies may receive tax exemption on interest income, including linkage differentials and deduction fees, which derive from the loans.


The purpose of the exemption is to reduce the costs imposed on Israeli high-tech companies when obtaining loans from foreign financial institutions specializing in financing high-tech companies.

Window of Opportunity to Receive Tax Benefits

As stated, the temporary order is in effect until the end of 2026. Therefore, Israeli and foreign investors in the Israeli high-tech industry have a narrow window of opportunity to receive tax benefits when investing in startups and mature high-tech companies, and when obtaining loans from foreign financial institutions in order to finance the operating activities of Israeli high-tech companies.




Barnea Jaffa Lande’s Tax Department has extensive experience representing Israeli and multinational high-tech companies. We are at your service to provide advice and legal services for acquisition and sale transactions of high-tech companies.


Adv. Hanna Daher is a partner and Adv. Alon Davidovich is an associate in the firm’s Tax Department.

Tags: Angels Law | tax benefits