Tags: Israel | technology | tax | incentive

Israel Plans Tax Cuts for Tech Companies as Priorities Change

Israel Plans Tax Cuts for Tech Companies as Priorities Change
(Stock Photo Secrets)

Thursday, 14 July 2016 08:30 AM EDT

Israel is planning a series of tax benefits for technology companies as it seeks to promote itself as a global hub for innovation.

Finance Minister Moshe Kahlon wants to cut corporate taxes for companies that maintain research and development facilities in Israel to as little as 6 percent from 25 percent currently, according to a ministry spokeswoman who spoke on customary condition of anonymity. The top benefits would go to companies with more than 10 billion shekels ($2.59 billion) in annual global sales, whose shareholders would also enjoy a dividend tax rate of just 4 percent, down from the current 30 percent, she said.

The changes, which are to be incorporated in the 2017-2018 budget, signal new priorities for Israel as it competes with countries such as Ireland that have lured multinationals their way through deep tax cuts. Its focus on innovation underscores a shift to knowledge-oriented industries from low-tech manufacturing, which has suffered in recent years due to the strong shekel and rising labor costs.

“Kahlon has highlighted two major goals to stimulate growth: boosting investment and cutting taxes,” said the chief economist of Meitav Dash Investments Ltd., Alex Zabezhinsky. “With this move, he accomplishes both. There is a clear understanding that the key now is to attract more investment in the high-tech sector, and this fits with that idea.”

Israel is under pressure to energize its high-tech economy as overall economic growth slows on sinking exports to just above 1 percent and capital investment stagnates. Economists have expressed concern that the country isn’t doing enough to attract talent and that its technology sector, a source of national pride and economic momentum, is stalling.

Cutting taxes won’t solve a key problem for the sector: a lack of skilled labor, which is bidding up salaries of computer scientists and software developers.

Finance Ministry officials, including chief economist Yoel Naveh, have proposed that the country solve such shortages by importing people with these skills and encouraging students to study math and science. The idea of bringing in foreign workers has made little headway in a country where any sign of diluting a Jewish majority is politically explosive.

© Copyright 2024 Bloomberg News. All rights reserved.


Economy
Israel is planning a series of tax benefits for technology companies as it seeks to promote itself as a global hub for innovation.
Israel, technology, tax, incentive
356
2016-30-14
Thursday, 14 July 2016 08:30 AM
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