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Starting a Business in Israel

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Starting a Business in Israel

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Why Start A Business In Israel?

Israel is still a comparatively young country on this fair planet. If ever there was an example of both divine and political intervention, Israel is it. The Jewish state is one of the only countries with a legacy longer than its existence and a nationality inextricably entwined with religion. It is also a sexagenarian, so pretty much a baby in the grand scheme of civilisation. The ride hasn't been particularly mellifluous either.

For a while now it has been a case of Gaza barriers, road maps, red buttons and itchy fingers. But these problems are the self-evident stain of the Middle East, and you can't let one facet of sociopolitics stand in the way of a good idea and success.

Israel can vaunt all right. It can vaunt until the kosher cows come home. Israel not only has one of the highest standards of living in the Middle East, but is its only democracy, and is backed by some very formidable friends in the west.

And for a country of such infancy, it flaunts a developed economy with a sound infrastructure, and is home to the world's largest percentage of engineers and scientists. Accordingly, many multinationals have seen it as the perfect place to establish their regional presence: Microsoft, Motorola, Intel, HP, Siemens, GE, IBM, Philips, Lucent, AOL, Applied Materials, and IBM, to name but a handful.

The political and corporate relationship between the UK and Israel is solid, and has been since Israel's inception in 1948. Company laws are even based on the English model, and Israel acts as a natural home for UK investors, with no restrictions or language barriers.

The Israeli Government encourages domestic and overseas investment, offers generous grants and loans in support of businesses, and foreseeable prospects remain positive. With past economic development, coupled with the optimistic effects of the continuing Middle East Peace Process, Israel remains an attractive export and investment destination for UK businesses.

So, if you are brimming with more revolutionary ideas than Theodor Herzl, then read on to find out why Israel might really be the Promised Land.

What is the population?

The population of Israel is approximately 7.94 million

What is the time difference?

The time in Israel is GMT+2

What is the climate?

Jerusalem is situated at a relatively high altitude, and consequently experiences quite cold, wet winters with occasional light snowfalls. Conversely, summers are arid and warm, with low humidity and temperatures around 24C. During autumn and spring a hot desert wind called the sharav is not an uncommon feature.

The climate of Tel Aviv,  is subtropical, with hot summers and mild winters. The average temperature in summer is 25C, and in winter 14C. Humidity tends to be high all year round and November to April is the rainy season.

What are the languages?

The official language is Hebrew, but the second most common language is English, and most people in the business community speak it competently and lucidly. Most official signs are translated into English, and most restaurants provide an English menu. The voice mail of most companies and major services offer English options. Frankly, you will have no problem communicating.

What is the currency and exchange rate?

The currency used in Israel is the Israeli New Shekel (ILS).

Economic Overview

Israel has a nurtured mixed market economy. Similar to the countries of Western Europe, its nationals relish a high standard of living. The World Bank classified Israel as one of the twenty-three developed economies of the world.

The Government has pledged heavy investment in the economic infrastructure with the extension and improvement of the road and rail system, airports and power generation, and the urbanisation of under-populated area. Israel invests 4.2% of GDP in research and development (R&D) in its aim to maintain economic performance. High tech companies are replacing the old traditionalists, and the orange grove has given way to Silicon Wadi (Silicon Valley).

Over the last few years, you may have observed the coming of the 'new economy' highlighted by the success of firms such as Intel, Checkpoint, Amdocs, and Comverse. Israel is now ranked tenth in the world for Venture Capital investment. The term Israeli Technology has already acquired the connotation of an eminent brand. The key to this sector can be observed both from its contribution to the GDP and also because it accounts for over half of industrial exports.

Additionally, there has been an big government programme of deregulation, a liberalisation of import limitations and charges, fiscal and budget reforms as well as the furthering of plans for the privatisation of state-owned companies.

Israel enjoys free trade agreements with the world's two largest trading markets, the European Union (EU) and the United States

The government promotes domestic and foreign investment and provides impressive grants and loans in support of businesses and future prospects. With successful past economic development, coupled with the optimism of the Middle East peace process, Israel remains an enticing export and investment location for UK companies.

Infrastructure

Israel is a relatively small country: automobiles, buses and trucks are the predominant means of transportation. Recently, however, some alterations, improvements and extensions were made to the road network in order to accommodate and regulate the expeditious growth in the number of vehicles, as well as to provide connections to the big cities, towns, and remote areas.

Communications

The telecommunications sector has recently been advancing at such an impressive rate. The remarkable changes in the sector are in part consequence to an essential transition in policy. Presently, Israel is directly associated with the world's large commercial, financial and academic data networks and is fully interwoven into international communications systems.

Israel's communications infrastructure is highly developed, providing telephone, fax, internet, databases, and a cable network for customers throughout the country. Additionally, a postal service is active all over, and international postal and courier services provide postal delivery to and from the majority of foreign countries.

What are the essentials to know?

Are there any incentives?

Investment Incentives - Approved / Privileged Enterprise Programs. Investment incentives are outlined in the Law for the Encouragement of Capital Investment. The incentive programs can be divided into two types:

  • The Grants program
  • The Automatic Tax Benefits programs
Investments which are approved according to the Grants program are merited with Approved Enterprise status and Privileged Enterprise status.
 
Privileged Enterprises which are owned by an Israeli firm may choose a tax holiday without acquiring permission if a minimum investment has been made in fixed assets within a three year period. The tax holiday applies to undistributed profits for two to fifteen years depending on the location and foreign ownerships. The total benefit period for the tax holiday and low rates can range from anywhere between seven to fifteen years.

Tax Exemptions - Foreign residents not doing business in Israel may enjoy an exemption from Israeli capital gains tax (taxes paid in the investor's home country).

Labour and workforce

Non-resident foreign nationals wishing to work in Israel must have valid work permits. Clearance must be obtained from Israel's Ministry of Labour, with a B1 visa issued by the Israeli Embassy in London.

Foreign residents working in Israel on a B1 visa are not treated as residents for tax purposes, unless they adopt immigrant status. However, they are liable to income tax on income earned within the state, regardless of the place of the employment contract, or the currency, or place of payment.

Business visitors granted approved specialist status by the Israel Investment Centre, approved 'experts', journalists, sportspeople might also relish relief from higher rates of tax and gain funding toward some expenses.

Double tax relief applies to short-term residents; persons staying in Israel for less than 183 days.

Fundamental employee rights, such as minimum wage, paid leave, sick pay, maximum work day and week, overtime, rest day, holiday pay, notice for dismissal, severance pay, maternity leave, social security and wage protection, are regulated by legislation and law.

The laws apply to all workers, with the exception of a few specific persons. Further basic rights, like recreational pay and travel expenses, are protected by extension orders of general collective agreements. Likewise, these orders apply to all employees (again, with few exceptions).

Under the Hours of Work and Rest Law, the maximum working day is eight hours and the maximum working week is forty-five hours.

Under the Paid Leave Law, annual paid leave eligibility is a fortnight (14 days) for each of the first four years of employment. Such entitlement grows from the fifth year of employment, up to a maximum of twenty-eight days.

Under the Sick Pay Law, eligibility for sick pay amounts at a rate of one and-a-half days a month of employment, up to a maximum of ninety days, minus the number of days for which the employee has already received sick pay according to law.

Etiquette

Communicating - Israelis have a direct communicative style, sometime intense and often passionate; anger and happiness can often all be expressed within the same breath. Generally, Israeli businesspeople speak very good English.

Physical space - Israelis are at ease with close physical contact, as are their Arab neighbours. Americans and Germans prefer more physical distance; Israelis might taken this as standoffish or idiosyncratic of a negative attitude. Touch and physical contact feature in day-to-day business relationships.

Security - Security is still at the heart of the Israeli life. It has been actively involved in four wars since 1948; bombs in the streets and bus stations and for most men and women, being conscripted at 18 and serving for a year, has influenced Israeli perspectives and its world view.

Time keeping - Israelis have a more relaxed attitude to time and time-keeping than a lot of other nationalities.

Click here to Ask an Expert about Starting a Business in Israel

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