Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has 117 companies listed on the NASDAQ, the fourth most companies after the United States, Canada, and China. Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early-stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.
The COVID-19 pandemic shook Israel’s economy, but successful pre-pandemic economic policy buffers – strong growth, low debt, a resilient tech sector among them – mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy rebounded strongly post-pandemic with 8.1 percent GDP growth in 2021. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.
The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods and services that reached USD 45.1 billion in 2021, according to the U.S. Bureau of Economic Analysis, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 40.4 billion in 2020. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, mostly open, and led by a cutting-edge high-tech sector.
The Israeli government generally continues to take slow, deliberate actions to remove trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies.
Israel has taken steps to meet its pledges to reduce greenhouse gas emissions, with planned investments in technologies and projects to slow the pace of climate change.
|TI Corruption Perceptions Index||2021||36 of 175||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||15 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$40.4 billion||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$42,600||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Israel is open to foreign investment and the government actively encourages and supports the inflow of foreign capital.
The Israeli Ministry of Economy and Industry’s ‘Invest in Israel’ office serves as the government’s investment promotion agency facilitating foreign investment. ‘Invest in Israel’ offers a wide range of services including guidance on Israeli laws, regulations, taxes, incentives, and costs, and facilitation of business connections with peer companies and industry leaders for new investors. ‘Invest in Israel’ also organizes familiarization tours for potential investors and employs a team of advisors for each region of the world.
The Israeli legal system protects the rights of both foreign and domestic entities to establish and own business enterprises, as well as the right to engage in remunerative activity. Private enterprises are free to establish, acquire, and dispose of interests in business enterprises. As part of ongoing privatization efforts, the Israeli government encourages foreign investment in privatizing government-owned entities.
Israel’s policies aim to equalize competition between private and public enterprises, although the existence of monopolies and oligopolies in several sectors, including communications infrastructure, food manufacturing and marketing, and some manufacturing segments, stifles competition. In the case of designated monopolies, defined as entities that supply more than 50 percent of the market, the government controls prices.
Israel established a centralized investment screening (approval) mechanism for certain inbound foreign investments in October 2019. Investments in regulated industries (e.g., banking and insurance) require approval by the relevant regulator. Investments in certain sectors may require a government license. Other regulations may apply, usually on a national treatment basis.
The World Trade Organization (WTO) conducted its fifth and latest trade policy review of Israel in July 2018. In the past three years, the Israeli government has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD). The OECD concluded an Economic Survey of Israel in 2020, which can be found here:
The Israeli government is fairly open and receptive to companies wishing to register businesses in Israel. The business registration process in Israel is relatively clear and straightforward. Four procedures are required to register a standard private limited company and take 12 days to complete, on average, according to the Israeli Ministry of Finance. The foreign investor must obtain company registration documents through a recognized attorney with the Israeli Ministry of Justice and obtain a tax identification number for company taxation and for value added taxes from the Israeli Ministry of Finance. The cost to register a company averages around USD 1,000 depending on attorney and legal fees.
The Israel Export and International Cooperation Institute is an Israeli government agency operating independently, under the Ministry of Economy, that helps facilitate trade and business opportunities between Israeli and foreign companies. More information on their activities is available at .
In general, there are no restrictions on Israeli investors seeking to invest abroad. However, investing abroad may be restricted on national security grounds or in certain countries or sectors where the Israeli government deems such investment is not in the national interest.
3. Legal Regime
Israel promotes open governance and has joined the International Open Government Partnership. The government’s policy is to pursue the goals of transparency and active reporting to the public, public participation, and accountability.
Israel’s regulatory system is transparent. Ministries and regulatory agencies give notice of proposed regulations to the public on a government web site: . The texts of proposed regulations are also published (in Hebrew) on this web site. The government requests comments from the public about proposed regulations. However, the government occasionally issues new or revised regulations without prior comment periods.
Israel is a signatory to the WTO Agreement on Government Procurement (GPA), which covers most Israeli government entities and government-owned corporations. Most of the country’s open international public tenders are published in the local press. U.S. companies have won government tenders, notably in the energy and communications sectors. However, government-owned corporations make extensive use of selective tendering procedures. In addition, the lack of transparency in the public procurement process discourages U.S. companies from participating in major projects and disadvantages those that choose to compete. Enforcement of the public procurement laws and regulations is not consistent.
Israel is a member of UNCTAD’s international network of transparent investment procedures. ( ). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal basis justifying the procedures.
The Israeli Securities Authority released a recommendation in April 2021 calling for all public companies to publish annual environmental, social, and governance (ESG) reports based on international standards. In May 2021, the Bank of Israel required banks to note in the annual reports the material environmental, social and governance aspects integrated into their targets, and to note concisely the main principles established by the banking corporation for promoting these issues. The Israeli Capital, Insurance, and Savings Authority, which regulates financial services in the insurance and pension funds industries, also required institutional investors to publish ESG reports.
Israel is not a member of any major economic bloc but maintains strong economic relations with several such blocs.
Israeli regulatory bodies in the Ministry of Economy (Standards Institute of Israel), Ministry of Health (Food Control Services), and the Ministry of Agriculture (Veterinary Services and the Plant Protection Service) often adopt standards developed by European standards organizations. Israel’s adoption of European standards rather than international may add costs for some U.S. exports to Israel.
Israel became a member of the WTO in 1995. The Ministry of Economy and Industry’s Standardization Administration is responsible for notifying the WTO Committee on Technical Barriers to Trade, and regularly does so.
Israel has a written and consistently applied commercial law based on the British Companies Act of 1948, as amended. The judiciary is independent, but businesses complain about the length of time required to obtain judgments. The Supreme Court is an appellate court that also functions as the High Court of Justice. Israel does not employ a jury system.
There are few restrictions on foreign investors, except in defense and other national security industries. Foreign investors are welcome to participate in Israel’s privatization program.
Israeli courts exercise authority in cases within the jurisdiction of Israel. However, if an agreement between involved parties contains an exclusively foreign jurisdiction, the Israeli courts will generally decline to exercise their authority.
The Investment Promotion Center of the Ministry of Economy seeks to encourage investment in Israel. The center stresses Israel’s high marks in innovation, entrepreneurship, and Israel’s creative, skilled, and ambitious workforce. The center also promotes Israel’s strong ties to the United States and Europe.
Israel adopted its comprehensive competition law in 1988. Israel created the Israel Competition Authority (originally called the Israel Antitrust Authority) in 1994 to enforce the competition law.
There have been no known expropriations of U.S.-owned businesses in Israel. Israeli law requires adequate payment, with interest from the day of expropriation until final payment, in cases of expropriation.
Israel has established and well-regarded bankruptcy measures in place. Israeli Bankruptcy Law has several layers, some rooted in Common Law, when Palestine was under the British mandate in 1917-1948. Bankruptcy Law in Israel is based on the 1980 Bankruptcy Ordinance, the 1985 Bankruptcy Regulations, and the 2018 Law for Insolvency and Economic Recovery.
4. Industrial Policies
The State of Israel encourages both local and foreign investment by offering a wide range of incentives and benefits to investors in industry, tourism, and real estate. The Law for Encouragement of Capital Investment and the Law for the Encouragement of Industrial Research and Design include grants and tax benefits for potential investors. Israel’s Ministry of Economy places a priority on investments in hi-tech companies and R&D activities. The Ministry of Economy’s Small and Medium Business Agency offers special loan programs for Arab women. Israel also offers tax benefits for new immigrants and Israeli citizens returning from residing abroad, including exemption from capital gains taxes on the sale of assets located outside of Israel.
Most investment incentives available to Israeli citizens are also available to foreign investors. Israel’s Encouragement of Capital Investments Law, 5719-1959, outlines Israel’s investment incentive programs. The Israel Investment Center (IIC) coordinates the country’s investment incentive programs.
For complete information, potential investors should contact:
Israel has bilateral Qualifying Industrial Zone (QIZ) Agreements with Egypt and Jordan. The QIZ initiative allows Egypt and Jordan to export products to the United States duty-free, as long as these products contain inputs from Israel (8 percent in the Israel-Jordan QIZ agreement, 10.5 percent in the Israel-Egypt QIZ agreement). Products manufactured in QIZs must comply with strict rules of origin. More information is available at the Israeli Ministry of Economy’s Foreign Trade Administration website:
Israel has one free trade zone, the Red Sea port city of Eilat.
There are no universal performance requirements on investments, but “offset” requirements are often included in sales contracts with the government. There are no limits to private foreign ownership of Israeli firms. Israel’s visa and residency requirements are transparent. The Israeli government does not impose preferential policies on exports by foreign investors.
5. Protection of Property Rights
Israel has a modern legal system based on British common law that provides effective means for enforcing property and contractual rights. Courts are independent. Israeli civil procedures provide that local courts may accept judgments of foreign courts. The Israeli judicial system recognizes and enforces secured interests in property. A reliable system of recording such secured interests exists. The Israeli Land Administration, which manages land in Israel on behalf of the government, registers property transactions. Registering or obtaining land rights is a cumbersome process.
The Intellectual Property Law Division and the Israel Patent Office (ILPO), both within the Ministry of Justice, are the principal government authorities overseeing the legal protection and enforcement of intellectual property rights (IPR) in Israel. IPR protection in Israel has undergone many changes in recent decades as the Israeli economy has rapidly transformed into a knowledge-based economy.
In recent years, Israel revised its IPR legal framework several times to comply with newly signed international treaties. Israel took stronger, more comprehensive steps towards protecting IPR, and the government acknowledges that IPR theft costs rights holders millions of dollars per year, reducing tax revenues and slowing economic growth.
Israel was removed from the U.S. Trade Representative’s Special 301 Report Watch List in 2014.
Israel’s Knesset approved Amendment No. 5 to Israel’s Copyright Law of 2007 on January 1, 2019. The amendment aims to establish measures to combat copyright infringement on the internet while preserving the balance among copyright owners, internet users, and the free flow of information and free speech.
The 2018 New Designs Law brought Israel into compliance with The Hague System for International Registration of Industrial designs.
Nevertheless, the United States remains concerned with the limitations of Israel’s copyright legislation, particularly related to digital copyright matters, and with Israel’s interpretation of its commitment to protect data derived from pharmaceutical testing conducted in anticipation of the future marketing of biological products, also known as biologics.
The United States continues to urge Israel to strengthen and improve its IPR enforcement regime. Israel lacks specialized courts, common in other countries with advanced IPR regimes. General civil or administrative courts in Israel typically adjudicate IPR cases.
IPR theft, including trade secret misappropriation, can be common and relatively sophisticated in Israel. The European Commission “closely monitors” IP enforcement in Israel. The EC cites inadequate protection of innovative pharmaceutical products and end-user software piracy as the main issues with IPR enforcement in Israel.
Israel is a member of the WTO and the World Intellectual Property Organization (WIPO). It is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty.
6. Financial Sector
The Israeli government is supportive of foreign portfolio investment. The Tel Aviv Stock Exchange (TASE) is Israel’s only public stock exchange.
Financial institutions in Israel allocate credit on market terms. Various credit instruments are available to the private sector and foreign investors can receive credit on the local market. Legal, regulatory, and accounting systems are transparent and conform to international norms, although the prevalence of inflation-adjusted accounting means there are differences from U.S. accounting principles.
In the case of publicly traded firms where ownership is widely dispersed, the practice of “cross-shareholding” and “stable shareholder” arrangements to prevent mergers and acquisitions is common, but not directed at preventing foreign investment. Israeli law prevents foreign investment by individuals or businesses from “enemy states,” currently limited to Iran, Syria, and Lebanon.
The Bank of Israel (BOI) is Israel’s central bank and regulates all banking activity and monetary policy. In general, Israel has a healthy banking system that offers most of the same services as the U.S. banking system. Fees for normal banking transactions are significantly higher in Israel than in the United States and some services do not meet U.S. standards. There are 12 commercial banks and four foreign banks operating in Israel, according to the BOI. Bank Leumi and Bank Hapoalim, the two largest banks, dominate Israel’s banking sector, collectively controlling nearly 60 percent of Israel’s credit market. The State of Israel holds 6 percent of Bank Leumi’s shares; all of Israel’s other banks are fully private.
Israel passed legislation to establish the Israel Citizens’ Fund, a sovereign wealth fund managed by the BOI, in 2014. The law establishing the fund states that it will begin operating a month after the state’s tax revenues from natural gas exceed USD 307 million (1 billion NIS), which the Ministry of Finance expects will occur in late 2022.
7. State-Owned Enterprises
Israel established the Government Companies Authority (GCA) as an auxiliary unit of the Ministry of Finance following the passage of the 1975 Government Companies Law. It is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes. The Israeli state only provides support for commercial SOEs in exceptional cases. The GCA leads the recruitment process for SOE board members. Board appointments are subject to the approval of a committee, which confirms whether candidates meet the minimum board member criteria set forth by law.
The GCA oversees some 100 commercial and noncommercial companies, government subsidiaries, and companies under mixed government-private ownership. Among these companies are some of the biggest and most complex in the Israeli economy, such as the Israel Electric Corporation, Israel Aerospace Industries, Rafael Advanced Defense Systems, Israel Postal Company, Mekorot Israel National Water Company, Israel Natural Gas Lines, the Ashdod, Haifa, and Eilat Port Companies, Israel Railways, Petroleum and Energy Infrastructures and the Israel National Roads Company. The GCA does not publish a publicly available list of SOEs.
Israel is party to the Government Procurement Agreement (GPA) of the World Trade Organization.
Israel’s inter-ministerial privatization committee approved plans in January 2020 to sell off the Port of Haifa, Israel’s largest shipping hub. The privatization process is underway now. The incoming owner will be required to invest approximately USD 280 million (1 billion NIS) in the port, including the cost of upgrading infrastructure and financing the layoff of an estimated 200 workers. The government of Israel has ongoing plans to fully privatize Israel Post, which currently has 20 percent of its shares publicly listed.
8. Responsible Business Conduct
There is awareness of responsible business conduct among enterprises and civil society in Israel. Israel adheres to the OECD Guidelines for Multinational Enterprises. Israel is not a member of the Extractive Industries Transparency Initiative.
Israel’s National Contact Point sits in the Responsible Business Conduct unit in the OECD Department of the Foreign Trade Administration in the Ministry of Economy and Industry. An advisory committee, including representatives from the Ministries of Economy, Finance, Foreign Affairs, Justice, and the Environment, assist the National Contact Point. The National Contact Point also works in cooperation with the Manufacturer’s Association of Israel, workers’ organizations, and civil society to promote awareness of the guidelines.
Israel is not a signatory of the Montreux Document on Private Military and Security Companies. One Israeli company, RS Logistical Solutions Ltd, is a member of the International Code of Conduct for Private Security Service Providers’ Association.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
Department of the Treasury
Department of Labor
Israel significantly strengthened greenhouse gas reduction targets during 2021 but does not yet have a national climate strategy, nor has it identified specific expectations for private sector contributions to reaching these targets. There are no binding policies to implement Prime Minister Bennett’s 2021 announcement that Israel will achieve net-zero carbon emissions by 2050. Public procurement policies are subject to environmental regulations and often require environmental impact assessments. The government does not explicitly consider environmental and green growth considerations such as resource efficiency, pollution abatement, or climate resilience in awarding procurement contracts.
Bribery and other forms of corruption are illegal under several Israeli laws and Civil Service regulations. Israel is a signatory to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions. Israel ranks 36 out of 175 countries in Transparency International’s 2021 Corruption Perceptions Index, dropping one place from its 2020 ranking. Several Israeli NGOs focus on public sector ethics in Israel and Transparency International has a local chapter.
The Israeli National Police, state comptroller, Attorney General, and Accountant General are responsible for combating official corruption. These entities operate effectively and independently and are sufficiently resourced. NGOs that focus on anticorruption efforts operate freely without government interference.
10. Political and Security Environment
The security situation remains complex in Israel and the West Bank, and can change quickly depending on the political environment, recent events, and geographic location. Terrorist groups and lone-wolf terrorists continue plotting possible attacks in Israel, the West Bank, and Gaza. Terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets, shopping malls, and government facilities. Hamas, a U.S. government-designated foreign terrorist organization, controls security in Gaza, making it particularly dangerous and volatile.
11. Labor Policies and Practices
Central Bureau of Statistics data from February 2022 indicate there are 4.1 million people active in the Israeli labor force, with a 3.9 percent unemployment rate. According to OECD data from 2020, 47 percent of Israelis aged between 25 and 34 years have a tertiary education. Many university students specialize in fields with high industrial R&D potential, including engineering, computer science, mathematics, physical sciences, and medicine. According to the Investment Promotion Center, there are more than 145 scientists out of every 10,000 workers in Israel, one of the highest rates in the world. The rapid growth of Israel’s high-tech sector in the late 1990s increased the demand for workers with specialized skills. Tech sector executives report a significant shortage of qualified labor for the sector given its size and continuing growth.
The national labor federation, the Histadrut, organizes about 17 percent of all Israeli workers. Collective bargaining negotiations in the public sector take place between the Histadrut and representatives of the Ministry of Finance. The number of strikes has declined significantly as the public sector has gotten smaller. However, strikes remain a common and viable negotiating tactic in difficult negotiations.
Israel strictly observes the Friday afternoon to Saturday afternoon Jewish Sabbath and special permits must be obtained from the government authorizing Sabbath employment. At the age of 18, most Israelis are required to perform 2-3 years of national service in the military or in select civilian institutions. Until their mid-40s, many Israeli males are required to perform about a month of military reserve duty annually, during which time they receive compensation from national insurance companies.
The size of Israel’s informal economy is estimated to be 20.8 percent which represents approximately $97 billion at GDP PPP levels, according to OECD estimates. Black market lending is common in Israel’s Arab neighborhoods with some “money change” shops servings as fronts for such illegal businesses. According to the Israel Democracy Institute, a national reform program aims to address the trend of large segments of the workforce in Israel working under temporary contracts that offer minimal job security, weak social protections, and dwindling economic security.
14. Contact for More Information
U.S. Embassy Jerusalem – Tel Aviv Branch Office