Investment Incentives

To align the PA’s development priorities with the investment incentives provided by Palestinian law, in 2014, PA President Abbas enacted by decree amendments to the Promotion of Investment in Palestine Law No. 1 of 1998, also known as the investment and tax law.  These amendments extended tax incentives to small and medium sized enterprises, exporters, and agriculture and tourism businesses; and shifted the focus towards incentives on human capital instead of fixed assets.  The amendments added tourism and agricultural projects to qualifying industries and removed real estate development projects from the industries promoted through the incentives.  The amendments also provided additional authority to the Palestine Investment Promotion Agency (PIPA) to create incentive packages targeted to individual business needs (www.pipa.ps ).  The PA is also currently working on a package of incentives in the Information and Communications Technology (ICT), industrial, and energy sectors, in addition to those focused on development in Area C.

The 2014 amendment to Article 23 of the Promotion of Investment in Palestine Law No. 1 of 1998 granted the following incentives and exemptions for projects approved by PIPA:

• Income tax of zero percent for producers of agricultural products whose income is directly generated from land cultivation or livestock.
• Income tax of 5 percent commencing from the date of realizing profit, but not exceeding four years of operation, whichever is earlier.
• Income tax of 10 percent for a period of three years commencing from the end of the first phase. It will thereafter be calculated based on the applicable and in-effect percentages and segments.

Projects that may be targeted for taxation incentives and support services include the following:

• Industrial sector projects;
• Tourism sector projects;
• New projects within any sector that employ at least 25 workers during the period of benefit;
• Projects that increase their production exports ratio by more than 40 percent;
• Projects within any sector that use approximately 70 percent locally-sourced machinery and raw materials;
• Any existing project that adds 25 workers to the number of existing workers;
• Developmental expansions of projects (to be based on percentage of paid-in capital but not land value);
• Projects in which the PIPA Board of Directors provides specific incentive packages that comply with special criteria, meet international environment conditions or alternative energy services, or are projects located within areas of developmental priorities.
• Any project determined by PIPA’s Board of Directors to advance the public interest (subject to the nature of a project’s activity, geographical location, the extent to which the project contributes to increasing exports, creating job opportunities, advancing development, transferring knowledge, and supporting research and development for the purposes of enhancing the public benefit).

Excluded from the incentives are:

• Commercial projects;
• Insurance companies;
• Banks;
• Money changers;
• Real estate projects;
• Some electricity projects;
• Telecommunication services;
• Commercial services;
• Crushers;
• Quarries;
• Any companies that obtained concessions contracts from the Council of Ministers and operate as monopolistic companies.

In cooperation with the Palestinian Industrial Estates & Free Zones (PIEFZA), PIPA in 2017 introduced incentive packages targeting investors in the Bethlehem Industrial Park and Jericho Agro Industrial Park.  The packages extend incentives for three extra years, reducing income tax by 66 percent for eight years, followed by a 33 percent reduction for three years.  Tax incentives are also included for financial institutions that provide financing for the enterprises within the industrial zones.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones or free ports in the West Bank or Gaza.

Performance and Data Localization Requirements

The current performance requirements for investment incentives focus on job growth and locally-sourced production.  Under PA law, there are no data storage requirements for IT companies.  The PA does not follow a forced localization policy and there are no requirements for foreign IT providers to turn over source code or provide access to surveillance.

Capital Markets and Portfolio Investment

In 2004, the PA enacted the Capital Markets Authority Law and the Securities Commission Law and created the Capital Market Authority to regulate the stock exchange, insurance, leasing, and mortgage industries.  In 2010, a Banking Law was adopted to bring the Palestinian Monetary Authority’s (PMA) regulatory capabilities in line with the Basel Accords, a set of recommendations for regulations in the banking industry.  The 2010 law provides a legal framework for the establishment of deposit insurance, management of the Real Time Gross Settlement (RTGS) system, and treatment of weak banks in areas such as merger, liquidation, and guardianship.  It also gives the PMA regulatory authority over the microfinance sector.  In 2013, the PA passed a Commercial Leasing Law and in 2015 the MONE finalized a registry for moveable assets, intended to facilitate secured transactions, especially for small and medium-sized businesses.  In April 2016, the PA passed the Secured Transactions Law, which established the legal grounds and modern systems to regulate the use of movable assets as collateral.

Notwithstanding this regulatory environment, the World Bank’s 2020 Ease of Doing Business report assigned the West Bank and Gaza a particularly low score for protecting minority investors (114 out of 190) and resolving insolvency (168 out of 190).  Founders of recently established SMEs complain that loan terms from Palestinian creditors fail to allow the borrower enough time to establish a sustainable business, although the new Moveable Assets Registry, coupled with the Secured Transactions Law and Commercial Leasing Law, led to a substantial improvement in the Getting Credit ranking (25 out of 190) from 2018.

The Palestine Exchange (PEX) was established in 1995 to promote investment in the West Bank and Gaza.  Launched as a private shareholding company, it was transformed into a public shareholding company in February 2010.  The PEX was fully automated upon establishment – the first fully automated stock exchange in the Arab world, and the only Arab exchange that is publicly traded and fully owned by the private sector.  The PEX operates under the supervision of the Palestinian Capital Market Authority.  PEX’s 49 listed companies are divided into five sectors:  banking and financial services, insurance, investment, industry, and services, with a USD 3.5 billion market capitalization.  Shares trade in Jordanian dinars and U.S. dollars.  PEX member securities companies (brokerage firms) operations are found  across the West Bank and Gaza and authorized custodians are available to work on behalf of foreign investors.

Money and Banking System

The Palestinian banking sector continues to perform well under the supervision of the PMA.  World Bank reports to the Ad Hoc Liaison Committee (AHLC) have consistently noted that the PMA is effectively supervising the banking sector.  The PMA continues to enhance its institutional capacity and provides rigorous supervision and regulation of the banking sector, consistent with international practice.

An Anti-Money Laundering Law that was prepared in line with international standards with technical assistance from the International Monetary Fund (IMF) and USAID came into force in October 2007.  In December 2015, the PA President signed the Anti-Money Laundering and Terrorism Financing Decree Law Number 20 for the PA to join the Middle East and North Africa Financial Action Task Force (MENA/FATF), a voluntary organization of regional governments focused on combating money laundering and the financing of terrorism and proliferation.  Improvements contained in the 2015 law make terrorist financing a criminal offense and defines terrorists, terrorist acts, terrorist organizations, foreign terrorist fighters, and terrorist financing (AML/CFT).  The PMA completed a National Risk Assessment (NRA)–an AML/CTF self-assessment–in 2018.  The PMA is implementing the recommendations from the self-assessment to strengthen the AML/CTF regime in preparation for a MENA/FATF member  review of the Palestinian economy’s AML/CFT safeguards scheduled for August 2020. However, the MENA FATF review is postponed due to the current coronavirus pandemic.  The PMA is considered a regional leader in AML/CTF safeguards and its representatives provide training to other Arab governments.

Credit is affected by uncertain political and economic conditions and by the limited availability of real estate collateral due to non-registration of most West Bank land.  Despite these challenges, the sector’s loan-to-deposit ratio continues to increase towards parity, moving from 58 percent at the end of 2015 to 68 percent at the end of 2019.  The PMA has achieved this in part by encouraging banks to participate in loan guarantee programs sponsored by the United States and international financial institutions, by supporting a national strategy on microfinance, and by imposing restrictions on foreign placements.  The MONE’s enactment of the Secured Transactions Law in April 2016 allows for use of moveable assets, such as equipment, as collateral for loans.  Non-performing loans are less than three percent of total loans, due to credit bureau assessments of borrowers’ credit worthiness and a heavy collateral system.

Palestinian banks have remained stable in general but have suffered from a deterioration in relations with Israeli correspondent banks since the Hamas takeover of Gaza in 2007, at which time Israeli banks cut ties with Gaza branches and gradually restricted cash services provided to West Bank branches.  All Palestinian banks were required to move their headquarters to Ramallah in 2008.  Israeli restrictions on the movement of cash between West Bank and Gaza branches of Palestinian banks have caused intermittent liquidity crises in Gaza and for all major currencies–U.S. dollars, Jordanian dinars, and Israeli shekels (ILS).  An Israeli government decision in late 2018 to increase the deposit transfer amount from Palestinian banks to the Bank of Israel to NIS 1 billion monthly (an increase from NIS 350 million per month) helped reduce the excess amount of shekels in the West Bank and Gaza.

The PMA regulates and supervises 14 banks (6 Palestinian, 7 Jordanian, and 1 Egyptian) with 370 branches and offices in the West Bank and Gaza, with USD 17.2 billion net assets.  No Palestinian currency exists and, as a result, the PA places no restrictions on foreign currency accounts.  The PMA is responsible for bank regulation in both the West Bank and Gaza.  Palestinian banks are some of the most liquid in the region, with net deposits of USD 13.2 billion and gross credit of USD 9 billion as of the end of 2019.

Foreign Exchange and Remittances

Foreign Exchange

The PA does not have its own currency.  According to the 1995 Interim Agreement, the Israeli Shekel (NIS/ILS) freely circulates in the West Bank and Gaza and serves as means of payment for all purposes, including official transactions.  The exchange of foreign currency for NIS and vice-versa by the PMA is carried out through the Bank of Israel Dealing Room, at market exchange rates.

Remittance Policies

The Investment Law guarantees investors the free transfer of all financial resources out of the Palestinian territories, including capital, profits, dividends, wages, salaries, and interest and principal payments on debts.  Most remittances under USD 10,000 can be processed within a week.  In addition to the Israeli Shekel (NIS), U.S. dollars (USD) and Jordanian dinars (JD) are widely used in business transactions.  There are no other PA restrictions governing foreign currency accounts and currency transfer policies.  Banks operating in the West Bank and Gaza, however, are subject to Israeli restrictions on correspondent relations with Israeli banks and the ability to transfer shekels into Israel, which occasionally limit services such as wire transfers and foreign exchange transactions.

Sovereign Wealth Funds

The privately-run Palestine Investment Fund (PIF) acts as a sovereign wealth fund, owned by the Palestinian people.  According to PIF’s 2018 annual report (the most recent available), its assets reached USD 1 billion and net income  USD 37  million.  PIF’s investments in 2018 were concentrated in infrastructure, energy, telecommunications, real estate and hospitality, micro/small/medium enterprises, large caps, and capital market investments.  90 percent of PIF investments are domestic, but excess liquidity is invested in international and regional fixed income and equity markets.  In 2014, the fund established the Palestine for Development Foundation, a separate not-for-profit foundation managing PIF’s corporate social responsibility initiatives, which are primarily focused on support to Palestinians in the West Bank, Gaza, Jerusalem, and abroad.  Since 2003, PIF has transferred over USD 797.6  million to the PA in annual dividends, but PIF leadership does not report to the PA per PIF bylaws.  International auditing firms conduct both internal and external annual audits of the PIF.

Most large or multinational businesses in the West Bank include corporate social responsibility (CSR) in their business plans, mainly focusing on philanthropy related to education, health, and youth.  Some medium-sized enterprises, particularly in healthcare and the food industry, started CSR initiatives to create goodwill for their products.  CSR engagement remains relatively low overall, because over 90 percent of companies are small, family-run businesses.

According to the World Bank 2014 Investment Climate Assessment report, Palestinian firms do not consider corruption to be one of the most serious problems they face.  Seven percent of the firms surveyed reported having experienced a request from a government official for a bribe. According to USAID’s West Bank and Gaza Inclusive Growth Diagnostic Study conducted in 2017, only 11 percent of the Palestinian firms surveyed reported ever being asked to pay a bribe, compared to 48 percent in Egypt.  Private sector businesses assert that the PA has been successful in reducing institutional corruption and local perceptions of line ministries and PA agencies are generally favorable.

The Anti-Graft Law (AGL) of 2005 criminalizes corruption, and the State Audit and Administrative Control Law and the Civil Service Law both aim to prevent favoritism, conflict of interest, or exploitation of position for personal gain.  The AGL was amended in 2010 to establish a specialized anti-graft court and the Palestinian Anti-Corruption Commission, which was tasked with collecting, investigating, and prosecuting allegations of public corruption.  The Anti-Corruption Commission, first appointed in 2010, has indicted several high-profile PA officials.  Palestinian civil society and media are active advocates of anti-corruption measures and there are international and Palestinian non-governmental organizations that work to raise public awareness and promote anti-corruption initiatives.  The most active of these is the Coalition for Integrity and Accountability (AMAN), which is the Palestinian chapter of Transparency International (http://www.aman-palestine.org/eng/index.htm ).

UN Anticorruption Convention, OECD Convention on Combatting Bribery

In April 2014, the PA acceded to the UN Anticorruption Convention.  The PA is not a party to the OECD Convention on Combatting Bribery.

Resources to Report Corruption:

Contact at U.S. Embassy in Jerusalem:
Palestinian Affairs Unit
Economic Section
+972 2 622 6952
JerusalemECON@State.Gov

Contact at government agency or agencies responsible for combating corruption:
The Coalition for Accountability and Integrity – AMAN
+972-2-298-9506
info@aman-palestine.org
http://www.aman-palestine.org 

The security environment in the West Bank and Gaza remains complex.  The security situation can change rapidly, depending on the political situation, recent events, and the geographic region.  Potential investors should regularly consult the State Department’s latest travel warnings, available at https://travel.state.gov.  According to a comprehensive USAID study published in 2017, restrictions on movement and access to resource and markets–reflecting Israeli security concerns–remained the key obstacles to investment.

Violent clashes between security forces and Palestinian residents of the West Bank and Gaza as well as between Israeli settlers and Palestinians have resulted in numerous deaths and injuries.  During periods of unrest, the Israel government may restrict access to and within the West Bank and may place some areas under curfew.  In June 2007, Hamas, a designated Foreign Terrorist Organization (FTO), violently seized control of the Gaza Strip.  The security environment within Gaza and on its borders is dangerous and volatile.  Violent demonstrations and shootings occur on a frequent basis and the collateral risks are high.  While Israel and Hamas continue to observe the temporary cease-fire that ended the latest war between Israel and Gaza  in 2014, periodic mortar and rocket fire and Israeli military responses continue to occur.  Following the 2007 Hamas takeover, the Israeli government implemented a closure policy that restricted imports to limited humanitarian and commercial shipments, effectively blocking exports from Gaza until 2015, when exports rebounded to an average of 115 truckloads per month.

The economic situation and investment outlook in Gaza have continuously deteriorated since the 2007 takeover, with especially bad periods following Israeli combat operations there:  December 2008-January 2009 (Operation Cast Lead); November 2012 (Operation Pillar of Defense); and July-August 2014 (Operation Protective Edge).  The Israeli government has at times eased its closure policy by lifting some restrictions on goods imported into and exported out of Gaza.  The Israeli government allows limited exports (transshipments) to overseas markets and to Israel,  and some sales to the West Bank.

With its growing youth population and high rates of attendance across the schooling systems, the West Bank and Gaza have an abundant supply of educated and skilled labor.  According to the Palestinian Central Bureau of Statistics (PCBS), the total population of the West Bank and Gaza in December 2019 was approximately 5 million, including 3 million in the West Bank and 2 million in the Gaza Strip.  PCBS estimated there were 1.373 million people in the Palestinian labor force as of the end of 2019, with 886,000 in the West Bank and 487,900 in Gaza.  An estimated 135,000 Palestinians from the West Bank worked in Israel and Israeli settlements at the end of 2019.  Large numbers of Palestinians from Gaza worked in Israel as day laborers until Israel eliminated work permits for Gazans in 2001.

The most recent PCBS labor statistics estimate 2019 unemployment was at 14 percent in the West Bank and 43 percent in Gaza.  According to PCBS, at the end of 2019, the service sector (including education and health) was the largest employer in the local market with more than one-third in the West Bank and more than half in Gaza.  The public sector employed 20.3 percent of the workforce in 2019 (15.3 percent in the West Bank and 35 percent in Gaza).  The average daily wage in the West Bank was NIS 110.4 (USD 30), compared with NIS 60.2 (USD 16.5) in Gaza while for the workers in Israel it was NIS 255 (USD 71).

The Palestinian minimum wage remains legally mandated at NIS 1,450 (USD 381.57) per month.  The ILO reported in 2017 that 39 percent of all private sector workers earned less than the statutory minimum wage, including 76 percent of workers in Gaza and 47 percent of women overall.  Also according to the PCBS, at the end of 2019, 31 percent of the private sector wage employees received less than the minimum wage.  In Gaza the monthly wage minimum is NIS 652 (USD 182), while in the West Bank it is NIS 1072 (USD 300). According to the most recent Labor Force Survey, private sector labor distribution in the West Bank and Gaza, by sector, is as follows:

• 35.7 percent – Services and Other Branches
• 21.9 percent – Commerce, Hotels, Restaurants
• 17.7 percent – Construction
• 11.7 percent – Mining, Quarrying, Manufacturing
• 7 percent – Agriculture, Forestry, Fishing, Hunting
• 6 percent – Transportation, Storage, Communication

PA labor law does not explicitly prohibit forced or compulsory labor, but does forbid the use of child labor, in accordance with international standards.  However, there are reports of forced labor and child labor in the West Bank and Gaza, particularly in agricultural work and the informal economy.  According to the PCBS, in 2019, 3 percent of children (aged 10-17 years) were employed (5 percent in the West Bank and one percent in Gaza).  Despite the widespread informal  economy, most large Palestinian employers rely on standard, long-term employment contracts with minimal use of temporary workers.  Israeli labor law applies to settlements in the West Bank, but authorities do not enforce it uniformly.

PA law provides for the rights of workers to form and join independent unions and conduct legal strikes.  The law requires conducting collective bargaining without any pressure or influence but does not explicitly provide for the right to collective bargaining.  Anti-union discrimination and employer interference in union functions are illegal, but the law does not specifically prohibit termination due to union activity.   Non-governmental organizations do not consider labor unions to be independent of authorities and political parties. The requirements for legal strikes are cumbersome and strikers have little protection from retribution.  The PA Ministry of Labor can impose arbitration; in such cases, workers or their trade unions face disciplinary action if they reject the result.  If the ministry cannot resolve a dispute, it can be referred first to a committee chaired by a delegate from the ministry and composed of an equal number of members designated by the workers and by the employer, and, if the committee is unsuccessful, it can be referred to a specialized labor court.  Teachers, who comprise the most significant portion of the public sector work force, participated in a large-scale strike with demonstrations in early 2016 protesting partial pay.

In early 2016, the PA President approved a new Social Security Law mandating compulsory social security contributions from private sector employees and their employers to a new Palestinian Social Security Fund.  It was to be implemented on November 1, 2018; however , in late 2018, the PA President postponed implementation indefinitely due to large-scale protests opposing  it.

According to the PCBS, the stock of foreign investment in the West Bank and Gaza at the end of 2018 (most recent data available) amounted to USD 2.939 billion.  This includes foreign direct investment (USD 1.758 billion), portfolio investments (USD 728 million), and other investments (USD 453 million).

*Host source: PCBS, Major National Accounts  http://www.pcbs.gov.ps/Portals/_Rainbow/Documents/E.QNA_Current.htm 
Note:  Preliminary PCBS data – note final and Basis Year for GDP calculations was changed by PCBS from 2004 to 2015
**Host Source: PCBS Foreign Investment Survey of Palestinian Enterprises (stocks) at the end of 2018 available at: http://www.pcbs.gov.ps/Portals/_Rainbow/Documents/e-IIP-2018%20sector.html 

The private Palestine Development and Investment Company (PADICO), has invested over USD  250 million in telecommunications, housing, and the establishment of the Palestine   Exchange (PEX).  The Ramallah-based Arab Palestinian Investment Company (APIC) is a large foreign investment group with authorized capital of over USD 100 million.  Four private equity funds operate in the West Bank/Gaza, largely comprised of foreign investors: Riyada, Siraj, Sharakat, and Sadara.  Other significant foreign investments include Qatari mobile operator Ooredoo’s projected USD 600 million investment in Ooredoo Palestine (formerly Wataniya Mobile) over a 10-year period, and Qatari Diar’s USD 1 billion investment in Rawabi, a mixed use/affordable housing real estate development.  The largest U.S. investment is Coca-Cola’s 15 percent stake in the local bottler, Palestine National Beverage Company (PNBC), a company valued at USD 70 million.  PNBC opened a USD 20 million bottling facility in Gaza in December 2016, in addition to its three West Bank-based plants.