2018 Investment Climate Statements: Israel

Policies Towards Foreign Direct Investment

Israel is open to foreign investment, and the government actively encourages and supports the inflow of foreign capital.

Limits on Foreign Control and Right to Private Ownership and Establishment

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 its current 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 stifles competition. In the case of designated monopolies, defined as entities that supply more than 50 percent of the market, the government controls prices.

Investments in regulated industries (e.g. banking, insurance) require prior government approval. Investments in certain sectors may require a government license. Other regulations may apply, usually on a national treatment basis.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its fourth and latest trade policy review of Israel in November 2012. 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 a Economic Survey of Israel in March 2018.

The 2018 OECD Economic Survey of Israel can be found at http://www.mof.gov.il/Releases/SiteAssets/Pages/OECD18/2018-oecd-economic-survey-Israel.pdf 

Business Facilitation

The Israeli government is fairly open and receptive to companies wishing to register businesses in Israel. Israel ranked 37^th in the “Starting a Business” category of the World Bank’s 2018 Doing Business Report, jumping four places from its 2017 ranking. According to the World Bank, Israeli reforms currently underway are making it easier to do business in Israel, but some challenges remain.

The business registration process in Israel is fairly clear and straightforward. Four procedures are required to register a standard private limited company and can take on average 12 days to complete, according to the Ministry of Finance. The foreign investor must obtain company registration documents through a recognized attorney with the Ministry of Justice and obtain a tax identification number for company taxation and for value added taxes (VAT) from the Ministry of Finance. The cost to register a company averages around USD 1,000 depending on attorney and legal fees.

The Israeli Ministry of Economy and Industry’s “Invest in Israel” website provides useful information for companies interested in starting a business or investing in Israel. The website is http://www.investinisrael.gov.il/Pages/default.aspx .

Outward Investment

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 opportunites between Israeli and foreign companies. More information on their activities is available at https://www.export.gov/article?id=Israel-Overview .

In general, there are no restrictions on domestic investors from investing 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.

Israel has protection of investment agreements with Albania, Argentina, Armenia, Azerbaijan, Belarus, Bulgaria (amending protocol), China, Croatia, Cyprus, Czech Republic, El Salvador, Estonia, Ethiopia, Georgia, Germany, Guatemala, Hungary (treaty terminated in 2007, existing investments are protected for ten years after termination), Japan, Kazakhstan, Latvia, Lithuania, Moldova, Mongolia, Montenegro (with Serbia), Myaramar, Poland, Romania (Amending protocol siged in 2010 but not in force), Serbia (with Montenegro), Slovakia, Slovenia, South Africa (not in force), South Korea, Thailand, Turkey, Turkmenistan, Ukraine, Uruguay, and Uzbekistan.

The U.S.-Israel FTA was signed in 1985. A complete list of Israel’s BITs and FTAs can be found at http://mof.gov.il/en/InternationalAffairs/TradeAgreements/Pages/BIT.aspx .

Israel has a bilateral tax treaty with United States. The Income Tax Treaty and the Technical Explanation of the Treaty was signed with the United States in 1975. A complete list of Israel’s international tax agreements and treaties can be found at: http://mof.gov.il/en/InternationalAffairs/InternationalTaxation/Pages/Avoidance
DoubleTaxationTreaties.aspx 

Transparency of the Regulatory System

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: http://www.knesset.gov.il . The texts of proposed regulations are also published (in Hebrew) on this web site. The government requests comments from the general public about proposed regulations.

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 recently won a limited number of government tenders, notably in civil aviation. 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. (http://unctad.org/en/pages/home.aspx ). 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 bases justifying the procedures.

International Regulatory Considerations

Israel is not a member of any major economic bloc but maintains strong economic relations with other economic blocs. For example, the EU is Israel’s largest trade partner and this partnership is codified in their bilateral free trade agreement, the EU-Israel Association Agreement, signed in 2000. Israel has a bilateral agreement with four members of the European Free Trade Association Agreement, a group of non-EU European countries. In recent years, Israel has actively sought bilateral trade agreements with its international trade partners throughout the world principally in Asia, Europe, and in the Americas.

Israeli regulatory bodies, such as 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 rather than international standards, which results in the market exclusion of certain U.S. products and added costs for U.S. exports to Israel.

Israel became a WTO member 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.

Legal System and Judicial Independence

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 which also functions as the High Court of Justice. Israel does not employ a jury system. Other tribunals were established to regulate specific issues and disputes in a specific area of law including labor courts, antitrust issues, and intellectual property related issues.

Laws and Regulations on Foreign Direct Investment

There are few restrictions on foreign investors, except for parts of defense or other industries closed to outside investors on national security grounds. 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.

Israel’s Ministry of Economy sponsors the web site “Invest in Israel” at www.investinisrael.gov.il 

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.

Competition and Anti-Trust Laws

Identify which agencies review transactions for competition-related concerns (whether domestic or international in nature). Generally describe any significant competition cases on which there have been developments over the past year. Please limit your description to only those which have had an effect on or involved foreign investment.

Israel adopted its comprehensive competition law in 1988. The Israel Antitrust Authority (IAA) was created in 1994 to enforce the competition law.

Expropriation and Compensation

There have been no expropriations of U.S.-owned businesses in Israel in the recent past. Israeli law requires adequate payment, with interest from the day of expropriation until final payment, in cases of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

The Israeli government accepts binding international arbitration of investment disputes between foreign investors and the state. Israel is a member of the International Center for the Settlement of Investment Disputes (ICSID) of the World Bank and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Israel’s arbitration law is governed and enforced primarily via the Arbitration Law of 1968, amended by the Israeli Knesset in 2008.

Investor-State Dispute Settlement

Israel’s arbitration law is governed primarily by the Arbitration Law of 1968. The Arbitration Law governs both domestic and international arbitration proceedings. The Israeli Knesset amended the law most recently in 2008. Israel ratified the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 in 1959. There are no known extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

Israel formally institutionalized mediation in 1992 with the amendment of the Courts Law of 1984. The amendment granted courts the authority to refer civil disputes to mediation or arbitration with party consent. The Israeli courts tend to uphold and enforce arbitration agreements. Israel’s Arbitration Law predates the UNCITRAL model law.

Bankruptcy Regulations

Israeli Bankruptcy Law is based on several layers, some rooted in Common Law and in particular the laws of England, when Palestine was under the British mandate in 1917-1948. Bankruptcy Law in Israel is mostly based British law enacted in Palestine in 1936 during the British mandate.

Bankruptcy proceedings are based on the bankruptcy ordinance (1980), which replaced the mandatory ordinance enacted in 1936. Therefore, the bankruptcy law in Israel resembles the British law as it was more or less in 1936. Israel ranks 29th in the World Bank’s 2018 Doing Business Report’s “resolving insolvency” category.

Investment Incentives

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. Special emphasis is given to hi-tech companies and R&D activities.

Most benefits available to Israelis are also available to foreign investors. Investment incentives are outlined in the Law for the Encouragement of Capital Investment and are coordinated by the Israel Investment Center (IIC).

For complete information, potential investors should contact:

Investment Promotion Center
Ministry of Economy
5 Bank of Israel Street,
Jerusalem 91036
Tel: 972-2-666-2607
Fax: 972-2-666-2938
Website: www.investinisrael.gov.il 
E-Mail: Investinisrael@moital.gov.il

Israel Investment Center
Ministry of Economy
5 Bank of Israel Street,
Jerusalem 91036 490
http://economy.gov.il/English/About/Units/Pages/IsraelInvestmentCenter.aspx 
Tel: 972-2-666-2236
Fax: 972-2-666-2905

Foreign Trade Zones/Free Ports/Trade Facilitation

Describe laws, policies, and practices for any areas designated as Free Trade Zones, Duty Free Zones, or areas with special tax treatment and if foreign-owned firms have the same investment opportunities as country/economy entities. List any major changes to these zones within the reporting period.

Israel has bilateral Qualifying Industrial Zone (QIZ) Agreements with Egypt and Jordan. Exports from geographically recognized industrial zones in Egypt and Jordan that contain at least a specified proportion of Israeli content can be exported to the United States duty free. More information is available at the Ministry of Economy’s Foreign Trade Administration website: http://economy.gov.il/English/InternationalAffairs/ForeignTradeAdministration/Pages/
RegionalCooperation.aspx 

Israel has one free trade zone, the Red Sea port city of Eilat. More information on the Eilat Free Zone is available at: http://economy.gov.il/English/Industry/DevelopmentZoneIndustryPromotion/
ZoneIndustryInfo/Pages/EilatNShachoret.aspx 

Performance and Data Localization Requirements

There are no universal performance requirements on investments, but performance requirements, including inbound investment “offset” requirements, are often included in sales contracts with the government. In some sectors, there is a requirement that Israelis own a percentage of a company. Israel’s visa and residency requirements are transparent. The Israeli government does not impose preferential policies on exports by foreign investors.

Real Property

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 judgments of foreign courts may be accepted and enforced by local courts. Secured interests in property are recognized and enforced by the Israeli judicial system. A reliable system of recording such security interests exists. Property transactions are registered by the Israel Land Administration, which manages land in Israel on behalf of the government. Registering or obtaining land rights is a cumbersome process. Israel currently ranks 130th in “registering property” according to the World Bank’s 2018 Doing Business Report.

Intellectual Property Rights

The Israel Patent Office (ILPO) within the Ministry of Justice is the principal government authority overseeing the legal protection and enforcement of intellectual property rights (IPR) in Israel. IPR in Israel has undergone many changes recently as the Israeli economy has rapidly transformed into a knowledge-based economy.

In recent years, Israel revised its IPR legal framework several times in order to comply with new international treaties signed. 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.

The United States removed Israel from the Special 301 Report in 2014 after Israel passed patent legislation that satisfied the remaining commitments Israel made in a Memorandum of Understanding with the United States in 2010 concerning several longstanding issues regarding Israel’s IPR regime for pharmaceutical products.

Although the United States remains concerned about Israel’s enforcement efforts for copyrighted works, 2017 was a year of significant changes and improvements to Israeli legislation pertaining to IPR. An Israeli Knesset Committee is reviewing a bill modifying and improving current copyright enforcement efforts. Additionally, the bill directs Israeli courts to honor pre-trial subpoenas of internet service providers, a long standing obstacle to enforcement efforts in Israel.

In July 2017, the Israeli Knesset passed the New Designs Bill, replacing Israel’s existing but obsolete ordinance governing industrial design. The Bill, which will come into force in August 2018, enables Israel to comply 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 that is conducted in anticipation of the future marketing of biological products, also known as biologics.

While several recent legislative improvements have been instituted, the United States continues to urge Israel to strengthen and improve its IPR enforcement regime. Israel lacks specialized judicial courts, common in other countries with advanced IPR regimes. Cases in Israel are typically adjudicated in general civil or administrative courts.

IPR theft in Israel is fairly common and relatively sophisticated. The EU ranks Israel as a “third tier” priority country with regards to the level of IPR protection and/or enforcement. The EU 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. As a WTO member, Israel was obligated to implement the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) by January 1, 2000, but has failed to do so to date. Implementation remains under consideration by the government.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The government is supportive of foreign portfolio investment. The Tel Aviv Stock Exchange (TASE) is Israel’s only public stock exchange.

Credit is ostensibly allocated according to market terms. For many years, banks issued credit to only a handful of individuals and corporate entities, some of whom held controlling interests in banks. However, in the last few years, banks significantly reduced their exposure to large borrowers following the introduction of stronger regulatory restrictions on preferential lending practices.

The primary profit centers for banks are various consumer banking fees. 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 in particular at preventing potential foreign investment. While, until now, a number of companies have had pyramidal structures, the Business Concentrations Law, approved by the Knesset at the end of 2013, alleviated this problem. Israel has no laws or regulations regarding the adoption by private firms of articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

Money and Banking System

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 and offers many of the same services as the U.S. banking system. However, services and fees for normal banking transactions are significantly higher and generally do not compare to U.S. standards. Currently, there are 12 commercial banks and four foreign banks operating in Israel, according to BOI. Five major banks dominate the majority of the market led by Bank Hapoalim and Bank Leumi, the two largest banks. Together these two banks account for over 75 percent of the market and control combined assets estimated at over USD 417 billion according to the 2017 annual BOI report on the banking sector. Israeli banks are all privatized except for Bank Leumi, with 6 percent of shares remaining in the hands of the State of Israel. Given the high concentration of ownership of most firms, hostile takeovers are a virtually unknown phenomenon in Israel.

Foreign Exchange and Remittances

Foreign Exchange

Israel completed its foreign exchange liberalization process on January 1, 2003, when it removed the last restrictions on the freedom of institutional investors to invest abroad. The BOI completely abolished foreign currency controls and the Israeli shekel is a freely convertible currency. The BOI maintains the option to intervene in foreign currency trading in situations of extraordinary movements in the exchange rate that are not in line with fundamental economic conditions, or when the foreign exchange market is not functioning appropriately. Israeli individuals can invest without restriction in foreign markets. Foreign investors can open shekel accounts that allow them to invest freely in Israeli companies and securities. These shekel accounts are fully convertible into foreign exchange. BOI assets amounted to USD 115 billion at the end of November 2017.

Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 )

Remittance Policies

Most transactions must be carried out through an authorized dealer. An authorized dealer is a banking institution licensed to arrange, inter alia, foreign currency transactions for its clients. The authorized dealer must report large foreign exchange transactions to the Controller of Foreign Currency. There are no limitations or significant delays in the remittance of profits, debt service, or capital gains.

Sovereign Wealth Funds

In 2014, Israel passed legislation to establish the Israel Citizens’ Wealth Fund, a sovereign wealth fund managed by the BOI. Expenditures of the Israel Citizens’ Wealth Fund will not be funded by the national budget process, but will be listed in the national budget once royalty revenue from all natural resources reaches NIS 1 billion or approximately USD 275 million, a threshold that many analysts believe the Israeli government will not reach until at least 2020.

Israel established the Government Companies Authority (GCA) following the passage of the Government Companies Law. The GCA is an auxiliary unit of the Ministry of Finance. It is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes.

The GCA oversees some 100 companies, including 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.

Israel is party to the Government Procurement Agreement (GPA) of the World Trade Organization.

Privatization Program

In late 2014, Israel’s cabinet approved a privatization plan allowing the government to issue minority stakes of up to 49 percent in state-owned companies on the Tel Aviv Stock Exchange over a three-year period, a plan estimated to increase government revenue by USD 4.1 billion. The plan aimed to sell stakes in Israel’s electric company, water provider, railway, post office and some defense-related contractors.

According to press reports from February 2018, the GCA is in the initial stages of developing a plan to issue some shares of these same government companies. For example, in March 2018, the government agreed to sell Israel Military Industries to Elbit, an Israel headquartered international defense electronics company.

There is awareness of responsible business conduct among enterprises and civil society. Israel adheres to the OECD Guidelines for Multinational Enterprises and a National Contact Point is operating in the Foreign Trade Administration. Israel is not a member of EITI.

Bribery and other forms of corruption are illegal under several Israeli laws and Civil Service regulations. Israel became a signatory to the OECD Bribery convention in November 2008 and a full member of the OECD in May 2010. Israel ranks 32 out of 180 countries in Transparency International’s 2017 Corruption Perceptions Index dropping four places since 2016. There are several NGOs that focus on public sector ethics. Transparency International has a local chapter in Israel.

Israel is a member of the OECD Anti-Bribery Convention, which it ratified in 1999. Israel is a signatory to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

The National Police, the state comptroller, the Attorney General, and the 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.

The international NGO Transparency International closely monitors corruption in Israel.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Ministry of Justice
Office of the Director General
29 Salah a-Din Street Jerusalem
02-6466533, 02-6466534, 02-6466535
mancal@justice.gov.il

Contact at “watchdog” organization:

Transparency International Israel
Ms. Ifat Zamir
Tel Aviv University, Faculty of Management
+972 3 640 9176
ifat@ti-israel.org

For the latest safety and security information regarding Israel and the current travel advisory level, see the Travel Advisory for Israel, the West Bank, and Gaza (https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/israel-west-bank-and-gaza-travel-advisory.html).

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 local government facilities. Violence can occur in Jerusalem and the West Bank without warning. Terror attacks in Jerusalem and the West Bank have resulted in the deaths and injury of U.S. citizens and others. Hamas, a U.S. government-designated foreign terrorist organization, controls security in Gaza. The security environment within Gaza and on its borders is dangerous and volatile.

The most recent Central Bureau of Statistics data from January 2018 indicates there are nearly 3.9 million people active in the Israeli labor force. According to a 2016 OECD report, 47 percent of Israeli 25-34 year olds attained a tertiary education. A large number of 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 135 scientists out of every 100,000 workers, one of the highest rates in the world. The rapid growth of Israel’s high-tech industries in the late 1990s increased the demand for workers with specialized skills.

Unemployment has been steadily decreasing over the last few years and declined from 5.9 percent in 2014 and to a historic low of 3.7 percent in January 2018 according to the most recent Israeli Central Bureau of Statistics data.

According to Israel’s Population and Immigration Authority, at the end of 2017 there were 88,378 foreign workers in Israel, compared with 84,485 at the end of 2016. There were 17,852 illegal workers at the end of 2017, compared with 15,660 at the end of 2016.

The national labor federation, the Histadrut, organizes about one-third of all Israeli workers. Collective bargaining negotiations in the public sector take place between the Histadrut and representatives from 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 vehicle in many difficult wage 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. Until their mid-40s, Israeli males are required to perform about a month of military reserve duty annually, during which time they receive compensation from national insurance companies.

OPIC is involved in several projects in Israel. OPIC provided a USD 250 million construction loan for a 110MW concentrated solar power (CSP) project in the Negev. OPIC also finances projects sponsored by U.S. investors in Israel. Israel is a member of the Multilateral Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Russ Headlee
Economic Officer
U.S. Embassy Jerusalem – Tel Aviv Branch Office
+972 03 519 7547
HeadleeRC@state.gov