/By Amiram Barkat and Gali Weinreb/
The ministerial legislation committee has approved the amendment to the Angel Investors Law proposed by Minister of Finance Yair Lapid and Minister of the Economy Naftali Bennett. The amendment is designed to encourage investments in young high-tech companies. The proposed amendment was submitted to the ministerial committee in advance of the cabinet meeting on Tuesday for approval of the state budget. Up until now, legislative proposals were sent to the ministerial legislative committee only after the cabinet had approved the state budget.
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Under the amendment, the state will grant tax incentives to those investing in start-ups at the seed stage of research and development in need of money for development. In addition to the tax breaks, the state is planning a reform in the structure of the Chief Scientist’s Office in the Ministry of the Economy, which will be become an Innovation and Entrepreneurship Authority.
The Ministry of Finance believes that approval of the amendment to the Angels Law will give a substantial boost to the volume of capital available for investment in startups, and will maintain Israel’s relative advantage in knowledge-intensive industries. The amendment was approved in the framework of the economic plan for 2015, as part of the economy’s growth engines.
According to the amendment, investors in innovative companies approved as “target companies” by the Chief Scientist’s Office will receive substantial tax breaks, and will be allowed to deduct amounts invested in start-ups from their taxable income.
The amendment is expected to create a new benefits track, in addition to extending the validity of the existing track in the law. The new track will make investment in start-ups more attractive by creating certainty for an investor, who will know that he is entitled to benefits when he makes his investment. The amendment is also expected to significantly reduce the bureaucracy currently facing a company seeking benefit-entitling investments.
Lapid said, “Through the bill, we’ll encourage investors in young companies powering the future Israeli high-tech industry, and Israel will continue to be among the world’s leading countries in innovation.” Bennett said, “The Angels Law will ensure that the new year will be one of entrepreneurship and encouragement of investment in high tech. Money invested in start-ups, instead of real estate, will add enormous energy to the market, and create a powerful growth engine for the Israeli economy.”
The original Angel Investors Law enacted three years ago, which was widely criticized as soon as it was signed, generated 125 requests for investment approval, some of which did not materialize. The new amendment, which Bennett previously termed “the world’s most aggressive angels law, ” allows recognition of 100% of an investment for tax purposes already in the first year following the investment. Up until now, an investment was recognized for a benefit over several years, subject to milestones. The amendment will cost the tax authorities an estimated NIS 50 million annually, with some of the amount being regained in the form of income tax on the salaries paid by companies, and in indirect taxes.
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