Two ministers try to extend tech investment

Two ministers try to extend tech investment

Bennett, Lapid hope an amendment to existing 'Angel's Law' can enhance the flow of cash to start-ups in Israel

Yair Lapid (R) seen with Naftali Bennett during a plenum session in the Israeli parliament, March 2013 (photo credit: Isaac Harari/Flash90)
Yair Lapid (R) seen with Naftali Bennett during a plenum session in the Israeli parliament, March 2013 (photo credit: Isaac Harari/Flash90)

Israel’s tech sector raised $930 million in the second quarter of 2014 — its best performance in a decade — but all is not calm on this vital front. Facing “Series A crunch” – where start-ups find themselves starved for funds beyond an initial investment, and a standstill in IPO tenders on the Tel Aviv Stock Exchange, many government and industry officials insist new ideas and thinking are needed to keep Israel’s tech juggernaut going.

Economics Minister Naftali Bennett — himself a veteran of the high-tech world — and Finance Minister Yair Lapid are proposing an amendment to the country’s “Angel’s Law” in an effort to encourage investment in early stage high-tech companies. The two ministers said in a statement that their amendment would be “a significant step aimed at increasing capital available for investment in startups.”

Its main points are clarifying tax benefits, extending the law for several more years and easing the red tape burden.

Under the Angel’s Law, qualified investors who put their money into private Israeli start-ups, mostly with advanced research and development programs, benefit from a major tax break. They are entitled to deduct the amount of their investment from their overall taxable income from all sources. Thus, if they invest NIS 1 million in a company, they can knock off a million shekels from their taxable income, putting them in a lower tax bracket and saving a serious amount of money. Although the investor has to pay capital gains taxes when selling the investment, those profits are taxed at a significantly lower rate than regular income, so the savings are substantial, the Economics Ministry said. The benefit, capped at NIS 5 million, can be spread over three tax years.

The current law expires on December 31, 2015, and the amendment would extend it for several more years. In addition, according to Bennett and Lapid, the amendment “will also make investments in early-stage startups more attractive by guaranteeing that investors are aware of the tax benefits they will receive upon making their investment. It is also expected to significantly reduce red tape companies face when seeking investments with tax benefits,” their statement said.

“Israel is a world leader in the field of innovation and will now also be a leader in regulatory measures in the field,” said Bennett. “This is one of the best bills of its kind in the world. We aim at encouraging individuals to invest their money in Israeli innovation instead of, for example, real estate. We believe that efforts to change the current law – a joint initiative of the Chief Scientist’s Office, the Finance Ministry and the Tax Authority — will direct significant funding to the industry and allow Israeli citizens to enjoy the fruits of their investment.”

“The Israeli high-tech industry is a strategic growth engine for the economy,” added Lapid. “This law will encourage investors to invest in early-stage companies, which are the future of our hi-tech industry, and which will continue to foster our innovation economy.”

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