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Microsoft reportedly seeking to invest over $1 billion in Israel

According to Globes, tech giant’s CEO Satya Nadella earlier this month informed Netanyahu of expansion plans including a new data center and chip R&D

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Microsoft's new campus in Herzliya, Israel, inaugurated in Nov. 2020 (Amit Geron)
Microsoft's new campus in Herzliya, Israel, inaugurated in Nov. 2020 (Amit Geron)

US tech giant Microsoft is reportedly planning to invest $1 billion to $1.5 billion in Israel through setting up a new data center locally and expanding its chip research and development activities.

Microsoft CEO Satya Nadella spoke to Prime Minister Benjamin Netanyahu earlier this month and informed him about the plans, Globes reported on Monday, without saying where it got the information.

Nadella told Netanyahu that Israel is “a very important development center for Microsoft,” Globes said, stating that the CEO has made no requests for government incentives for the investments and none were offered.

Spokespeople for Microsoft in Israel and for the Prime Minister’s Office declined to comment on the report.

Microsoft CEO Satya Nadella speaks at the annual Microsoft shareholders meeting, Nov. 29, 2017, in Bellevue, Wash. (AP Photo/Elaine Thompson)

Microsoft benefits from a low tax rate of 6% on profits from the intellectual property generated in Israel, lower that the average corporate tax rate of 23%. Small tech firms pay a tax rate of 7.5% to 12%, Globes said.

The US tech giant said last year that it would set up its first cloud data center in Israel to offer services to Israeli customers, starting with Azure and following with Office 365, expected to be operational sometime this year.

The setting up of the center “marks a significant investment by Microsoft in the Israeli market,” the company said at the time.

“Offering Microsoft Azure and Office 365 from a datacenter region in Israel forms a key part of our investment and involvement in the startup nation, as infrastructure is an essential building block for the tech intensity that public sector entities and businesses need to embrace,” Michel van der Bel, president of Microsoft Europe, Middle East and Africa, said in a statement at the time.

Microsoft Israel CEO Ronit Atad said at the announcement of the data center: “This significant investment marks a milestone in the relationship between Microsoft and Israel and also comes as we mark 30 years of the company’s activity in Israel.”

The company opened a local branch in Israel in 1989, and established its first R&D center in Israel, its first outside the US, in 1991.

As of the end of 2020, Microsoft employed an estimated 2,300 people in Israel — 2,000 of them in R&D, working on projects including cybersecurity, AI technologies, big data and healthcare at development centers in in Herzliya, Tel Aviv, Haifa and Nazareth. Some 300 people work in sales and marketing. The firm also has local venture capital fund activity and a program to foster startups.

In November, amid the pandemic and the work from home trend, the company launched its new Microsoft Israel campus, 46,000 square meter (495,000 square foot) complex in Herzliya.

The new offices are home to some 2,000 people, including sales staff and developers, engineers, researchers and employees from M12 – Microsoft’s venture funding arm.

Earlier this month Google said it was setting up a chip development team in Israel, while Nvidia has said it was planning to recruit 600 additional engineers to boost its R&D activities locally.

Amazon is also mulling setting up a data center in Israel, and Oracle said in February that it was building a new data center in Jerusalem that will function as a regional cloud provider for Israeli clients.

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