Middle East Monitor / May 2, 2023
Some 80 per cent of Israeli firms founded by Israeli entrepreneurs are relocating to other countries due to the planned judicial overhaul, Israeli economic outlet the Globes reported.
According to the economic news site, the Israel Innovation Authority (IIA) said that the government’s plan to overhaul the judicial system is harming investor confidence and pushing high-tech firms to relocate overseas.
“Until January, about 80 per cent of startup companies opened in Israel had the corporate structure of an Israeli company, both because of tax considerations and because of the Israeli entrepreneurial-business environment, which were a main reason for the decision,” the IIA said in a paper.
“Because of the uncertainty and the risks involved for the business environment in Israel, a trend began of opening startup companies through incorporation as a foreign company, a trend that strengthened in March,” the paper stated.
“The assessment is that within a very short time, we are liable to reach a situation in which the vast majority of companies founded will be through incorporation overseas, amounting to over 80%.”
The IIA said that the location in which companies choose to set up their headquarters will have a far-reaching effect on the continued growth of the Israeli technology industry and economy.
It also feared that this could be the beginning of a process in which a series of decisions by entrepreneurs, investors and companies will turn into a trend at the end of which most of the intellectual property and the taxable income of the companies will be outside Israel.
Israel’s high-tech sector employs ten per cent of the country’s workforce and accounts for around 15 per cent of economic output, more than half of exports and a quarter of tax income.
Proposals by Israeli Prime Minister Benjamin Netanyahu’s hard-right coalition to give the government a greater say in the selection of judges and limiting the Supreme Court’s power to strike down legislation have worried current and potential investors.
“Even if the legal-judicial crisis is solved, it will take time to reach a solution, and even after this, it will take time to build confidence with investors once more,” Dror Bin, chief executive of the Innovation Authority, said.