R&D CENTERS

R&D GRANTS

1. Industrial R&D:

a. The R&D Fund

The R&D Fund is the main instrument of the R&D Law. The fund provides financial grants of 20%-50% of approved R&D programs. In geographical areas designated as National Priority Areas (NPAs) the benefit can reach 60%. A research committee headed by the Chief Scientist is tasked with awarding the funds according to a predetermined set of terms and conditions. Israeli companies from all industry sectors, wishing to develop or upgrade products or manufacturing processes, may apply.

A company supported by this program is obligated to pay royalties when a government assisted R&D project results in a commercially successful product.

b. Large Companies’ R&D Centers in Israel’s Periphery

The target companies are Israeli companies that wish to set up an R&D center in Israel’s periphery, and have annual sales of more than $100 million in Israel. Qualified companies will receive multi-annual (24- 36 months) support of 65%-75% for their R&D centers’ approved expenses. If the project is profitable, royalty payments must be paid.

c. GenericR&DProgram(LongTermR&D Support)

The target companies are Israeli companies with annual sales of more than $100 million and with R&D budget in Israel that exceeds $20 million or alternatively more than 200 R&D employees in Israel. Qualified companies will receive financial support of up to 50% of their approved R&D expenses. No royalty payments are mandated.

2. International Cooperation in R&D

a. Global Enterprise R&D Collaboration Framework

This flagship program aims to encourage partnerships between multinational corporations (MNC) and startup companies in Israel, in order to maximize the synergy between the partners’ strengths. Within this framework, The Israel Innovation Authority will support the Israeli startup company with a conditional grant ranging between 20%-50% of the approved development budget. TheMNCwillassist and support the Israeli company in the form of consulting, services and resources (i.e. technological guidance, loan of equipment, use of laboratories, discounted software licenses, regulatory advice, etc.), instead of or in addition to cash funding.

The MNC receives services such as scouting for possible partners and IP rights in the new projects (as per the rules of the program). In addition, the MNC is informed of the due diligence results of the Israeli partner companies.

Eligible MNCs must have annual revenues exceeding $2 billion, significant investment in R&D, and worldwide presence. To date, over 40 corporations have joined the program. The participating MNC is not required to pay royalties .

b. Multinational Corporations’ Project Centers in Traditional Industry

The target companies are Israeli companies and MNCs which collaborate 

on an R&D project. The MNC must have annual sales of more than $2.5 billion and must be from the low or medium technology sector. The Israeli partner must be an Israeli company or academic institution unaffiliated with the MNC. The financial support for qualified companies will differ between projects. No royalty payments are mandated for the MNC.

c. Cooperation with Countries and Regions

Israel has an extensive R&D cooperation network with different countries and regions.

Binational Funds -

Israel has 4 binational funds, with the US, Canada, South Korea and Singapore. In this framework, two nations contribute a predetermined sum to a binational foundation intended to support cooperative projects.

Incentive Program for the Encouragement of the Establishment of Project Centers of Multinational Companies in Israel -

Israel has entered more than 40 bilateral industrial R&D support programs all over the world. The programs encourage cooperation between Israeli and foreign companies by helping to find a suitable partner and through financial support of up to 50% of the approved project budget.

European Union R&D Programs –

The Framework Programs for Research and Innovation of the European Union are the world’s largest platform for international R&D cooperation between entities from the realms of commerce, industry, academic research and public entities. These programs are renewed every few years. The current program “Horizon 2020” began in 2014 and will end in 2020. The programs are managed by ISERD (The Israeli R&D Directorate for the European Research Area (ERA), which is responsible for the integration of Israel in the ERA and in other European Organizations.

3. MAGNET (Industry Academia R&D Cooperation)

A group of programs intended for industrial companies cooperating with academic institutions in long-term R&D processes. Qualifiers can apply for grants covering up to 66% of the R&D project budget in an industrial company and up to 80% of the R&D budget in a research institution. A MAGNET project is usually approved for a 3-year period with extensions of 1 to 3 years possible. Main MAGNET programs include:

a. MAGNET Consortia

The program supports the formation of consortia made up of industrial companies and academic institutions in order to jointly develop generic, precompetitive technologies. Industrial companies are granted up to 66% of their approved budget and academic institutions are granted up to 80%. The duration of a MAGNET consortium is three to five years. No royalty payments are mandated for this program.

b. MAGNETON

The program promotes technology transfer from academia to industry. The program is intended for Israeli industrial companies wishing to receive new technologies from academia and for approved academic research groups wishing to conduct new applied research in cooperation with a relevant company. Qualified participants will receive a grant of up to 66% of the approved budget. No royalty payments are mandated.

4. Technological Incubators

The primary goal of this program is to transform innovative technological ideas in their early, high-risk stages into viable startup companies capable of raising money and operating on their own. For a period of 2 to 3 years, the program provides approved companies with full financial support (approx. $500,000 – $750,000) to be repaid to the government only upon generation of sales. The incubator is operated by a licensee who is selected and approved by the relevant Israel Innovation Authority committee. The licensee invests only 15% of the project budget (the state invests the remainder).

5. Sectorial Programs

The Israel Innovation Authority operates additional support programs in several high-potential sectors: Cyber, Renewable Energy, Life Sciences, Alternative Fuels, Space Technologies, Dual Use (Military and Commercial) Technologies and AgriTech. These programs offer support for companies and investors operating in these fields.

Tax benefits

1. R&D Expenses Deduction

Clause 20A of the Israeli Income Tax Ordinance enables companies to deduct their R&D expenses from their current income in the year they were paid. The deduction is contingent on the Israel Innovation Authority confirmation that the expenses are indeed research and development expenses.

2. The Angel’s Law

The law, which was enacted in 2010 and then amended in 2016, provides tax benefits to single investors who invest in Israeli companies in their initial R&D stage (seed). The law’s goal is to increase the available financing sources for Israeli early phase R&D-intensive companies. The law enables single investors’ investments in eligible companies to be recognized as expenditures for tax purposes. Eligible companies are companies which fulfill certain criteria. For example, Israeli companies with R&D expenses that are at least 70% of the total company expenditures for the relevant tax year. Companies must receive approval from the Israel Innovation Authority for their R&D expenditures.

Innovation Box

This is a special track aimed at intellectual property (IP) based companies, in particular, technology companies.

Eligibility:

The company must invest at least 7% of its income in R&D, and include at least one of the following :

• At least 20% of the workforce is employed in development;
• A venture capital investment was previously made in the company;
• Average annual growth over three years of 25% in sales or Employees.

Companies not meeting any of the above three conditions may still be considered as a qualified company under the discretion of the Israeli Innovation Authority in the Ministry of Economy and Industry.

Benefits:

• Corporate tax rate on eligible income: companies with consolidated revenues of over NIS 10b (app. $2.5b) : 6%, other companies: 12% (7.5% if the company is established in a National Priority Area).
• Dividend tax rate on eligible income: 4%.
• Capital gains (upon sale of IP): 6% for companies with consolidated revenues of over NIS 10b (app. $2.5b), (12% for other qualified companies).
• Companies with consolidated revenues of over 10 billion NIS, will be given commitment to stability of the rates for at least 10 years under certain conditions

Employment Grant Programs

The Ministry of Economy and Industry operates several aid programs intended to encourage the integration of workers from minority populations, populations with low labor  participation rates and populations from NPAs. The aid is given in the form of subsidizing the wages of new employees for a specific period. The employment programs include:

1. Special Populations

Objective: Facilitate the integration of populations with low rates of participation in the labor force, namely: Ultra-Orthodox, ethnic minorities, individuals with disabilities and single parents.

Eligibility: Any person who wishes to start a business, or expand an existing one, in any location across Israel and who intends to hire employees from special populations. The special population could be characterized either by their social identity (Ultra- Orthodox, ethnic minorities, individuals with disabilities, single parents) or by their place of residency (NPAs). In addition, the applying company must absorb a minimum number of new employees from special populations (2 to 5 employees, depending on the specific program), and compensate the employees at a minimum level specified by the program.

Form of Aid: A grant for at least 30 months given in the following format:

• Fixed participation as a percentage of employee wages, by particular group, up to a maximum monthly wage of NIS 24,000 (approx. $6,000).
• The rate of participation varies between 10% and 37.5%. The rate is determined by the social identity of the employees and their geographic location, with preference to a combination of the two.
• The rate of participation decreases over time.

The Ministry of Economy and Industry operates several aid programs intended to encourage the integration of workers from minority populations, populations with low labor participation rates and populations from NPAs.

2. National Priority Areas

Objective: Facilitate the integration of highly skilled employees exclusively in manufacturing and IT enterprises located in National Priority Regions.

Eligibility: Companies interested in establishing, expanding, or relocating high-salary facilities to NPAs. The eligible company must be Israeli, with annual turnover of NIS 25 million (approx. $6 million) or more. At least 60% of the new employees in the facility will be residents of the NPA. The companies must hire a minimal number of 15 new employees and should pay a determined minimum wage (not below 150%-250% of the national average salary, depending on the specific program).

Form of Aid: Based on specific program, grants for each employee will be based on a percentage of his or her wage. The grant’s percentage decreases over a 4-year period:

• High-Salary - Grant rate decreases from 35% to 10% of the employee salary. The monthly salary will be up to maximum of NIS 30,000 (approx. $7,500).

3. Minorities in Knowledge-Based Industries

Objective: Facilitate integration of ethnic minorities into knowledge-based sectors, specifically: students, interns, and graduates from knowledge-based educational backgrounds (Chemistry, Physics, Computers, Engineering, etc.).

Eligibility: An employer recruits at least one new employee from the specified minority population. In addition, the recruited employee’s wage should be at least NIS 30 (approx. $7.5) per hour for a minimum of 60 hours monthly, for a period of at least 12 months and no longer than 24 months.

Form of Aid: Grants for each employee are calculated as a percentage of his or her wage. The grant rate decreases over a period of 2 years from 30% to 40% of the wage. The monthly wage will be up to NIS 13,000 (approx. $4,250).