Foreign direct investment (FDI) in Israel

FDI in Figures

Israel has a liberal investment system and most activities are open to both private national and foreign investors, ranking the country 12th among the top 20 host countries. According to UNCTAD's World Investment Report 2021, Israel's investment flow increased by 30% between 2019 and 2020, reaching USD 25 billion in 2020, despite the Covid-19 pandemic. Investments were largely driven by M&A sales in electronics, which increased by 31% to USD 7.3 billion, e.g. NVidia (US) acquired Mellanox for USD 6.9 billion. The stock of FDI was about USD 189 billion in 2020. According to OECD data, FDI flows to Israel amounted to USD 14.8 billion in the first half of 2021. Israel’s main investing partners are the United States and the Netherlands. Most FDI stocks are directed towards manufacturing, information and communication, and financial and insurance activities. Chinese investment in Israel has grown rapidly in recent years, particularly in software, IT services and consumer electronics. Furthermore, the Chinese company Shanghai International Port Group (SIPG) will operate the Haifa Port - Israel's largest port - as of 2021 for 25 years whereas China Harbour Engineering Company won a tender to build a USD 1 billion port at Ashdod.

Israel has a number of assets, which appeal to foreign investors: a strong R&D sector and a high-skilled and multilingual workforce. The hi-tech sector, especially start-ups, has attracted a great deal of foreign investment. However, the country's geopolitical environment is particularly unstable because of tensions with the Palestinian territories and support for American policy by Israel. In the Doing Business 2020 report (latest report), Israel ranks 35th out of 190 economies ranked by the World Bank, up 14 places from the previous year's ranking. Significant progress has been made in particular in paying taxes and obtaining loans.

What to consider if you invest in Israel

Strong Points

Israel has many strong advantages for FDI:

• Israel is the country that invests the most in research and development in the world (5.4% of GDP in 2020, CBS)
• Highly skilled workforce, particularly in engineering and high technology
• Strong and stable private consumption
• Rising real wages
• Strong political stability due, on the one hand, to its stable democratic system and on the other hand to the political and financial support of the United States
• Israel discovered significant offshore reserves of natural gas, which would enable the country to reduce its energy dependence and create new development opportunities

Weak Points

Main obstacles to the country's economic development:

• Chronic instability linked to the regional political context. In particular, peace negotiations between Israel and the Palestinians are at a standstill
• The Israeli state has a very large public debt
• Labour costs are higher than the region's standards and a relatively high corporate tax are obstacles to investment in Israel
• Relatively small internal market

Government Measures to Motivate or Restrict FDI

Foreign investment is encouraged in Israel by the recently revised Investment Promotion Act. The recent amendment to this law adds a tax incentive program.
The government in place is also seeking to provide the necessary support to entrepreneurs and the entrepreneurial ecosystem: many start-ups are emerging in Israel, particularly in information and communication technologies (ICT).
The Law for the Encouragement of Capital Investments provides assistance in the form of grants and tax breaks to companies classified as “Priority Enterprise”
For further information consult the Invest in Israel website, which provides guidance on Israeli laws, regulation, taxes, incentives, and costs, and facilitation of business connections.

Bilateral investment conventions signed by Israel

To see the list of investment treaties signed by Israel, consult UNCTAD's International Investment Agreements Navigator.