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 2022, Israel's investment flow increased by 22% in 2021, reaching USD 29.6 billion. In the same year, the stock of FDI stood at USD 235.6 billion, around 48.9% of the country’s GDP. Most of the FDIs to Israel are directed towards manufacturing (especially for electronics equipment, like computers), information and communication, professional, scientific and technical activities, and financial and insurance activities. In terms of countries, the United States and the Netherlands are the main partners (U.S. firms account for nearly two-thirds of the more than 300 research and development centers established by multinational companies in the country). Furthermore, Chinese investment in Israel has grown rapidly in recent years, particularly in software, IT services and consumer electronics. According to OECD data, FDI flows to Israel amounted to USD 11.6 billion in the first half of 2022, down by 24.1% from the level recorded in the same period one year earlier (USD 15.3 billion).

Israel has a number of assets appealing to foreign investors, including a high-skilled and multilingual workforce and a strong R&D sector (at 5.44% of GDP it has the world's highest R&D intensity, over twice the OECD average of 2.26% - World Bank), advanced procedures and industrial technologies, governmental incentives and grants to foreign investors, a lean bureaucracy and a diversified economy. 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 (albeit improvements have been achieved in diplomatic and commercial relations with Arab countries such as the UAE, Morocco, and – to a lesser extent - Saudi Arabia). Moreover, trade barriers and monopolies have contributed significantly to the high cost of living and the lack of competition in key sectors (where an entity supplies more than 50% of the market, the government controls prices). Israel ranks 22nd out of 82 countries in the Economist Business Environment ranking and 25th out of 63 in the 2022 Global Competitiveness Index.

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.