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Israel has unveiled tax incentives to encourage high-tech workers abroad to return home, as part of a series of measures designed to make one of the country’s key economic sectors more competitive.
The measures come after officials said earlier this year that the number of Israeli tech workers leaving the country each month had jumped by about 45 per cent in the first nine months of the Israel-Hamas war that started in October 2023, causing widespread disruption to the Israeli economy.
The changes to lure back tech workers include an exemption from tax on income earned and accrued outside Israel, a mechanism to allow workers to offset taxes paid abroad against taxes due on income in Israel, and a clarification of the rules for taxing equity-based compensation.
They are accompanied by broader moves to bolster the Israeli tech sector — which accounts for a sixth of GDP and more than half of exports — including tax breaks for investors in Israeli funds and tech companies, and moves to regulate acquisitions of Israeli tech groups by multinationals.
Setting out the reforms on Sunday, Israel’s ultranationalist finance minister Bezalel Smotrich said they would foster the “simplicity of [Israel’s] tax processes and its regulatory certainty”.
Dror Bin, chief executive of the Israel Innovation Authority (IIA) — which is responsible for the country’s innovation policy — said the agency had been pushing for the incentives for high-tech workers. The IIA had carried out the research into the brain drain that accelerated after the war in Gaza.
“We don’t know yet if [the outflow] is people just going to refresh themselves abroad for a year or two and come back, or if it’s going to be longer. But human capital is what makes high-tech so successful. And we don’t want to be in a situation of a long-term brain drain,” Bin said.
He added that the tax incentives “probably should have happened regardless of the war”, but that “once we measured the phenomenon” of more workers relocating overseas, “it was good to go to deal with it”.
According to the IIA’s figures, between May and December 2022, 479 tech workers left Israel on average each month on a long-term relocation.
This number jumped 20 per cent in the first nine months of 2023, as Israeli society was convulsed by a series of protests over a controversial attempt by Prime Minister Benjamin Netanyahu’s far-right government to rein in the judiciary.
The number of departures then rose again to 826 in the first nine months of the war, according to the IIA’s estimates. A quarter of tech groups surveyed by the agency in November last year reported an increase in relocation requests from staff.
Bin said the innovation agency expected to carry out another assessment of departures in the coming months to collect data on more recent developments. Last month, a US-brokered ceasefire took effect in Gaza, raising hopes of an end to the fighting.
Neatsun Ziv, chief executive of Israeli tech start-up Ox Security, said that since the start of the war, he had heard from investors and new founders that their favoured way to establish companies was with a US parent company and an Israeli subsidiary, rather than vice versa, because of the instability in the Middle East.
But he said in his experience, decisions to relocate staff — including his own decision to move to the US last year — were to do with business rather than the war. “It’s simply that most of our business is here in the US, we’re growing really fast, and it needed more attention,” he said.
