Israel’s “Angels Law”

By:  Steve Kronengold, David C. Zuckerbrot, and Asaf Naymark

© June 2016

All rights reserved


Section 20 of the 2011-2012 Economic Policy Law (Amendment No. 5), 2016, known as “The Angels Law”, encourages investment in Israeli hi-tech companies by providing substantial tax benefits to investors.

The Benefit

The Law allows an individual (or a partnership of individuals, but not a corporation) purchasing up to NIS 5M in original-issue shares of a qualified Israeli R&D Company by December 31, 2019 to deduct the amount of his investment from his overall taxable income from all sources.  By investing in a qualified Israeli R&D Company, an individual can defer tax on up to NIS 5M of income invested in a company, and pay the tax up to three years later at the capital gain rate of 25%, as opposed to at a marginal rate of up to 50%.  The amount of investment deducted as an expense from the investor’s current income is subtracted from the cost basis of the shares for the purposes of calculating capital gains when the shares are sold.

The Holding Period

The investor must hold the shares in the qualified Israeli R&D Company for the duration of the “Benefit Period,” which includes the year in which the investment was made and the two subsequent tax years. The deduction may be taken over the specified Benefit Period.

Qualified Israeli R&D Company

To be a qualified Israeli R&D Company under the Law, the company must satisfy either (a) the “Target Company” criteria, or (b) the “Start-Up Company” criteria:

Target Company Criteria:

  • Incorporated in Israel whose business is controlled and managed in Israel;
  • No securities are listed on any stock exchange during the Benefit Period;
  • At least 75 percent of the amount invested by the individual is used for R&D expenditures by the end of the Benefit Period;
  • In each year of the Benefit Period, such R&D must represent at least 70% of the expenses of the company;
  • At least 75% of the R&D expenditure of the company in the Benefit Period is incurred in Israel;
  • In the year in which the qualifying investment is paid and the following year, revenues of the company do not exceed 50% of R&D expenditure;
  • Throughout the Benefit Period, R&D expenditure is spent on promoting or development an enterprise owned by the company.

Start-Up Company Criteria:

  • Incorporated in Israel within 48 months before the qualifying investment and business is controlled and managed in Israel;
  • Sales prior to the qualifying investment of no more than NIS 2M per year or NIS 4.5M. in total;
  • Expenses prior to the qualifying investment of no more than NIS 3M per year or NIS 12M. in total;
  • Total cash deposited in the company up to and including the qualifying investment of no more than NIS 12M;
  • The Israel Tax Authority confirms that at least 70% of the overall expenses of the company have been R&D expenses;
  • The company’s activity stems mainly from its R&D and it owns all IP developed;
  • At least a majority of the company’s expenditures are incurred in Israel.

This article is provided for educational, informational and non-commercial purposes only. The content of this article is not intended to provide legal advice on any subject matter and should not be relied on as such.

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