In recent days reports have proliferated about plans being formed by Israeli managers and investors to move overseas companies that they founded in Israel to protect them, in their words, if the judicial overhaul is enacted.
An entrepreneur leading such a move told “Globes,” “I’m not interested in seeing the high-tech industry shatter into pieces and disperse worldwide. It’s better to take it as it is and move it somewhere else. We want to keep Jewish-Israeli high-tech in its original entire form, even if for a few years it is not will be located here.”
Despite media reports, this is still difficult to find evidence of these exodus talks, which are being concealed from the public. Nor have the countries in question officially confirmed the existence of such an initiative, which is being talked about by Israeli entrepreneurs.
Although there have been repeated requests, no evidence of the existence of such negotiations has yet been found, whether these are presentations or email exchanges, even anonymously. But regardless of whether any such negotiations are taking place, the exodus from Israel has already begun.
Two weeks ago, Israeli fintech company Riskified (NYSE: RSKD) announced that it would help employees interested in relocating to its development center in Portugal, which it opened several months ago in Lisbon. From the point of view of the company’s entrepreneurs, it is important to keep employees who are most interested in moving to another country and thus prevent them from leaving the company. Even for companies negotiating with European governments, this is a net gain: “If the plan does not come to fruition, we have only strengthened our activities in those countries,” said the senior executive.
Here is what is known at this stage about the exodus plans of Israeli companies.
What does the emigration plan include?
Tech entrepreneurs say that a generous program has been presented to them by a European country, which includes much more than tax benefits and work visas. According to the CEO of a large publicly traded tech company who spoke to “Globes” anonymously, this is an ambitious plan that includes work visas and a fast track to a European passport for tens of thousands of employees and their families; tax benefits for companies and individuals; construction of industrial and residential areas adjacent to their offices; and assistance in finding education and employment solutions for children of the families.
To where will the tech employees relocate
Riskified moving $500m out of Israel
Senior tech figures who have participated in forming the “Exodus” plan talk about three European countries that are holding official talks with CEOs but are not prepared to name the countries out of concerns that they will “create a diplomatic crisis,” as one of them put it.
Other sources familiar with the talks have told “Globes” that the countries are Greece, Cyprus and Portugal. The three countries are already conducting negotiations with Israeli tech entrepreneurs and are known for the benefits they have offered in recent years to attract entrepreneurs and tech companies, regardless of the judicial overhaul. Now agencies in those countries view the crisis in Israel as an opportunity to more easily encourage Israelis to immigrate there.
The countries are committed to providing a national, financial and commercial infrastructure – what will they provide the tech companies?
According to the CEO of a large Israeli tech company. “The high-tech companies are not required to agree to anything other than to transfer themselves to that country, if it meets all our demands.” Nevertheless, one of the main requirements of the countries is the transfer of intellectual property to them or the registration of new intellectual property, instead of in Israel.
This demand is a major obstacle for Israeli companies because of the strict approach of the Israel Tax Authority to the matter. Israeli companies know the great difficulty of taking intellectual property out of Israel, since the Tax Authority usually demands a corporate tax of 23% on the IP, as if the company itself was sold.
For example, a company that raises $20 million at a valuation of $100 million and then asked to take its IP out of Israel would be required to pay about $23 million in tax, depending on the assessment of the Tax Authority.
Even if an Israeli company that does not currently have IP in Israel decides to move its headquarters to another country and register the IP there in the first place, the Tax Authority may consider the IP to be Israeli in origin based on various justifications, including the fact that the company was founded in Israel by Israeli citizens.
At what stage is the plan
According to the CEO of one large Israeli tech company, the talks with ministers and leaders in overseas countries have been ongoing for several weeks, and have been consuming a considerable amount of their time. “Not many people know but many senior tech executives have dramatically changes their diaries in recent weeks since the judicial overhaul developments began.”
What do Cyprus, Greece and Portugal say about this?
At this point, officials from the countries supposedly involved in the exodus plan are remaining tight lipped. The Cypriot economic attaché in Israel says that there is nothing new in the island’s policy towards Israeli tech entrepreneurs, while sources familiar with the Greek Ministry of Development and Investment say, “Greece still ranks high in the corruption index and the judges there are appointed in a way that reminds of what the Israeli entrepreneurs are so afraid of,” says the source. “Greek politics is very unstable and a plan to move thousands of people to Greece in one go is a complex thing for a country like this to implement – there are elections soon and it will be difficult to guarantee such a plan in the long term.
“At the same time, Greece has set itself the goal in recent years of attracting tech companies from all over the world and has recorded a series of successes in this regard,” said the source. Giants like J.P. Morgan, Microsoft, Meta, Applied Materials and Samsung have opened development centers through acquisitions of local companies. Cisco is currently building a development center outside of Thessaloniki, while in the cloud sector, Microsoft and Google are expanding their operations by building data centers. Google said its cloud operations in the country will create another 20,000 jobs by 2030. The municipalities of Athens and Thessaloniki have announced that they will open special districts and employment centers for companies, accelerators and academic institutions. Greece also offers a golden visa that includes a fast track to citizenship for an investment of €250,000 in the country, including by buying an apartment.
Portugal’s representatives did not respond to Globes’ inquiries, but in recent years the country has made vigorous efforts to encourage the immigration of tech entrepreneurs and freelancers with high salaries. Hundreds of Israelis are employed in Israeli and foreign tech companies in Portugal using the D7 work visa, which allows them to register as self-employed and pay a low income tax rate of about 20%, with 10% tax on a pension fund held in Israel, or in other countries.
Eran Cohen CPA, general manager of the Israel Cyprus Chamber of Commerce says that over the past six months, even before the judicial overhaul plan, Cyprus has been trying to attract Israeli tech entrepreneurs through reduced corporation tax of 2.5% instead of 12.5% for regular companies. But Cohen adds, “No discussions are currently being held with the Cypriot government on this issue.”
The obstacle to moving to Cyprus, according to Cohen, is the demand by the country that a company’s IP is registered in their territory. Together with that, the developing real estate sector encourages entrepreneurs to open offices there. He says, “Real estate developers are working together with high-tech people to construct buildings especially for them, or to develop for others.”
However he adds, “Cyprus does not have the ability to take in even 1,000 Israelis in one go. Rental prices have risen 30%-40% over the past year, and in the center of Limassol office leases have reached NIS 120 per square meter. Income tax is also similar to Israel, although there is a 35% ceiling.”
Published by Globes, Israel business news – en.globes.co.il – on March 23, 2023.
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