The Start-Up Nation got where it is today thanks mainly to two institutions – the IDF which teaches Israelis to cope – and the Innovations Authority
By LEON HARRISUS tax form (illustrative)(photo credit: INGIMAGE)
The Start-Up Nation got where it is today thanks mainly to two institutions – the IDF which teaches Israelis to cope – and the Innovation Authority. The Innovation Authority used to be known as the Office of the Chief Scientist. The Innovation Authority is a place to go for money to finance R&D in Israel. There is a wide range of programs which constantly evolve, as summarized below.R&D fund grants:The Innovation Authority provides commercial companies in all industrial fields with support for the development processes of groundbreaking/breakthrough technologies or for the upgrading of existing technology. The grant rate ranges from 20% to 50% of approved R&D expenditures, repayable by way of a sales royalty – typically 3%-5%. Companies operating in development areas may receive additional support of 10%-25%.Bilateral programs:Israel has bilateral R&D programs with the US, Canada, China, Japan, Australia, India, Latin America (Mexico, Colombia, Brazil, Uruguay, Chile, Argentina) and Europe (including Spain, Lithuania, Greece, Netherlands, Denmark, Germany, UK, Italy, Austria, Sweden, Russia, Cyprus, France, Czech Republic, Finland, Slovakia and Poland).Israeli companies can get assistance finding a joint venture company in these countries. Grant rate: up to 50%, repayable by sales royalty – typically 3%-5%, or in accordance with the financial incentive program relevant for a joint project.EU Horizon 2020:Israel is a member of Horizon 2020 – a large EU Research and Innovation program with around €80 billion of funding available – in addition to the private investment that this money should attract.Tnufa (Impetus) incentive program:Entrepreneurs and new Israeli startup companies can receive a grant (repayable out of sales) of up to NIS 200,000 over a period of two years: NIS 100,000 awarded each year (85% of the approved budget).
The funds may be used for building an initial prototype, intellectual property protection and business development, including materials, degradable components, sub-contractors and consultants, patent attorneys and exhibition expenses (but not salaries and overhead expenses).Innovation Labs Program:The Innovation Labs Program encourages open innovation collaboration.Leading companies may receive support of NIS 4 million for the lab’s establishment (33% of the costs, 50% in the periphery areas), and up to NIS 500,000 (50% of the approved budget) of the ongoing operating expenditures of the lab, each year.Start-ups may receive a grant repayable out of sales of up to NIS 850 thousand over a period of one year (up to 85% of the approved budget).Incubators incentive program:Incubators are selected through competitive processes for a license period of eight years and are spread across Israel. Incubator organizers receive 20-50% equity in the incubated companies in return for a complementary 15% investment of the R&D costs. The Israel Innovation Authority funds the other 85% of R&D costs for no equity.Early stage companies:This grant ranges from 30% to 50% of the approved budget, up to NIS 10 million each year. Companies operating in Development Area “A” may receive an additional 10% grant (25% if operating in the area surrounding the Gaza Strip). These grants are repayable out of sales.Minority/ultra-Orthodox entrepreneurs can apply for preferred incentives. In the first year, the grant may amount to 75% of the approved budget of up to NIS 2.5 million. In the second year, the grant may amount to 70% of the approved budget of up to NIS 4.5 million.R&D collaboration with multinational corporations:Collaboration is possible between multinationals with revenues more than $1.5 billion and an unrelated Israeli company with revenues under $70 million per year. Israeli government support is negotiable.Renewable Energy (Cleantech) Technology:The Renewable Energy Technology Center supports technological ventures and R&D projects starting from the stages of applied academic research and early stage entrepreneurship. The center operates in the Eilat region. Financial support may be 60% or 85% of the approved R&D expenditures by the authority, and supplementary financing up to 100% of the approved R&D expenditures by the Center’s licensee for activity period of up to two years.If supported, IP is transferred abroad:Special instructions provide a formula whereby typically up to 300% of grants or royalties plus interest may become repayable to the Israeli government. Specific inquiry is recommended.Comments:Over the years, these R&D grants have helped many Israeli industrial and tech companies finance R&D expenditure, in particular, the salaries of engineers with ideas but no cash. The bilateral funds, especially the US-Israel BIRD Fund, go further by pairing Israeli start-ups with established international corporations with marketing muscle.As always, consult experienced tax advisers in each country at an early stage in specific cases.leon@h2cat.comThe writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.