Israeli Ministers Approve Tax Breaks for New Cyber-security Park

Critics note cost of move to both treasury and other business parks in south.

A mock cyber attack scenario. Israel is an emerging power in the cyber security market.
AP

The cabinet on Sunday gave its backing for a controversial plan to grant sizeable tax breaks to cyber-security companies that move their operations to a new dedicated business park being developed in Be’er Sheva.

An announcement from the Prime Minister’s Office on the cabinet vote did not specify what benefits were agreed to, other than to say that they would not exceed the tax liabilities that employers at what is being billed as a National Cyber Security Research Center would otherwise owe for their employees. Moreover, Finance Minister Yair Lapid, who had opposed the breaks, agreed to vote in favor of the measure only after he was assured that his reservations would be considered and the problems he raised are addressed, sources told TheMarker.

As approved on Sunday, however, the measure would give companies based in the park tax credit equal to 20% of their payroll expenses for the years 2015 through 2017, sources told TheMarker. The benefit would decline in subsequent years, to 5% in 2021.

Israel has become a world leader in the field of cyber-security, an industry that addresses the potential threat from hackers and other hostile elements directed at databases, websites and other computer systems. Israel exported an estimated $3 billion in cyber-security products last year, representing about 5% of the industry worldwide. For purposes of comparison, that was about three times the comparable figure for Britain.

“The cyber capabilities in the State of Israel are a strategic need,” Prime Minister Benjamin Netanyahu told the cabinet. “This represents the intersection of a global economic opportunity and a strategic need, and we must act in a resolute way to lead in both of these fields,” he said.

Harel Locker, director general of the Prime Minister’s Office, called the tax incentives critical to encouraging companies to locate at the business park at this time. The goal is to have 3,000 people employed at the cyber-security center within a decade, the PMO estimated.

That would cost the treasury some 50 million shekels ($14.6 million) in lost tax revenue in each of the first three years.

Besides the cost to the treasury, critics have faulted the tax break because it applies to only one business park, which will be developed and managed Bayside Land Corporation, better known by its Hebrew name Gav Yam, which is controlled by the IDB group.