Tax Havens and U.S. Top List of Foreign Countries With Most Investments in Israel

Israel has the highest rate of foreign investment relative to gross domestic product, according to a report by the Finance Ministry's chief economist

U.S. Treasury Secretary Steven Mnuchin meets Minister of Finance Moshe Kahlon at the David Citadel Hotel, Jerusalem, October 27, 2017.
Matty Stern/U.S. Embassy Tel Avi

The United States leads the list of foreign countries with the most investments in Israel, according to a report published Monday by the Finance Ministry’s chief economist.

The report surveys the 10 countries that invest the most in Israel.

After the United States the report includes territories and countries such as the Cayman Islands, Bermuda and Luxembourg, known for being tax shelters for businesspeople from around the world, including Israelis.

The list also includes the Netherlands, Hungary and Switzerland. It notes that trade between these countries and Israel is limited, so their presence on the list is probably due to the accounting and bureaucratic advantages these countries and territories offer for holding money.

A parallel list of where Israelis make foreign investments is led by the Netherlands, with 40% of Israel’s foreign investments going there. A significant chunk of these funds are probably invested down the line in other countries, the report states.

The significant regulations facing foreign investors who wish to invest in Israel have not kept them away. In comparison to other OECD countries with a similar level of GDP per capita and development, Israel has the highest rate of foreign investment relative to GDP, the report states.

Israel ranks 0.188 on the FDI Regulatory Restrictiveness Index, compared with the OECD average of 0.067. The electricity, communications, agriculture and transport sectors stand out in terms of the limits they place on foreign investors relative to other OECD countries. In comparison, mining, natural resources, fishing, legal services and accounting, retail and banking have fewer restrictions than the OECD average.

In terms of Israeli investments in other countries, a disproportionate amount are in chemicals and pharmaceuticals. Between 50% and 90% of direct investments from Israel in foreign countries were in these industries between 2010 and 2015.