Ministries Unveil New Investment Law to Bolster Periphery

The Finance Ministry and the Ministry of Industry, Trade and Labor intend to strengthen locales in the peripheral areas of the country.

The Finance Ministry and the Ministry of Industry, Trade and Labor have have completed a new version of the Law for the Encouragement of Capital Investment, which is intended to strengthen locales in the peripheral areas of the country and to create 7,000 new jobs in those areas within four years.

The proposed legislation will be presented tomorrow to the cabinet for approval as part of the Economic Arrangements Law for 2009. The proposal is meant to narrow social gaps and strengthen the periphery in both the north and south, as officials from both ministries explained to industrialists during talks while the bill was being prepared.

The new plan replaces or upgrade the entire existing range of state support, and would do away with the present regions of national priority - A, B and the center. Instead it will channel major government benefits to only five regional industrial areas, located in the periphery. Today, investment grants and tax breaks are given out to industry mostly based on their distance from the center of the country. The farther away the proposed investment, the larger the benefits - until now. According to the new proposal, this system will be replaced by a focus on five new industrial centers.

There will be three new regions divided according to national priority, with different levels of benefits. The periphery will be defined in much more limited terms, as compared with today's large regions. The new regions will benefit from tax incentives and investment grants, and also from the establishment of research and development centers and institutes. Funding from the Chief Scientist's Office in the Ministry of Trade and Industry for both traditional and high-tech industries will be awarded now only in areas in the periphery. Existing investment grants will be canceled in most cases, and will only be offered henceforth for investment in technology aimed at upgrading industrial production.

The new law proposes keeping the current situation and existing legislation in place through the end of 2009. Next year will be a transition year and both the old and new systems will be in effect. Starting in 2010 only the new system of regional industrial areas will be operative; the old capital investments stipulations will no longer be valid.

The ministers of finance and of industry and trade will make decisions regarding the exact location of the five new regional industrial parks or centers by the end of November, after studying and reorganizing dozens of existing centers around the country.

The criteria for choosing the new priorities for industrial parks, for example, will be based on the characteristics of the population in the region, its income levels, real estate values and the potential for success. In addition, other factors such as available space and proximity to required infrastructure will be taken into account. No two such industrial centers will be closer than 30 kilometers to another, as the crow flies.

The chosen industrial centers will be upgraded in terms of infrastructure and services, in order to make them more attractive to industry. They will be run by franchisees, and the revenues from property taxes and other levies collected in there will be divided among local authorities in the region, based on a formula to be determined by the minister of the interior.

The grants provided in the present capital investments law will be done away with, and new criteria for grants in the periphery will be set jointly by the director general of the Trade Ministry and the treasury's budgets director. The new grants will encourage investments in new technologies, in particular those which make production significantly more efficient, including those related to purchasing technology and knowledge from international companies. Today, only investments in equipment or infrastructure, "steel and concrete," are recognized for state support.

Funding used to provide employment will be another investment channel under the new law. The state will participate in financing new jobs in the periphery, as well as in Arab and ultra-Orthodox communities. Small- and medium-sized plants will be favored - a sector which previously received no support. Companies in the new regional centers will also be given priority for the employment grants, which will provide a maximum of 20% of the average wages of new employees, but will not exceed NIS 80,000 over three years.

The wage subsidies will also be given to multinational companies providing jobs, but only in the new regional industrial centers - and they will receive only up to 15% of the new wage costs.