Trump tax reforms could force Israeli tech businesses into the U.S.
JERUSALEM (Reuters) JERUSALEM (Reuters) U.S. President Donald Trump’s plans to cut sharply corporate tax rates could prompt Israeli tech companies, which are the mainstay of Israel’s economy, to think about moving their headquarters into America, according to United States, industry and accounting executives say.
Israel’s tech industry is among the largest in the world, amidst Silicon Valley, accounting for around 14 percent of Israel’s GDP and 50 percent of its industrial exports , and around 10% of its labour force.
However, with Trump intending to reduce taxes on U.S. company tax rate to 15 percent instead of 35 percent as part of reforms aimed to return over $2 trillion worth of profits accumulated in the United States through U.S. firms, the United States would suddenly look more appealing as a location for Israeli firms.
Many Israeli high-tech companies operate within America. United States but research and development centres are located in Israel. Some of them are incorporated within Israel which has the highest company tax rate of 24 percent and some are located in the United States.
Although it’s by no sure that Trump will be able to deliver on his tax cuts that he is proposing, due to difficulties in implementing different measures. Israeli Software testing firm Qualitest is already looking into an eventual move.
“Once the tax rate is lower than the rate of Israel, these firms will be more inclined to shift all or a portion of their business operations from Israel to America. U.S. to enjoy the tax advantages,” said Qualitest co-founder Ayal Zylberman. He added that Qualitest employs 800 of its 3,800 employees working in America. United States.
“We are likely to change our delivery locations,” he told Reuters in addition to saying that Qualitest could cut some million dollars per year.
Israel will also be reducing the company tax rate in the coming year however, just by a single percentage point to 23 percent.
“If the U.S. taxes high-tech companies and start-ups at 15 percent, then Israel is less attractive,” said Doron Sadan, head of PwC’s Israel tax department.
“You will see more startups starting up in the U.S. and less and less acquisitions (of Israeli firms) by multinational corporations.”
There are not just technology firms that could be affected, as America is the dominant market for a variety of Israeli companies across a variety of sectors.
“If the tax rates on the United States are reduced to 15%, we’ll see more technology companies incorporating as the U.S. subsidiary,” said Sharon Shulman, tax managing partner at Ernst & Young Israel.
In this case investing into their Israeli operations is expected to decrease.
“If you notice an increase in start-ups moving towards the United States over time … we’ll begin dropping talent in the United States,” Shulman added. According to Shulman, the United States is the country.
The Israel Finance Ministry said it is looking into the possible effects on tax reforms in the U.S. proposed budget.
Shulman stated that the uncertainty has already begun to take its toll. The client is trading intellectual assets in his home in the United States to Israel but is putting off the sale in order to study the tax consequences.