Dollar tax payments and startup grants: Israel's new plan to protect tech
Finance Minister Bezalel Smotrich confirms support package for startups and growth companies while advancing a plan to let multinationals pay taxes in dollars.
The Ministry of Finance is expected to publish a package of measures in the coming days aimed at helping Israel’s high-tech sector cope with the strong shekel, Finance Minister Bezalel Smotrich revealed during remarks in the Knesset plenum on Wednesday.
Smotrich also confirmed a recent Calcalist report that a plan allowing multinational companies to pay part of their corporate taxes in U.S. dollars is in the final stages of approval.
The measures under discussion will include support for startups of all sizes, including more mature growth-stage companies. The assistance is expected to be delivered through existing Israel Innovation Authority programs, under which grants are converted into loans if companies achieve revenue growth and profitability.
"We want to formulate two packages, one of which will provide an immediate response primarily for small startups," Smotrich said. "We will reopen Innovation Authority tracks, as we have done in the past, and provide bridging grants. We are also considering expanding this response to growth companies."
The government is also examining incentives designed to encourage multinational corporations to expand their operations in Israel despite rising local costs.
"We are currently examining a mechanism that would encourage multinational companies, in relative terms, to grow their operations in Israel while shrinking them elsewhere," Smotrich said. "There are three alternative models under review by the Ministry of Finance and the Innovation Authority, in dialogue with the industry and with multinational companies operating here and abroad. I hope that within a few days we will present a comprehensive plan."
He added that the government is concerned about decisions by foreign corporate boards to relocate activities or establish new R&D centers outside Israel because local employment costs have risen significantly.
"We need to ensure that their decision-making processes continue to keep substantial operations in Israel," he said.
The Knesset discussion followed a parliamentary question submitted by MK Oz Haim of Yesh Atid, who asked what measures were being considered to support the technology sector and what timetable the government was working under.
The Finance Ministry began formulating the plans last month after the shekel strengthened sharply, with the exchange rate briefly falling below NIS 2.9 per dollar. Although the dollar has since recovered and is approaching NIS 3 per dollar, partly due to market developments in recent weeks, the exchange rate remains historically low.
The strong shekel has increased costs for exporters in general and high-tech companies in particular, as most expenses are incurred in shekels while budgets and fundraising are largely denominated in dollars.
In early June, senior Finance Ministry officials held a Zoom meeting with high-tech executives, during which concerns were raised about declining profitability and potential layoffs. The discussions helped trigger the current effort to formulate support measures.
Since then, several technology companies have announced significant cost-cutting measures. The most prominent example was Wix, which announced plans to lay off approximately 1,000 employees, citing the strong shekel as one of the contributing factors.
Last week, Hedva Ber, Deputy CEO of fintech company eToro, warned in an interview with Calcalist that without substantial intervention, Israel could see layoffs affecting 25%-30% of its high-tech workforce within six to twelve months.
"For the first time, employing a software developer in Israel is more expensive than employing one in the United States," Ber said. "That illustrates the scale of the challenge."
Addressing the reasons behind the shekel’s strength, Smotrich argued that it reflects structural changes in the Israeli economy rather than speculation.
"We do not identify speculative activity in the foreign exchange market," he said. "According to analyses by the Ministry of Finance and the Bank of Israel, the strong shekel reflects real changes in the economy and large inflows of foreign investment."
He added that the government views the strong shekel as a long-term reality.
"We estimate that the strong shekel is the new normal for the Israeli economy. A strong shekel over time reflects a strong economy. The challenge is the speed at which the appreciation has occurred. Businesses need time to adapt."
One of the most closely watched initiatives would allow multinational corporations such as Nvidia and Google, which are already discussing the issue with the government, to pay certain taxes in dollars rather than converting funds into shekels.
"The question of allowing certain types of tax payments in dollars is being examined," Smotrich said. "There is no country in the world that broadly allows tax payments in a foreign currency. Every country operates in its own currency. While some companies report in dollars, taxes are ultimately paid in local currency."
Under the proposal, dollar-denominated tax payments would be used directly to service Israel’s dollar-denominated debt, reducing the need to convert those funds into shekels. Supporters argue that the mechanism would lower demand for shekels and reduce pressure on companies whose revenues are primarily dollar-based.
A similar arrangement was approved in connection with two major technology exits: Wiz’s $32 billion sale to Google and Armis’ nearly $8 billion sale to ServiceNow. In both cases, tax payments were reportedly transferred in dollars rather than converted into shekels.
Avi Troub, General Manager of the Israeli High-Tech Association at the Manufacturers Association of Israel and one of the initiators of the dialogue between the government and the industry, warned that delays could undermine the effectiveness of the program.
"Even an exchange rate of NIS 3 per dollar remains very challenging for many companies," Troub said. "The measures need to be finalized quickly. High-tech companies cannot wait for political processes to play out."
According to Dror Bin, CEO of the Israel Innovation Authority, most details of the proposed aid programs have already been finalized, with the remaining discussions focused primarily on budget size.
"The professional staff at the Ministry of Finance wants to allocate the minimum amount necessary to create a meaningful impact without placing unnecessary pressure on the state budget," Bin said.
According to current estimates, support for early-stage startups could amount to approximately NIS 500 million, similar to programs launched during the COVID-19 pandemic and after October 7. Additional funding for growth-stage companies and multinational corporations would bring the total package to more than NIS 1 billion.
The goal, according to officials, is to help companies bridge the financial impact of the strong shekel and reduce the likelihood of layoffs in Israel.
Regarding the proposed dollar tax-payment mechanism, officials say the benefit is likely to be limited to a relatively small number of multinational corporations. Since government expenditures are denominated in shekels, excessive use of dollar-based tax payments could reduce the supply of shekels available to finance state operations.
"The challenge is finding the right balance," Bin said. "That discussion is still ongoing."
