Israeli tech startups flock to US amid uncertainty at home
Technology
Israeli tech startups flock to US amid uncertainty at home
JERUSALEM (Reuters) - A growing number of Israel's tech startups are incorporating in the United States, attracted by deep pocketed U.S. funds and pro-business policies, and with an extra push from a planned judicial overhaul at home that has rattled investors.
That marks a reversal, as Israel had managed in the past decade to persuade more of its startups to set up their legal identity domestically.
It may not mean jobs shifting overseas en masse - the tech sector accounts for 14% of Israeli jobs - but registering companies or intellectual property (IP) abroad can affect where taxes are paid and so impact government revenue.
Entrepreneurs and investors told Reuters there were good business reasons for incorporating in the United States, and particularly Delaware, which is considered pro-business and a tax haven as it has low corporate and no state sales taxes.
But some also cited Israeli Prime Minister Benjamin Netanyahu's judicial overhaul, which his right-wing government says is needed to tackle over-reach by the courts but which critics view as an assault on democracy.
Though the overhaul does not directly affect the tech sector, Ian Amit, a former Israeli military officer, frets about its impact and is taking his startup across the Atlantic.
"It's just a very high level of uncertainty," said Amit, who is registering his artificial intelligence-based cloud security firm Gomboc in Delaware.
"It mainly really revolves around corruption and uncertainty of what system is there to protect me as a business, from a tax perspective, from a legal perspective or an intellectual property perspective," he said.
The economic risk for Israel's government is that its plans, which have sparked unprecedented nationwide protests, scare a tech industry that accounts for almost a fifth of the country's gross domestic product and about 30% of tax income. Some entrepreneurs already appear to be voting with their feet.
As many as 80% of new Israeli tech startups in 2023 have so far chosen to incorporate in Delaware, up from 20% in 2022, according to an Israel Innovation Authority (IIA) survey that also showed companies intend to register future IP overseas. IIA did not give the number of companies surveyed.
"The fact that you are shaking up the judicial system puts Israel in a very high level of uncertainty and investors don't like uncertainty," said IIA Chairman Ami Applebaum, who is also chief scientist at the Ministry of Innovation, Science and Technology.
Yair Geva, a partner who runs the tech group at law firm Herzog, Fox and Neeman, said that not only were new Israeli companies incorporating in Delaware, but some existing ones were expanding research and other operations outside of Israel.
